UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2014
or
[ ]
TRANSITION REPORT UNDER 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 |
|
(IRS
Employer |
| incorporation
or organization) |
|
Identification
No.) |
20
Iroquois Street
Niagara
Falls, NY 14303
(Address
of Principal Executive Offices) (Zip Code)
Registrant’s
telephone number: (716) 278-0015
Securities
registered pursuant to Section 12(b) of the Act: None.
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
[ ] No [X]
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 report(s)),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
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 [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 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] |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $11.1
million as of June 30, 2014 based upon the closing price of $0.10 per share on June 30, 2014.
As
of March 31, 2015, there were 120,244,157 shares of the Registrant’s common stock, $0.001 par value, outstanding.
Documents
Incorporated by Reference
Portions
of the registrant’s definitive Proxy Statement for the 2014 Annual Meeting of Stockholders (the “2015 Proxy Statement”),
which the registrant plans to file with the Securities and Exchange Commission within 120 days after December 31, 2014, are incorporated
by reference in Part III of this Form 10-K to the extent described herein.
PLASTIC2OIL,
INC.
Table
of Contents
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
annual report on Form 10-K (“Report”) contains “forward looking statements” within the meaning of applicable
securities laws. Such statements include, but are not limited to, statements with respect to management’s beliefs, plans,
strategies, objectives, goals and expectations, including expectations about the future financial or operating performance of
our 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 our 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 information currently available to the Company including information obtained by our 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 information, which reflect our 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 our Company to control commodity
prices; risks associated with the regulatory environment within which our 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” Part I, Item 1A of this Report and in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Report.
Some
of the forward-looking statements may be considered to be financial outlooks for purposes of applicable securities legislation
including, but not limited to, statements concerning capital expenditures. These financial outlooks are presented to allow the
Company to benchmark the results of our Company’s Plastic2Oil business. These financial outlooks may not be appropriate
for other purposes and readers should not assume they will be achieved.
Our
Company does not intend to, and the Company disclaims any obligation to, update any forward-looking statements (including any
financial outlooks), 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 to “P2O” the “Company,” “we,” “our”
or “us” means Plastic2Oil, Inc., a Nevada corporation.
GLOSSARY
OF TECHNICAL TERMS
In
this filing, the technical terms, phrases, and abbreviations set forth below have the following meanings:
“ASTM”
means American Society for Testing and Materials, the entity responsible for the development and delivery of international
voluntary consensus standards.
“distillate”
means a product derived from petroleum-based hydrocarbons
“Fuel
Oil” means various ranges of Number 1 to 6 fuels distilled from crude oil, or inP2O’s case, distilled from plastic;
“Fuel
Oil No. 2” means a distillate heating oil similar to diesel fuel with the same cetane number, or measurement of combustibility
quality, as diesel fuel. This is generally obtained in the crude oil distillation process from the lighter cuts of crude oil.
In our process, it is the second fuel made in the conversion from plastic to oil;
“Fuel
Oil No. 6” means a high viscosity residual oil that requires preheating to 104 – 127 degree Celsius. It is generally
the material remaining after the more valuable cuts of crude oil have been boiled off. In our process, it is the first fuel made
in the conversion from plastic to oil;
“hydrocarbon”
means an organic compound consisting entirely of hydrogen and carbon;
“MACT”
means Maximum Achievable Control Technology, which are various degrees of emissions reductions that the EPA determines to
be achievable;
“Naphtha”
means a flammable liquid mixture of hydrocarbons covering the lightest and most volatile fraction of the liquid hydrocarbons
in petroleum with a boiling range of 60 to 200 degrees Celsius. In our process, it is the last liquid fuel made in the conversion
from plastic to oil;
“NESHAP”
means the National Emissions Standards for Hazardous Pollutants which are emissions standards set by the EPA for an air pollutant
that may cause an increase in fatalities or in serious irreversible and incapacitating illnesses; and
“Stack
Test” means a procedure for sampling a gas stream from a single sampling location at a facility, used to determine a
pollutant emission rate, concentration or parameter while the facility equipment is operating at conditions that result in the
measurement of the highest emission values approved by regulatory authorities;
“tipping
fees” means the charge levied on a given quantity of waste received at a landfill, recycling center or waste transfer
facility.
PART
I
ITEM
1. BUSINESS
Overview
We
manufacture processors which 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 manufacturer of processors and
other related equipment that transform waste plastic into ultra-clean, ultra-low sulphur fuel.
Our
P2O business has begun the transition from research and development to a commercial manufacturing and production business. We
plan to grow mainly from sale of processors first, and fuel seller second.
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.
At
March 30, 2015, we had three fully-permitted operational P2O processors, one dedicated to research & development and two dedicated
to fuel production. All three processors are located at our Niagara Falls, NY facility, and our fourth and fifth processors were
in process of assembly for sale. For the reasons described in Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, the three operational P2O processors have been idle since late December 2013.
For
financial reporting purposes, we operate in two business segments, (i) our P2O solution, which manufactures and sells processors
as well as sells the fuel produced through our processors (ii) data storage and recovery (the “Data Business”). As
part of our P2O business segment, we recently began to offer for sale built-to-order P2O processors for use at a customer’s
site, agreements have been executed on January 2, 2015, although no such sales have been completed to date. Previously, we operated
a chemical processing and cleaning business, known as Pak-It and a retail and wholesale distribution business known as Javaco,
Inc. As of December 31, 2012, we had exited both of these businesses and their results in all periods presented are classified
as discontinued operations. Our P2O business has been operating in a limited commercial capacity since December 2010 and we anticipate
that this line of business will account for a majority of our revenues in 2015 and periods thereafter. Historically, however,
our revenues have been partially derived from our other lines of business and products, Javaco and Pak-It, which are classified
in this Annual Report as discontinued operations. In the year ended December 31, 2014, we had total sales of approximately $59,017,
of which $46,111 were derived from our P2O business and $12,906 were derived from our Data Business. In the year ended December
31, 2013, we had total sales of $693,125 from our P2O business and $93,712 from our Data Business.
We
conduct our P2O business at our facilities located in Niagara Falls, New York. Our corporate address is 20 Iroquois Street, Niagara
Falls, NY 14303.
Organizational
History
We
were incorporated on April 20, 2006 under the laws of the State of Nevada under the name 310 Holdings Inc. (“310”).
On April 24, 2009, the Company’s founder, former CEO and Chief of Technology, John Bordynuik, purchased 63% of the issued
and outstanding shares of 310 and became our chairman and chief executive officer. On June 25, 2009, we purchased certain assets
from John Bordynuik, Inc., a corporation founded by Mr. Bordynuik. The assets acquired included tape drives, computer hardware,
servers and a mobile data recovery container to read and transfer data from magnetic tapes. From inception until August 2009,
we were a shell company within the meaning of the rules of the Securities and Exchange Commission. On August 24, 2009, we acquired
all of the outstanding shares of Javaco, Inc., a wholly owned subsidiary of Domark International, Inc. On September 30, 2009,
we acquired 100% of the issued and outstanding equity interests of Pak-It, LLC. We formed JBI (Canada) Inc. on February 9, 2010
for purposes of distributing Pak-It products in Canada. We formed Plastic2Oil of NY, #1, LLC on May 4, 2010, for the development
and commercialization of our Plastic2Oil business in Niagara Falls, NY.
On
October 5, 2009, we changed our corporate name to JBI, Inc.
On
August 24, 2009, the Company acquired Javaco, Inc. (“Javaco”), a distributor of electronic components, including home
theater and audio video products. On July 9, 2012, we announced the closure of our Javaco operations and sold substantially all
of its assets to an unrelated third party. 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. On February 10, 2012, we sold substantially all the assets of Pak-It. 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 the period ended
December 31, 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 16).
On
July 31, 2014, we changed our corporate name to Plastic2Oil, Inc. On January 6. 2015, we changed the names of our Canadian subsidiaries
from JBI (Canada) Inc. to Plastic2Oil (Canada), Inc. and from JBI RE ONE, Inc. to Plastic2Oil RE ONE, Inc.
Our
common stock is quoted on the OTCQB Market under the symbol “PTOI”.
Organizational
Chart
The
following chart outlines our corporate structure, as of March 31, 2015, and identifies the jurisdiction of organization of each
of our material subsidiaries. Each material subsidiary is wholly-owned by the company
| Plastic2Oil,
Inc. |
- |
Operates
our Data Recovery and Migration business and Parent company with corporate office in Niagara Falls, NY. |
| |
|
|
| Plastic2Oil
of NY #1, LLC |
- |
Operates our P2O
business in Niagara Falls, NY. |
| |
|
|
| Plastic2Oil
(Canada) Inc. |
- |
Conducts our P2O
business in Canada, including management of our fuel blending site. |
| |
|
|
| JBI
CDE, Inc. |
|
Non operating
subsidiary with no activity. |
| |
|
|
| Javaco,
Inc. |
|
Dicontinued non-operating
subsidiary. |
| |
|
|
| Pak-IT,
LLC |
|
Discontinued non-operating
subsidiary |
| |
|
|
| Plastic2Oil
Marine, Inc. |
|
Non-operating
subsidiary with no activity. |
Our
Primary Business - Plastic2Oil
P2O
Overview
Our
business focus is to sell processors that produce fuel products mainly from unsorted, unwashed plastics. We operate our processors
to test potential customer feedstock. We have years of significant operating data and have solved numerous challenges that vexed
the plastics-to-oil industry. Since inception we have produced approximately 670,000 gallons of fuel. Our P2O processors have
evolved into a modular solution with the completion of our third P2O processor in 2013. We use third party contract manufacturers
to supply us with many of the key modular components of our processors, including the kilns, distillation towers and other key
components that require specialized machining and fabrication.
Our
proprietary P2O process 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.
One 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.
We
shut down our fuel production late in the fourth quarter of 2013 due to severe cold weather that caused damage to condensers and
other components of our processors and we have not resumed fuel production due to the repair costs as well as our shift in strategy
toward manufacturing processors for sale, as opposed to producing and selling fuel products. Management estimates that the repair
of the processors will require the expenditure of between $175,000 and $200,000. At March 30, 2015, we 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 pilot operation
of our processors to support processor sales. Management currently anticipates that the processors will remain idle at least until
the third quarter of 2015 other than pilot runs to support processor sales. 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 100% repaired, we expect a small increase in our headcount in order to resume fuel production.
We
believe our P2O process offers a cost-effective solution for businesses that currently have to pay to dispose of these types of
waste. 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.
Currently,
we understand that there are several plastic-to-oil processes operational globally. These other processes 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.
P2O
Process and Operations
There
are various processes in existence for converting plastic and other hydrocarbon materials into products for use in the production
of fuels, chemicals and recycled items. These processes include: pyrolysis (conversion using dry materials at high pressure and
temperature in the absence of oxygen), catalytic conversion (conversion using a catalyst for stimulating a chemical reaction),
depolymerization (conversion using superheated water and high pressure and temperature) and gasification (conversion at high temperature
using oxygen or steam). Our patent-pending P2O conversion process involves the cracking of the plastic hydrocarbon chains at ambient
pressure and comparatively low temperature using a catalyst.
We
have developed our Plastic2Oil processors to be continuously running, energy-efficient and environmentally-friendly while converting
waste plastics into end-user ready, and ultra-clean, ultra-low sulfur fuels. The processors are periodically shut-down for maintenance
and residue removal. The fuels produced can be used directly by our customers without further refining or processing. Over a three
year period, we have scaled our processing operations from a one gallon processor to three processors, each permitted to feed
up to 4,000 pounds of feedstock per hour. Some of the milestones that we have reached include:
| |
● |
Manufacturing
and operating multiple processors at our Niagara Falls, NY site; |
| |
|
|
| |
● |
From
inception, the processors were designed with safety and green emissions as top priorities; |
| |
|
|
| |
● |
Standardization
and modularization of the components of our processors; |
| |
|
|
| |
● |
Ability
to continuously feed waste plastic 24 hours a day; |
| |
|
|
| |
● |
Approximately
86% of waste plastic by weight is converted to liquid fuel conversion; |
| |
|
|
| |
● |
Approximately
8% of waste plastic by weight is converted to gas and is used to fuel the process; |
| |
|
|
| |
● |
Operating
at atmospheric pressure, not susceptible to pinhole leaks and other problems with pressure and vacuum-based systems; |
| |
|
|
| |
● |
No
requirement for incinerators, thermal oxidizers or scrubbers and no stack monitoring is necessary; |
| |
|
|
| |
● |
Three
stack tests (two on the initial processor and one on the second processor) conducted by Conestoga-Rovers & Associates
(“CRA”), prove emissions are extremely low; |
| |
|
|
| |
● |
Process
validation by SAIC Energy, Environment & Infrastructure, LLC and IsleChem, LLC; and |
| |
|
|
| |
● |
Permitted
to operate three processors commercially in New York by the NYSDEC. |
Processor
Input
Waste
Plastics: We are able to feed mainly mixed unwashed waste plastics into the Plastic2Oil processors. Waste plastic is widely
available and we are focused on maximizing the types and densities of the plastic we procure for optimal processor performance.
Heat
Transfer Fluid: We are also able to include hydrocarbon based transfer fluid as feed into the Platic2Oil processors.
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 can be processed into approximately 4,100 gallons of fuel. At March 30, 2015, we
had three operational processors at our Niagara Falls, NY facility. One processor was dedicated to research & development
and the other two processors remained idle due to maintenance and repair issues.
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, which we call “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 (which we call “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 the processor’s ability to accept numerous
types of waste plastics from such sources at a relatively low cost. We believe that our processor 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 Naphtha, Fuel Oil No. 2 and Fuel Oil No. 6, as defined by ASTM.
Our process also generates two main by-products, a reusable 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 fuel sales directly from the processors to the end-user.
The
reusable 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 (located in Niagara Falls, NY) that we use in our P2O business, as well as a second
facility, our fuel blending site (located in Thorold, Canada), for use in the future. These are briefly described below. Additional
information on our properties can be found in Item 2 of this report.
Niagara
Falls, NY facility: Our Niagara Falls, NY facility currently has two operating buildings, a 10,000 square foot building that currently
houses one commercial-scale P2O processor and 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
that 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, Canada, 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
Our
P2O business has begun the transition from research and development to a commercial manufacturing and production business. We
plan to grow mainly from sale of processors first, and fuel seller second.
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.
During
the years ended December 31, 2014 and 2013, 89.0%, and 81.0.0%, respectively, of total net revenues were generated from two and
four customers. As of December 31, 2014, and 2013 two, and three customers, respectively, accounted for 100.0%, and 77.0% of accounts
receivable.
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 March
30, 2015 we had approximately 327,000 pounds of waste plastic and approximately 10,000 gallons of heat transfer fluid available
in inventory as feedstock, to support the resumption of operations upon the repairs, as mentioned above.
We
also rely on third party manufacturers for the manufacture of many components of our processors including kilns and distillation
towers. During the years ended December 31, 2014, and 2013, 27.6%, and 26.4%, of total net purchases were made from four vendors.
As of December 31, 2014 and 2013, four suppliers, respectively, accounted for 38.0%, and 27.9% respectively, of accounts payable.
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 | | |
Issue
date |
| 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 | | |
10/12/2014 |
| Waste Disposal Site | |
Ontario Ministry of the Environment | |
| A121029 | | |
Perpetual (subject to annual Environment 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[1] | | |
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 | |
1“ppm”
means parts per million
Industry
Background
Alternative
fuels are generally considered to be any substances that can be used as fuel, other than conventional fossil fuels such as naturally
occurring oil, gas and coal. There have been many approaches taken to producing alternative fuels, including conversion of corn
oil, vegetable oil and non-food-based materials. These approaches have demonstrated varying degrees of commercial potential. Some
of the challenges that alternative fuel producers have faced include high feedstock supply costs, lower perceived value of fuel
product, higher capital costs and dependence on government regulations for economic viability.
We
believe our company is distinguishable from other producers of alternative or renewable fuels because our P2O solution represents
a process and product that is commercially viable and designed to provide immediate benefit for industries, communities and government
organizations with waste plastic recycling challenges. Our business model is premised on the need for a more efficient and cost-effective
alternative to disposing of waste plastic in jurisdictions where the cost of transporting and landfilling large amounts of plastic
is quite costly.
Competition
Our
P2O business has elements of both a recycling business and a fuel refiner/ production business, which makes it difficult to identify
and make direct comparisons to competitors. Both the recycling and energy sectors are characterized by rapid technological change.
Our future success will depend on our ability to achieve and maintain a competitive position with respect to technological advances
in both of these sectors. We believe that our business currently faces competition in the plastics-to-energy market, including
competition from Vadxx and Agilyx, each of which has developed alternative methods for obtaining and generating fuel from plastics.
See “Risk Factors—Risks Related to Our Business”. Because P2O solution end products include a variety of fuels,
we also face competition from the broader petroleum industry.
Business
Model
We
believe that our Plastic2Oil business model provides a unique proposition for both the supply side and the end-user side of the
waste-to-fuel value chain. Our P2O technology is positioned to link these two sides by offering economic incentives in both directions.
We believe P2O offers value to suppliers of waste plastic by saving transport and landfill tipping fees, and value to fuel end-users
by providing ultra-low sulphur green fuel. Given these incentives, we believe that our Plastic2Oil business will be sought after
by those industries that can benefit from the added value that we provide, thus allowing the potential for our company’s
growth through sale of processors.
Business
Strategy
Our
long-term strategy is to become the leading plastic-to-oil processor manufacturer. We operate our processors to demonstrate our
technology and processor capabilities for process improvement, for research and development activities and to test potential customer
feedstock. The key elements of our strategy to achieve this goal are as follows:
Marketing
Strategy
We
target post-commercial and industrial waste plastic partners. We believe this allows us to identify sources of large plastic waste
streams, such as industrial sites and material recovery facilities and recycling centers.. We also seek to partner with businesses
and municipalities that collect waste plastics. Our vision is to help redirect these waste plastic streams, preventing them from
entering landfills.
Manufacturing
and Procurement Strategy
Our
P2O business model allows us to simultaneously pursue sales to multiple commercial opportunities (partners) across the waste plastic
and fuel markets. Our P2O processors have evolved to be modular solutions 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, distillation towers as well as other key components that require specialized machining and fabrication. We will license
our P2O technology, including construction operation and maintenance of processors for operation at our partners’ sites.
Our strategy is to have our partners construct clusters of P2O processors at sources of large plastic waste streams, such as industrial
sites, material recovery facilities and recycling centers.
Feedstock
Procurement Strategy
Our
feedstock strategy is as follows:
| |
● |
Get
the Right Material to Maximize Throughput. Although the P2O processor can process many different types of plastic and
create consistent fuels, we will focus on the types of plastic that will maximize the machine’s productivity. This is
typically high density material. |
| |
|
|
| |
● |
Contract
for Long-Term Consistent Feedstock Supply. By contracting with our suppliers, we are able to gain commitments for consistent
flows of feedstock. This also allows us to more accurately forecast our feedstock supply and fuel outputs. An additional benefit
of contracting with suppliers is that we are able to rely on this material flow as it relates to our continued growth planning. |
| |
|
|
| |
● |
Cost
to the Processor. We look at all feedstock opportunities considering the “cost to the processor”. This means
we consider including the cost is the price we pay to the supplier, the cost of transportation or our costs to pre-process
the feedstock material, the critical thing is the total cost incurred for “ready to process” material. |
Competitive
Strengths
We believe
that our competitive strengths are as follows:
Our
processors convert unwashed waste plastics into “in specification fuels” ready for use by the customer. Our
process does not generate any waste water. The fuel is Halide free and there is no further need for refinement. The process does
not produce any hazardous waste.
In
addition to producing fuel, our P2O solution simultaneously addresses the problem of disposing of waste plastic. We offer
an alternative to disposing of waste plastic in a landfill. Our processors can accept mainly mixed, unwashed plastic feedstock.
In the United States and Canada, a substantial amount of plastic is currently considered waste and is disposed of in landfills,
resulting in tipping fees levied by the landfill or other waste disposal facility fees. We believe that the current low landfill
diversion rates for waste plastic in the United States and Canada, together with the costs of transporting and disposing of plastic
in bulk, present a significant opportunity to provide an alternative to conventional recycling and waste disposal.
The
P2O process provides a highly efficient means of converting plastic into fuel. Our proprietary P2O process and catalyst
provide a highly efficient means of converting plastic into fuel. Our business model depends on us being able to provide both
a cost-competitive means of disposing of waste plastic and an efficient and non-energy intensive means of producing fuel. Our
process requires comparatively minimal electricity to operate, and the energy balance of the process is positive, meaning that
more energy can be produced than is consumed by the process.
Low
capital costs and small footprint. We have designed the processors with a modular design with standardized components,
making construction of our processors relatively simple and cost effective. We have designed our processors to take up approximately
3,000 square feet of space, giving the processors a relatively small footprint. We believe that this design facilitates the construction
and operation of multiple processors on a single site. We estimate that the costs of constructing our processors on industrial
partner sites will be substantially less than the cost of constructing waste-to-fuel facilities offered by our competitors.
Lower
emissions
In
the United States, businesses and other producers of emissions are subject to various regulatory requirements, including the National
Emission Standards for Hazardous Air Pollutants, or “NESHAP.” These emission standards may be established according
to Maximum Achievable Control Technology requirements set by the EPA, often referred to as “MACT standards”. MACT
standards apply to a number of sources of emissions, including operators of boilers, process heaters and certain solid waste incinerators.
Because our P2O fuel products have ultra-low sulphur content, we believe that our P2O fuel can assist industrial partners with
meeting MACT requirements through reduced hazardous emissions.
Our
processors produce fuels that have very low sulphur content, which allows the end-user to potentially lower the emissions generated
by its operations while using our fuels. These lower emissions potentially could save the end-user from expensive environmental
compliance costs, stemming from such initiatives as the NESHAP regulations and more specifically the MACT standards for each pollution
source.
Validation
of repeatability and scalability of P2O processors.
Our
P2O business has been validated for repeatability and scalability by extensive testing by our customers and multiple independent
tests by outside consultants and third party laboratories.
Other
Businesses
Data
Recovery & Migration
In
June 2009, we purchased certain assets from John Bordynuik, Inc., a corporation founded by John Bordynuik, our former Chief Executive
Officer and former 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 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 has been a key driver to achieving revenue in 2014 and 2013. 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. Due to these factors, all related to the assets of the
Data Business was recorded as impaired in 2012.
Pak-It
From
September 2009 until February 2012, through Pak-It, we were engaged in the manufacture of cleaning chemicals. As previously reported,
we sold substantially all of the assets of this business in February 2012 because management felt that Pak-It’s business
was no longer aligned with our strategic focus on our P2O business. For all years reported, the results of operations of Pak-It
have been recorded as discontinued operation, as recorded in Footnote 16 of our Consolidated Financial Statements.
Javaco
From
August 2009 until July 2012, through Javaco, we were a retailer and wholesale distributor of equipment, hardware and tools for
the safety, maintenance and construction industries. As previously reported, in July 2012, we closed Javaco and liquidated substantially
all of the fixed assets and inventory because management felt that Javaco’s business was no longer aligned with our strategic
focus on our P2O business. For all years reported, the results of operations of Javaco have been recorded as discontinued operations,
as recorded in Footnote 16 of our Consolidated Financial Statements.
Intellectual
Property
To
ensure the protection of our proprietary technology, we have applied for patent protection for both the P2O process and P2O processor.
As of March 31, 2015, no patents have been issued. Management anticipates filing additional patent applications for various aspects
of our P2O process in the near future. A lack of patent protection could have a material adverse effect on our ability to gain
a competitive advantage for our process and processors, since it is possible that our competitors may be able to duplicate the
P2O process for their own purposes. We also rely on our trade secrets to provide protection from portions of our process and proprietary
catalyst. See “Risk Factors—Risks Related to Our Business”.
We
also hold a U.S. patent relating to our Data Business for the recovery of tape information.
Research
and Development
Given
our strategic focus on developing our P2O business, we anticipate that our research and development activities related to our
P2O processors and the construction, operation and systems management of those processors. Specifically, we will seek to increase
the operational capabilities and performance of our P2O processors as opportunities arise. Research and development expenditures
were $20,999, and $465,671 in 2014 and 2013, respectively.
Employees
As
of March 30, 2015, we employed 10 persons on a full-time basis, of which two were executive management, two were in finance and
administration, one was in procurement, sales and marketing, four were in operations and one was in technology/ research and development.
None of our employees are subject to a collective bargaining agreement and we believe that our labor relations are good.
Environmental
and Other Regulatory Matters
As
we further develop and commercialize our P2O business, we will be subject to extensive and frequently developing federal, state,
provincial and local laws and regulations, including, but not limited to those relating to emissions requirements, fuel production,
fuel transportation, fuel storage, waste management, waste storage, composition of fuels and permitting. Compliance with current
and future regulations could increase our operational costs. Management believes that the company is currently in substantial
compliance with applicable environmental regulations and permitting.
Our
operations require various governmental permits and approvals. We believe that we have obtained, or are in the process of obtaining,
all necessary permits and approvals for the operations of our P2O business; however, any of these permits or approvals may be
subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of
permits and approvals or to have the necessary approvals in place may adversely affect our operations and may subject us to penalties.
Company
Information
We
are a reporting company and file annual, quarterly and current reports, proxy statements and other information with the SEC. You
may read and copy these reports, proxy statements and other information at the SEC’s Public Reference Room at 100 F Street
N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or e-mail the SEC at publicinfo@sec.gov for more information
on the operation of the public reference room. Our SEC filings are also available at the SEC’s website at http://www.sec.gov.
Our Internet address is http://www.plastic2oil.com. There we make available, free of charge, our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable
after we electronically file such material with, or furnish such material to, the SEC.
ITEM
1A. RISK FACTORS
The
following risk factors should be considered in evaluating our businesses and future prospects. These risk factors represent what
we believe to be the known material risk factors with respect to our business and our company. Our businesses, operating results,
cash flows and financial condition are subject to these risks and uncertainties, any of which could cause actual results to vary
materially from recent results or from anticipated future results.
Risks
Related to our Business
We
are an early stage company with a history of net losses, and we may not achieve or maintain profitability.
We
have incurred net losses since our inception, including losses of $6,801,519 and $13,234,265 in 2014 and 2013, respectively. We
expect to incur losses and potentially have negative cash flow from operating activities for the near future. We have divested
of our significant non-core businesses, which historically had generated revenues for the Company and have transitioned our focus
solely on the development of our P2O business. To date, our revenues from our P2O business have been limited and we expect to
invest significant additional capital in the further development and expansion of our P2O business and for marketing and general
and administrative expenses associated with our planned growth and management of operations as a public company. As a result,
even if our revenues increase substantially, we expect that our expenses could exceed revenues for the foreseeable future. It
is not certain when we will achieve profitability. If we fail to achieve profitability, or if the time required to achieve profitability
is longer than we anticipate, we may not be able to continue our business. Even if we do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or annual basis. We may experience significant fluctuations in our revenues,
significantly driven in part by the long negotiation periods, market price of fuel and we may incur losses from period to period.
The impact of the foregoing may cause our operating results to be below the expectations of investors and securities analysts,
which may result in a decrease in the market value of our securities.
We
have a limited operating history and are focused on our P2O business, which may make it difficult to evaluate our current business
and predict our future performance.
After
divesting certain non-core business lines, we are solely focused on our P2O business and our limited operating history may make
it difficult to evaluate our current business and predict future performance as we continue to expand and grow, as well as modify
the current processors to become more efficient. Additionally, with the shutdown of our regional recycling center in 2013 and
the divestitures of Pak-It and Javaco in 2012, our historical results are not indicative of future revenues. Any assessment of
our current business and predictions about our future success or viability may not be as accurate as otherwise possible if we
had a longer operating history. We have encountered, and may continue to encounter risks and difficulties frequently experienced
by growing companies in rapidly changing industries. If we do not address these risks successfully, our business could be harmed.
Our
process and processors may fail to produce fuel at the volumes we expect.
A
key component of our business strategy is to market our processors that produce a viable high quality fuel to wholesalers and
industrial end users. Even with a reliable supply of sufficient volumes of waste plastic, our and ours customer processors may
fail to perform due to mechanical failure or unscheduled maintenance resulting in potentially significant downtime. Our processors
do not have a long operating history, and accordingly the equipment and systems in any given processor may not operate as planned
or for as long as expected based on preliminary testing and trials.
We
may be required to replace parts more often than expected due to excessive wear and tear or malfunction due to their use during
the evolution of our process. Replacement of parts or components of the processor could result in additional unplanned downtime,
resulting in lower fuel volume productions.
Different
feedstock may result in different fuel yields including potentially higher production of off-gas or petcoke residue, which would
proportionately reduce the amount of salable fuels produced. The presence of contaminants in our feedstock could reduce the purity
of the fuel that we produce and require further investment in more costly separation processes or equipment. Additionally, contaminants
that are present in the feedstock could result in damage to the processor which would cause unplanned downtime and lower than
expected fuel volumes.
Unexpected
problems with either the processor or our feedstock supplies may force us to cease or delay production and the time and costs
involved with such delays may be significant. Any or all of these risks could prevent us from achieving the production volumes
and yields, and producing fuel at the costs, necessary to achieve profitability from our business. Failure to achieve expected
production volumes and yields, or achieving them only after significant additional expenditures, could substantially harm our
financial condition and operating results.
We
need substantial additional capital in the future in order to develop our business.
Our
future capital requirements will be substantial, particularly as we continue to develop our P2O business. We believe that our
current cash and cash equivalents will not allow us to expand commercial operations at the Niagara Falls, NY Facility. Because
the costs of developing the P2O business on a commercial scale are highly contingent on our approach to commercialization, and
are subject to many variables, including site-specific development costs and the number of processors to be placed at a given
location, we cannot reliably reasonably estimate the amount of capital required to expand the P2O business beyond the Niagara
Falls, NY facility; thus processor manufacturer first, and fuel seller second. If we are successful in achieving our plans to
enter into other P2O industrial partnerships, we may require significant additional funding to execute such partnerships and may
not be able to rely on funding through our own earnings. Funding would be required for constructing P2O processors, site specific
build-outs and developing other aspects of our business with our industrial partners.
To
date, we have funded our operations primarily through private offerings of equity securities. If future financings involve the
issuance of equity securities, our existing stockholders could suffer dilution. If we were able to raise debt financing to expand
our operations, we may be subject to restrictive covenants that could limit our ability to conduct our business. Our plans and
expectations may change as a result of factors currently unknown to us, and we may need additional funds sooner than planned.
We may also choose to seek additional capital sooner than required due to favorable market conditions or strategic considerations.
Our future
capital requirements will depend on many factors, including:
| |
● |
the
financial success of our P2O business and sale of processors; |
| |
|
|
| |
● |
the
timing of, and costs involved in, entering into agreements with suitable industrial partners, and the timing and terms of
those agreements; |
| |
|
|
| |
● |
the
cost of constructing P2O processors and the amount of other capital expenditures related to site development; |
| |
|
|
| |
● |
our
ability to negotiate distribution or further sale agreements for the processors we manufacture, and the timing and terms of
those agreements; and |
| |
|
|
| |
● |
the
timing of, and costs involved in obtaining, the necessary government or regulatory approvals and permits by our customers. |
Additional
funds may not be available when we need them, on terms that are acceptable to us, or at all. If funds are necessary or required
and are not available to us on a timely basis, we may delay, limit, reduce or terminate:
| |
● |
our research and
development activities; |
| |
|
|
| |
● |
our plans to expand
our business through industrial partnerships; |
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|
|
| |
● |
our activities
in negotiating agreements necessary in connection with the commercial scale operation of the P2O business; and |
| |
|
|
| |
● |
the development
of the P2O business, generally. |
If
we fail to raise sufficient funds and continue to incur losses, our ability to fund our operations, construct processors, enter
into agreements with suitable industrial partners, take advantage of other strategic opportunities and otherwise develop our business
could be significantly limited. We may not be able to raise sufficient additional funds on terms that are favorable or acceptable
to us, if at all. If adequate funds are required for operations and are not available, we may not be able to successfully execute
our business plan or continue our business.
Our
future success is dependent on being able to attract and retain qualified management and personnel.
We
will require additional expertise in specific areas applicable to our P2O business and will require the addition of new personnel,
and the development of additional expertise by existing personnel. The inability to attract talented personnel with appropriate
skills or to develop the necessary expertise could impair our ability to develop and grow our business.
The
loss of any key members of our management team or the failure to attract or retain qualified management and personnel who possess
the requisite expertise for the conduct of our business could prevent us from further developing our businesses according to our
current strategy. We may be unable to attract or retain qualified personnel in the future due to the intense competition for qualified
personnel amongst technology-based businesses, or due to the unavailability of personnel with the qualifications or experience
necessary for our business. Competition for business, financial, technical and other personnel from numerous companies and academic
and other research institutions may limit our ability to attract and retain such personnel on acceptable terms. If we are unable
to attract and retain the necessary personnel to accomplish our business objectives, we may experience staffing constraints that
will adversely affect our ability to meet the demands of our industrial partners and customers in a timely fashion or to support
continued development of our P2O business.
Competitors
and potential competitors who have greater resources and experience than we do may develop processors and technologies that make
ours obsolete or may use their greater resources to gain market share at our expense.
Our
P2O business has elements of both a recycling business and a fuel sales business. The recycling and energy sectors are characterized
by rapid technological change. Our future success will depend on our ability to maintain a competitive position with respect to
technological advances. Our P2O business faces mild competition in the plastics-to-energy market, including competition from Vadxx,
and Agilyx, who have each developed alternative methods for obtaining and generating fuel from plastics.
Our
P2O business faces competition in acquiring feedstock, mainly because there are other technologies and processes that are being
developed and/or commercialized to offer recycling solutions for plastic. Additionally, there is significant competition from
businesses in the energy sector that sell fuel, including both traditional producers and alternative fuel producers. Companies
in the fuel sales industry may be able to exert economies of scale in the fuels market to limit the success of our fuel sales
business. We believe that our business is more appealing in both the recycling sector and the fuel sector due to its green aspect.
Technological developments by any form of competition could result in our processors and technologies becoming obsolete.
In
addition, various governments have recently announced a number of spending programs focused on the development of clean technologies,
including alternatives to petroleum-based fuels and the reduction of carbon emissions. Such spending programs could lead to increased
funding for our competitors or a rapid increase in the number of competitors within these markets.
Our
limited resources relative to many of our competitors may cause us to fail to anticipate or respond adequately to new developments
and other competitive pressures. This failure could reduce our competiveness and market share, adversely affect our results of
operations and financial position and prevent us from obtaining or maintaining profitability.
The
effectiveness of our business model may be limited by the availability or potential cost of plastic feedstock sources.
Our
P2O business model depends on sale of processors. However, our customers may delay procurement due to the availability of waste
plastic obtained at relatively low cost to be used as a feedstock to produce o fuel products. If the availability of feedstock
decreases, or if our customers are required to pay substantially more than is reasonable to become profitable for feedstock, this
could reduce their fuel production and/or potentially reduce theirr profit margins if they are forced to use alternative, more
costly measures to procure feedstock. It is possible that an adequate supply of feedstock may not be available for the customerprocessors
to meet daily processing capacity. This could have a materially adverse effect on our customers financial condition and operating
results.
Our
P2O financial results will also be dependent on the operating costs of our processors, including costs for feedstock and the prices
at which we are able to sell our end products. Volatility in both the pricing of feedstock as well as the market price for fuels
could have an impact on this relationship. General economic, market, and regulatory factors may influence the availability and
potential cost of waste plastic. These factors include the availability and abundance of waste plastic, government policies and
subsidies with respect to waste management and international trade and global supply and demand. The significance and relative
impact of these factors on the availability of plastic is difficult to predict.
We
will, for the very near future, depend on one production facility for revenues related to our business. Therefore, any operational
disruption could result in a reduction of our fuel production volumes.
A
significant portion of our anticipated revenue for fiscal 2015 will be derived from processor sales, as well as from the sale
of fuel that we produce at our Niagara Falls, NY Facility. We will incur additional expenses to increase production at that facility
and any failure to produce fuel at anticipated volumes and costs would adversely affect our revenues, free cash flow and potential
ability to build other planned production facilities. Such failure would adversely affect our business, financial condition and
results of operations.
Unforeseen
manufacturing issues or processor downtime could have significant adverse impact on our business.
Our
business and strategic growth plans rely on assumptions of processor uptime reaching certain levels in which ample fuel can be
produced to meet the needs of our customers and provide us with adequate operating cash flow to cover our cost of operating. Unforeseen
manufacturing issues with the processors or unscheduled downtime due to mechanical failure, low quality feedstock, severe weather
conditions or unexpected issues with the processors could have a material adverse impact on our fuel production and operating
results. In addition, manufacturing and/ or fabrication delays with respect to additional processors could cause our revenues
and fuel production to be lower than anticipated.
We
may have difficulties gaining market acceptance and successfully marketing our processors or fuel to our customers.
A
key component of our business strategy is to market our processors and fuel as a viable high quality fuel to wholesalers and industrial
end users. If we fail to successfully market our processors or fuel or the targeted customers do not accept it, our business,
financial condition and results of operations will be materially adversely affected.
To
gain market acceptance and successfully market our processors and fuel, we must effectively demonstrate the advantages of using
P2O fuel over other fuels, including conventional fossil fuels, biofuels and other alternative fuels and blended fuels. We must
show that P2O fuel is a direct replacement for fossil fuels. We must also overcome marketing and lobbying efforts by producers
of other fuels, many of whom have greater resources than we do. If the markets for our processors and fuel do not develop as we
currently anticipate, or if we are unable to penetrate these markets successfully, our revenue and revenue growth rate could be
materially and adversely affected.
Pre-existing
contractual commitments and skepticism of new production methods for fuels may hinder market acceptance of our processors and
fuel.
Adverse
public opinions concerning the alternative fuel industry in general could harm our business.
The
plastic-to-fuel industry is new, and general public acceptance of this method of recycling and fuel generation is uncertain. Public
acceptance of P2O fuel as a reliable, high-quality alternative to traditionally refined petroleum fuels may be limited or slower
than anticipated due to several factors, including:
| |
● |
public
perception issues associated with the fact that P2O fuel is produced from waste plastics; |
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|
|
| |
● |
public
perception that the use of P2O fuel will require excessive burner, boiler or engine modifications; |
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|
|
| |
● |
actual
or perceived problems with P2O fuel quality or performance; and |
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|
|
| |
● |
to
the extent that P2O fuel is used in transportation applications, concern that using P2O fuel will void engine warranties. |
Such
public perceptions or concerns, whether substantiated or not, may adversely affect the demand for our fuels, which in turn could
decrease our sales, harm our business and adversely affect our financial condition.
A
decline in the price of petroleum products may reduce demand for our P2O fuels and may otherwise adversely affect our business.
We
anticipate that our fuels will be marketed as alternatives to their corresponding conventional petroleum product counterparts,
such as heating oil, diesel fuel and naphtha. If the prices of these products fall, we may be unable to produce products that
are cost-effective alternatives to conventional petroleum products. Declining oil prices, or the perception of a future decline
in oil prices, may adversely affect the prices we can obtain from our potential customers or prevent potential customers from
entering into agreements with us to buy our products. During sustained periods of lower oil prices, we may be unable to sell some
of our fuel products, which could materially and adversely affect our operating results.
In
addition, recent discoveries and drilling of shale gas deposits has caused a general decrease in natural gas prices which could
cause commercial and industrial fuel users to switch from using petroleum-based products to natural gas to power their equipment,
machinery and operations. In such case, demand for our fuel products may decline. Any decline in demand for petroleum-based products
could materially and adversely affect our results from operation.
Our
operations are subject to various regulations, and failure to obtain necessary renewed permits, licenses or other approvals, or
failure to comply with such regulations, could harm our business, results of operations and financial condition.
We
are, and may become subject to, various federal, state, provincial, local and foreign laws, regulations and approval requirements
in the United States, Canada and other jurisdictions, including those relating to the discharge of materials or pollutants into
the air, water and ground, the generation, storage, handling, use, transportation and disposal of waste materials, and the health
and safety of our employees.
The
Company currently possesses an Air Permit and Solid Waste Permit for up to three processors at the Niagara Falls, NY facility.
Failure to maintain these permits on terms and conditions acceptable to and achievable by us, or at all, could affect the commercial
viability of the Niagara Falls, NY facility, which could have a material adverse effect on our business, financial condition and
results of operations.
As
we implement our growth strategy, our planned P2O business will require additional permits, licenses or other approvals from various
governmental authorities. Our ability to obtain, amend, comply with, sustain or renew such permits, licenses or other approvals
on acceptable, commercially viable terms may change, as could the regulations and policies of applicable governmental authorities.
Our inability to obtain, amend, comply with, sustain or renew such permits, licenses or other approvals may have a material adverse
effect on our business, financial condition and results of operations.
Any
fuels developed using our P2O process will be required to meet applicable government regulations and standards. Any failure to
meet these standards and/or future regulations and standards could prevent or delay the commercialization or sale of any fuels
developed using our P2O process or subject us to fines and other penalties.
All
phases of designing, constructing and operating fuel production facilities present environmental risks and hazards. Among other
things, environmental legislation provides for restrictions and prohibitions on spills and discharges, as well as emissions of
various substances produced in association with fuel operations. Legislation also requires that sites be operated, maintained,
abandoned and reclaimed in such a way that would satisfy applicable regulatory authorities. Compliance with such legislation can
require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material.
Environmental legislation is evolving in a manner that may result in stricter standards and enforcement, larger fines, penalties
and liability, as well as potentially increased capital expenditures and operating costs. The discharge of pollutants into the
air, soil or water may give rise to liabilities to governments and third parties, and may require us to incur costs to remedy
such discharge.
There
is no assurance that our operations will comply with environmental or occupational, safety and health regulations in any applicable
jurisdiction. Failure to comply with applicable laws, regulations and approval requirements could subject us to civil and criminal
penalties, require us to forfeit property rights, and may affect the value of our assets or our ability to conduct our business.
We may also be required to take corrective actions, including, but not limited to, installing additional equipment, which could
require us to make substantial capital expenditures. These penalties could have a material adverse effect on our business, financial
condition and results of operations.
We
may be unable to produce our fuel products in accordance with governmental specifications.
Even
if we produce P2O fuel at our targeted volumes and yields, we may be unable to produce fuel that meets future governmental regulations.
If we fail to meet these specific regulations customers may not purchase our fuel or, to the extent we have an agreement in place
for the supply of fuel, the customer may seek an alternate supply of fuel or terminate the agreement completely. A failure to
successfully meet these specifications could decrease demand for our fuel, leading to reduced sales and operating results.
Our
dependence on contract manufacturers for processor components exposes our business to supply risks.
We
have limited internal capacity to manufacture our processor components. As a result, we are heavily dependent upon the performance
and capacity of third party manufacturers for the manufacturing of many of the key components of our processors, including kilns
and distillation towers as well as certain other key components that require specialized machining and fabrication.
We
are working to establish long-term supply contracts with contract manufacturers. However, we cannot guarantee that we will be
able to enter into long-term supply contracts on commercially reasonable terms, or at all, or to acquire, develop or contract
for internal manufacturing capabilities. Any resources we expend on acquiring or building internal manufacturing capabilities
could be at the expense of other potentially more profitable opportunities.
We
currently have only patent-pending protection for our P2O process and processor.
We
have sought patent protection of our intellectual property by filing for international patents via the Patent Cooperation Treaty,
however, as yet, none have been granted. We also rely on trade secrets to provide protection for our proprietary catalyst. We
currently have patent pending status for our P2O process and processor. However, a lack of patent protection could have a material
adverse effect on our ability to gain a competitive advantage for our P2O processors, since it is possible that our competitors
may be able to duplicate our P2O process for their own purposes. This may have a material adverse effect on our results of operations,
including on our ability to enter into industrial partnership arrangements or other agreements relating to our P2O processors.
We
rely in part on trade secrets to protect some of our intellectual property, and our failure to obtain or maintain trade secret
protection could adversely affect our competitive position.
We
rely on trade secrets to protect some of our intellectual property, such as our proprietary catalyst. However, trade secrets are
difficult to maintain and protect. We have taken measures to protect our trade secrets and proprietary information, but there
is no guarantee that these measures will be effective. We require new employees and consultants to execute confidentiality agreements
upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential
information developed by the individual or made known to the individual by us during the course of the individual’s relationship
with us be kept confidential and not disclosed to third parties. Nevertheless, our proprietary information may be disclosed, or
these agreements may be unenforceable or difficult and costly to enforce. If any of the above risks materialize, our failure to
obtain or maintain trade secret protection could adversely affect our competitive position.
Collaborations
with third parties have required us to share some confidential information, including with employees of these third parties. Our
strategy for the development of our business may require us to share additional confidential information with our industrial partners
and other third parties. While we use reasonable efforts to protect our trade secrets, third parties, or our industrial partners’
employees, consultants, contractors and/or other advisors may unintentionally or willfully disclose proprietary information to
competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming
and uncertain. In addition, foreign courts are sometimes less willing than domestic courts to protect trade secrets. If our competitors
develop equivalent knowledge, methods and know-how, we may not be able to assert our trade secrets against them. Without trade
secret protection, it is possible that our competitors may be able to duplicate our process for their own purposes. This may have
a material adverse effect on our results of operations, including on our ability to enter into industrial partnership arrangements
or other agreements relating to our process and processors.
Our
quarterly operating results may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of investors
or research analysts, which could cause our share price to decline.
Our
financial condition and operating results have varied significantly in the past and may continue to fluctuate from quarter to
quarter and year to year in the future due to a variety of factors, many of which are beyond our control. Factors relating to
our business that may contribute to these fluctuations include the various risk factors described elsewhere in this report. Due
to these various risk factors, and others, the results of any prior quarterly or annual periods should not be relied upon as indications
of our future operating performance.
During
the ordinary course of business, we may become subject to lawsuits or indemnity claims, which could materially and adversely affect
our business and results of operations.
From
time to time, we may in the ordinary course of business be named as a defendant in lawsuits, claims and other legal proceedings.
Plaintiffs in these actions may seek, among other things, compensation for alleged personal injury, worker’s compensation,
and damages for employment discrimination or breach of contract, property damages and injunctive or declaratory relief. In the
event that such actions or indemnities are ultimately resolved unfavorably at amounts exceeding our accrued liability, or at material
amounts, the outcome could materially and adversely affect our reputation, business and results of operations. In addition, payments
of significant amounts, even if reserved, could adversely affect our liquidity position.
We
are responsible for the indemnification of our officers and directors.
Our
by-laws provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against
costs and expenses incurred by them in any litigation to which they become a party arising from their association with or activities
on our behalf. Consequently, we may be required to expend substantial funds to satisfy these indemnity obligations. We currently
hold directors’ and officers’ liability insurance policies for the benefit of our directors and officers, although
our insurance coverage may not be sufficient in some cases, including the liability we may face in connection with pending actions.
See “Legal Proceedings.” Furthermore, our insurance carriers may seek to deny coverage in some cases, in which case
we may have to fund the indemnification amounts owed to such directors and officers ourselves.
We
may have difficulty in attracting and retaining management and outside independent members to our Board of Directors as a result
of their concerns relating to their increased personal exposure to lawsuits and stockholder claims by virtue of holding these
positions in a publicly held company.
The
directors and management of publicly traded corporations are increasingly concerned with the extent of their personal exposure
to lawsuits and stockholder claims, as well as governmental and creditor claims which may be made against them, particularly in
view of recent changes in securities laws imposing additional duties, obligations and liabilities on management and directors.
Due to these perceived risks, directors and management are also becoming increasingly concerned with the availability of directors’
and officers’ liability insurance to pay on a timely basis the costs incurred in defending such claims. Although we currently
maintain directors’ and officers’ liability insurance, our coverage has limits and has recently become more expensive.
If we are unable to continue or provide directors’ and officers’ liability insurance at affordable rates or at all,
it may become increasingly more difficult to attract and retain qualified outside directors to serve on our Board of Directors.
Our
independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
Our
independent registered public accounting firms, in their audit opinions issued in connection with our consolidated balance sheets
as of December 31, 2014 and 2013 and our consolidated statements of operations, stockholders’ equity and cash flows for
the years ended December 31, 2014 and 2013, have expressed substantial doubt about our ability to continue as a going concern
given our net losses, accumulated deficit and negative cash flows. The accompanying consolidated financial statements were prepared
on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments
in the normal course of business, and accordingly do not contain any adjustments which may result due to the outcome of this uncertainty.
Risks
Relating to Ownership of Securities of the Company
Investors
may lose their entire investment in our securities.
Investing
in our securities is speculative and the price of our securities has been and may continue to be volatile. Only investors who
are experienced in high risk investments and who can afford to lose their entire investment should consider an investment in our
securities.
Shares
of our common stock are quoted and trade on the OTCQB Market, which may have an unfavorable impact on our stock price and liquidity.
Shares
of our common stock are quoted and traded on the OTCQB Market. Trading in shares quoted on the OTCQB is often thin and characterized
by wide fluctuations in trading prices, due to many factors that may have little to do with a company’s operations or business
prospects. This volatility could depress the market price of our common stock for reasons unrelated to our operating performance.
Moreover, the OTCQB is not a stock exchange and is a significantly more limited market than the New York Stock Exchange, NASDAQ
or other stock exchanges. Stockholders may have difficulty buying and/ or selling their shares. The quotation of our shares on
the OTCQB may result in a less liquid market available for existing and potential stockholders to trade our common stock, could
depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the
future.
Our
common stock is subject to price volatility unrelated to our operations.
The
market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our
ability to achieve planned growth, quarterly operating results of other companies in the same or similar industries, trading volume
in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our
competitors or us. In addition, stock markets may be subject to price and volume fluctuations. This volatility could have a significant
effect on the market price of our common stock for reasons unrelated to our operating performance.
Our
common stock may be classified as a “penny stock” as that term is generally defined in the United States Securities
Exchange Act of 1934 to mean equity securities with a price of less than $5.00. As such, our common stock would be subject to
rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a
penny stock.
We
may be subject to the penny stock rules adopted by the SEC that require brokers to provide extensive disclosure to its customers
prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our
common stock, which in all likelihood would make it difficult for investors to buy or sell shares.
Rule
3a51-1 of the United States Securities Exchange Act of 1934 establishes the definition of a “penny stock” for purposes
relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to a limited number of exceptions which are not available to us. This classification would
severely and adversely affect any market liquidity for our common stock.
For
any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s
account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction
setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions
in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person
and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has
sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating
to the penny stock market, which, in highlight form, sets forth the basis on which the broker or dealer has made the suitability
determination and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and commission
payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and
remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing
recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Because
of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or
may encounter difficulties in their attempt to sell our common stock, which may affect the ability of stockholders to sell their
shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional
sales practice and disclosure requirements could impede the sale of our common stock, if and when such shares become listed on
a stock exchange. In addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of
our common stock. Our common stock could be subject to such penny stock rules for the foreseeable future and our stockholders
could find it difficult to sell their common stock.
Listing
our stock on markets other than the OTCQB could be costly for us.
Our
common stock is currently quoted and traded on the OTCQB Market. In the future, we may file an application to be listed on a stock
exchange in the United States or elsewhere. Unlike the OTCQB, a stock exchange has corporate governance and other listing standards,
which we will have to meet. Such standards and regulations may restrict our capital raising or other activities by requiring stockholder
approval for certain issuances of stock, for certain acquisitions, and for the adoption of stock option or stock purchase plans.
Applying for and obtaining any such listing on a stock exchange, and complying with the requirements of such stock exchange, would
require us to incur significant expenses.
Concentration
of ownership among our existing officers, directors and principal stockholders may prevent other stockholders from influencing
significant corporate decisions and depress our share price.
We
do not anticipate paying cash dividends, and accordingly, stockholders must rely on share appreciation for any return on their
investment.
Since
inception, we have not paid dividends on our common stock and we do not anticipate paying cash dividends in the near future. As
a result, only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. Investors
seeking cash dividends should consider not investing in our common stock.
We
incur significant costs as a result of operating as a public company, and our management is required to devote substantial time
to new compliance initiatives.
As
a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, as well as related
rules implemented by the SEC, the Public Company Accounting Oversight Board (“PCAOB”) and the OTCQB impose various
requirements on public companies. Our management and other personnel devote a substantial amount of time to these compliance initiatives.
Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities, such as maintaining
director and officer liability insurance, more time-consuming and costly.
In
addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting
and disclosure controls and procedures. We must perform system and process evaluation and testing of our internal controls over
financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required
by Section 404(a) of the Sarbanes-Oxley Act. Our compliance with Section 404(a) will require that we incur substantial accounting
expense and expend significant management time on compliance-related issues. If we are not able to comply with the requirements
of Section 404 in a timely manner, our stock price could decline, and we could face sanctions, delisting or investigations, or
other material adverse effects on our business, reputation, results of operations, financial condition or liquidity.
Shares
of common stock eligible for sale in the public market may adversely affect the market price of our common stock.
Sales
of substantial amounts of our common stock by stockholders in the public market, or even the potential for such sales, may adversely
affect the market price of our common stock and could impair our ability to raise capital through selling equity securities. As
of the date of this filing, approximately 76.7 million of the 120.2 million shares of common stock currently outstanding
were freely transferable without restriction or further registration under the securities laws, unless held by “affiliates”
of our company, as that term is defined under the securities laws. We also have outstanding, approximately 43.5 million
shares of restricted stock, as that term is defined in Rule 144 under the securities laws that are eligible for sale in the public
market, subject to compliance with the requirements of Rule 144.
Techniques
employed by manipulative short sellers may drive down the market price of our common stock.
Short
selling is the practice of selling securities that the seller does not own but rather has, supposedly, borrowed from a third party
with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit
from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement
shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short
seller’s best interests for the price of the stock to decline, many short sellers (sometime known as “disclosed shorts”)
publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order
to create negative market momentum and generate profits for themselves after selling a stock short. While traditionally these
disclosed shorts were limited in their ability to access mainstream business media or to otherwise create negative market rumors,
the rise of the Internet and technological advancements regarding document creation, videotaping and publication by weblog (“blogging”)
have allowed many disclosed shorts to publicly attack a company’s credibility, strategy and veracity by means of so-called
research reports that mimic the type of investment analysis performed by large Wall Street firms and independent research analysts.
These short attacks have, in the past, led to selling of shares in the market, on occasion in large scale and broad base. Issuers
who have limited trading volumes and are susceptible to higher volatility levels than large-cap stocks, can be particularly vulnerable
to such short seller attacks. These short seller publications are not regulated by any governmental, self-regulatory organization
or other official authority in the U.S., are not subject to the certification requirements imposed by the Securities and Exchange
Commission in Regulation and, accordingly, the opinions they express may be based on distortions of actual facts or, in some cases,
fabrications of facts. In light of the limited risks involved in publishing such information, and the enormous profit that can
be made from running just one successful short attack, unless the short sellers become subject to significant penalties, it is
more likely than not that disclosed short sellers will continue to issue such reports.
While
we intend to strongly defend our public filings against any such short seller attack, oftentimes we are constrained, either by
principles of freedom of speech, applicable state law (often called “Anti-SLAPP statutes”), or issues of commercial
confidentiality, in the manner in which we can proceed against the relevant short seller. Investors should be aware that in light
of the relative freedom to operate that such persons enjoy, should we be targeted for such an attack, our common stock will likely
suffer from a temporary, or possibly long term, decline in market price should the rumors created not be dismissed by market participants.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
Applicable
ITEM
2. PROPERTIES
The
following is a summary of our properties. We believe that these facilities are sufficient to support our research and development,
operational, processing and administrative needs under our current operating plan.
1.
Corporate Office and Niagara Falls, NY facility
Our
Niagara Falls, NY facility currently has two operating buildings, a 10,000 square foot building that currently houses two commercial-scale
P2O processors and a 7,200 square foot building that houses one commercial-scale processor of our P2O business and other fabrication
equipment and parts relevant to the process. This facility serves as the center of our research and development operations and
our corporate and administrative offices and is situated on eight acres of land which we own, subject to a mortgage securing approximately
$90,000 of mortgage debt outstanding as of March 30, 2015. We believe that this site is adequate to accommodate further expansion
of our operations in the foreseeable future.
2.
Recycling Facility
We
lease approximately 18,000 square feet of commercial space on nine acres in Thorold, Ontario, Canada, in which we operated our
discontinued waste plastics and cardboard recycling facility. This location is located approximately 15 miles from the Niagara
Falls, NY facility. The lease expires on December 31, 2030. In the fourth quarter of 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)
3.
Fuel Blending Facility
We
own approximately six acres of land in Thorold, Ontario, Canada where we have the capability to operate our fuel blending facility
with a 250,000 gallon capacity. When active, the fuel-blending facility gives us the capability to store, blend, analyze and self-certify
the fuels produced from the P2O process. The facility is not currently in use. We own the property and have no mortgage debt outstanding
in relation to this facility.
4.
Thorold, Ontario, Canada Office Building
We
own approximately 21,000 square feet in Thorold, Ontario, consisting of 5,000 square feet of office space and 16,000 square feet
of warehousing and storage space which serves as storage for our company as well as offsite IT operations. This property is encumbered
by a mortgage securing approximately $280,000 of debt.
ITEM
3. LEGAL PROCEEDINGS
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 recognized $94,250 and $34,950 in 2012
and 2013 respectively, as recoveries when realized. As of December 31, 2014, the Company has received $118,250 of repayments.
This is a cumulative amount from 2012, 2013 and 2013. These recoveries of bad debt are included in selling, general and administrative
expenses for the year ending December 31, 2014.
As
previously reported, on July 28, 2011, certain of the Company’s stockholders filed a class action lawsuit (the “Class
Action”) against the Company and Messrs. Bordynuik and Baldwin, former officers of the Company 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 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 control. 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, the Company entered a stipulation agreement (the “Stipulation
Agreement”) in potential settlement of the Class Action. 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 December 18, 2014, the Court granted
that motion, and issued its Order granting preliminary approval of the settlement. The Court ordered that a settlement hearing
be held on April 27, 2015, at which time the Court will determine whether to give final approval of the settlement and enter a
Final Judgment in accordance therewith. 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 (the “SEC Action”) and the other a purported class action by Ellisa Pancoe and Howard Howell
(the “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 of the 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. On or about February
13, 2015, the Company and Mr. Bordynuik entered into a Settlement Agreement with Mr. Seneca, pursuant to a settlement reached
at a mediation. The Settlement Agreement calls for payment by the Company to Mr. Seneca of $110,000, in equal monthly installments
of $5,000, payable over a period of 22 months. These payments are secured by a mortgage of the Company’s property at 20
Iroquois St., Niagara Falls, New York. The settlement also calls for the issuance to Mr. Seneca of one million shares of the Company’s
common stock. Those shares are restricted securities and have been issued. Pursuant to the Settlement Agreement, the lawsuit was
dismissed with prejudice.
On
August 14, 2013, John Bordynuik, Inc. a Company not affiliated with Mr. John Bordynuik, Chief of Technology 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. On January 13, 2015, the Court issued its Order
denying those motions, and on January 30, 2015, the Company filed its Answer to the Complaint, denying the material allegations
of the Complaint and raising a number of affirmative defenses. The Company cannot predict the outcome of this matter at this time.
On
or about June 30, 2014, plaintiff National Maintenance Contracting Corp. filed a complaint in the Supreme Court of the State of
New York, County of Niagara. On September 10, 2014, plaintiff filed an Amended Complaint. On September 12, 2014, the amended complaint
was served upon the Secretary of State of the State of New York. The amended complaint alleges that the Company is indebted to
plaintiff in the amount of $137,461.21 on account of work performed by plaintiff for the Company. The amended complaint consists
of three causes of action: a first cause of action, for breach of contract; a second cause of action, for an account stated; and
a third cause of action, to foreclose on an alleged mechanic’s lien. On November 26, 2014, the Company filed a motion to
dismiss the third cause of action on the grounds that plaintiff failed to give the notice of pendency required by Section 17 of
the New York State lien law. On March 10, 2015, plaintiff filed a cross motion, seeking an Order permitting plaintiff to file
an amended mechanic’s lien nunc pro tunc and to extend same; in the alternative, the cross motion seeks an order permitting
plaintiff to file a lis pendens nunc pro tunc. The motion and cross motion are set for hearing on April 15, 2015. The Company
cannot predict the outcome of this matter at this time.
As
of December 31, 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.
ITEM
4. MINE SAFETY DISCLOSURES
None.
PART
II
ITEM
5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
Our
common stock is quoted for trading on the OTCQB under symbol “PTOI”. The following table sets forth, for each of the
quarterly periods indicated, the high and low bid prices of our common stock. The prices reflect inter-dealer quotations, do not
include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.
| Quarter | |
High | | |
Low | |
| 2013: | |
| | | |
| | |
| First Quarter | |
$ | 1.49 | | |
$ | 0.61 | |
| Second Quarter | |
| 0.75 | | |
| 0.29 | |
| Third Quarter | |
| 0.50 | | |
| 0.32 | |
| Fourth Quarter | |
| 0.38 | | |
| 0.09 | |
| | |
| | | |
| | |
| 2014: | |
| | | |
| | |
| First Quarter | |
$ | 0.31 | | |
$ | 0.06 | |
| Second Quarter | |
| 0.19 | | |
| 0.08 | |
| Third Quarter | |
| 0.19 | | |
| 0.08 | |
| Fourth Quarter | |
| 0.12 | | |
| 0.05 | |
Holders
The
last sales price of our common stock as reported by the OTC Market on March 30, 2015 was $0.085 per share.
On
March 31, 2015, there were 486 holders of record.
As
of March 31, 2015, we had issued and outstanding (i) 120,246,157 shares of common stock, $0.001 par value per share.
Dividend
Policy
We
have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings
to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock.
Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then
existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions,
business prospects and other factors that the Board of Directors considers relevant.
Recent
Sales of Unregistered Securities
Our
sales of unregistered securities have been previously reported in our reports on Forms 8-K and 10-Q filed with the SEC.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table sets forth certain information as of December 31, 2014 with respect to equity compensation plans under which the
Company’s common Stock may be issued.
| Plan
Name | |
Number
of securities to be
issued upon exercise of
outstanding
options,
warrants and rights | | |
Weighted
average exercise
price of outstanding options,
warrants
and rights | | |
Number
of securities
remaining available for
future
issuance under equity
compensation plans | |
| Equity compensation plans approved by security holders | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| Plastic2Oil, Inc. 2012 Long-Term Incentive Plan | |
| 5,303,334 | | |
| 1.30 | | |
| 4,477,716 | |
| Equity Compensation Plans not Approved by Stockholders | |
| N/A | | |
| N/A | | |
| N/A | |
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM
6. SELECTED FINANCIAL DATA
Not Applicable
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following management’s discussion and analysis (the ” MD&A “) of the results of operations of the Company
should be read in conjunction with the consolidated financial statements of the Company, together with the accompanying notes,
as well as other financial information included elsewhere in this Report. This discussion contains forward-looking statements
that involve certain risks and uncertainties, and that reflect estimates and assumptions. See the section titled, “Cautionary
Statement Regarding Forward-Looking Statements” for more information on forward-looking statements. Our actual results may
differ materially from those indicated in forward-looking statements. Factors that could cause our actual results to differ materially
from our forward-looking statements are described in “Risk Factors” Part I Item 1A, and elsewhere in this Report.
Business
Overview
For
financial reporting purposes, we operate in two business segments, (i) our P2O® solution business, which manufactures and
sells the fuel produced through our two operating P2O processors and (ii) data storage and recovery (the “Data Business”).
Previously, we operated a recycling facility for waste paper fiber processing, a chemical processing and cleaning business, known
as Pak-It, and a retail and wholesale distribution business, known as Javaco, Inc. As of December 31, 2014, we had exited all
of these businesses and their results in all periods presented are classified as discontinued operations (Note 15).
Our
P2O business has begun the transition from research and development to a commercial manufacturing and production business. We
plan to grow mainly from sale of processors first, and fuel seller second.
We
anticipate that this segment will account for substantially all of our revenues in 2015 and beyond. Historically, however, our
revenues have been derived primarily from our other segments and products, including those noted above as discontinued operations.
The
following table highlights since inception the proceeds from financings, research and development expenditures, investment in
property, plant and equipment and fuel produced:
| | |
FY 2009 | | |
FY 2010 | | |
FY 2011 | | |
FY 2012 | | |
FY 2013 | | |
FY 2014 | | |
Total | |
| Net financing proceeds | |
$ | - | | |
$ | 4,080,166 | | |
$ | 8,236,126 | | |
$ | 11,699,066 | | |
$ | 7,072,752 | | |
$ | 1,705,095 | | |
$ | 32,793,205 | |
| Research & development cost | |
| - | | |
| 492,290 | | |
| 1,048,652 | | |
| 445,947 | | |
| 465,671 | | |
| 20,999 | | |
| 2,473,559 | |
| Investment in property, plant & equipment | |
$ | 535,521 | | |
$ | 1,069,810 | | |
$ | 2,875,104 | | |
$ | 311,998 | | |
$ | 2,581,555 | | |
$ | 13,775 | | |
$ | 7,387,763 | |
| Fuel produced (in gallons) | |
| - | | |
| - | | |
| - | | |
| 317,224 | | |
| 337,813 | | |
| 12,959 | | |
| 667,996 | |
Plastic2Oil
Business
Our
business focus is to sell processors. We will operate our processors to test potential customer’s feedstock. 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 to be modular solutions 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 business is a proprietary process that converts waste plastic into fuel through a series of chemical reactions. We began developing
this process in 2009 and began very limited production in late 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 located at our Niagara Falls, New York facility. Currently, as of the filing of this report, we have three operational
processors and two additional processors in the process of assembly. Our processors are capable of producing Naphtha, Fuel Oil
No. 2 and Fuel Oil No. 6. Our P2O process also produces two by-products, a reusable off-gas similar to natural gas and a petcoke
carbon residue. We sell our fuel products to fuel wholesalers and directly to commercial and industrial end-users. We primarily
use our off-gas product in our processing operations to fuel the burners in our P2O processors. We have years of significant operating
data and have solved numerous challenges that have blocked competitor success. Since inception we’ve produced 667,996 gallons
of fuel.
2014
update
The
Company began implementing a shift in business strategy, which focuses on the sale and licensing of our proprietary processors,
as opposed to exclusively processing plastics and selling fuel. In light of the company’s exclusive focus on completing
sales and licensing of our processors, we have temporarily suspended our plastic processing and fuel production operations at
the Niagara Falls, NY site. This being said, we have renewed our permits accordingly as our plan is to resume operations for the
purpose of “showcasing” our processors once we execute a processor sale. Importantly, the temporary shutdown of the
company’s plastic processing and fuel production operations has had absolutely no effect on the company’s ability
to market our processors or negotiate with potential buyers. Another recent change was the decommissioning of several older fuel
tanks, which were rendered obsolete by the tank farm we installed with Processor #3.
We
continue to believe that our third generation Plastic2Oil processor, which we call our “flagship” processor, is the
most automated, green, viable, and technologically advanced process in the world for converting waste plastics into usable fuel
and we firmly believe there is substantial market potential for the sale and license of our processors. In its October 2014 report,
entitled “Economic Impact of Plastics-to-Oil Facilities in the U.S.,” the American Chemistry Council (ACC) explored
the potential impact that building plastics-to-oil (PTO) facilities in the U.S. could have on economic output and job creation.
The report concluded that the U.S. could support as many as 600 PTO facilities depending on the production characteristics and
size of each facility, generating:
| |
● |
Up
to 38,900 jobs supported by new PTO operations. |
| |
|
|
| |
● |
8,800
would be directly employed by the facilities. |
| |
|
|
| |
● |
An
additional 17,200 jobs would be in supply chain industries that are related to the plastics recovery industry and supporting
the facilities. |
| |
|
|
| |
● |
Another
12,900 payroll-induced jobs would be supported by the spending of the earnings of workers in new PTO plants and throughout
the supply chain. |
| |
|
|
| |
● |
$2.1
billion in annual payrolls generated by PTO facilities. |
| |
|
|
| |
● |
$6.6
billion in capital investment by the plastics-to-oil industry to build new facilities. |
| |
|
|
| |
● |
$8.9
billion in U.S. economic output from PTO operations. |
| |
|
|
| |
● |
$3.7
billion related to increased oil production. |
| |
|
|
| |
● |
$5.2
billion in additional supplier and payroll-induced impacts. |
| |
|
|
| |
● |
$18.0
billion of economic output during the investment phase. |
To
read the full article, please go to: http://plastics.americanchemistry.com/Stand-Alone-Content/Economic-Impact-of-Plastics-to-Oil-Facilities.pdf
EcoNavigation
Transaction
On
January 2, 2015, we entered into four related agreements with EcoNavigation, LLC (“EcoNavigation”) in connection with
the supply of plastic-to-oil, or P2O, processors by the Company to EcoNavigation, and the Company’s related license of certain
P2O technologies, supply of catalyst materials and provision of maintenance and other services. The obligation of EcoNavigation
to purchase any P2O processors and to perform its other obligations under the agreements are contingent upon successful completion
of a pilot program and other contingencies described below. The four agreements, which are described in more detail below and
attached as exhibits hereto are: (i) an Equipment Supply Contract, (ii) a Technology License and Referral Agreement, (iii) a Catalyst
Supply Agreement, and (iv) a Monitoring, Maintenance, Repair and Upgrade Agreement (collectively, the “Processor Agreements”).
The
Processor Agreements establish the Company as the exclusive supplier of processing equipment to be used by EcoNavigation, which
is engaged in the business of processing plastic feedstock for the purpose of creating fuel. However, the Company may sell its
processors or may enter into licensing agreements with other companies in the future, insofar as the Processor Agreements are
not exclusive as to the Company.
Equipment
Supply Contract
The
Equipment Supply Contract provides for the purchase of P2O processors by EcoNavigation from the Company. Assuming the satisfaction
of the contingencies described below, EcoNavigation will purchase a minimum of six processors within three years from the execution
of this Contract. Further, not less than two processors, and up to four processors, may be ordered by EcoNavigation as part of
its initial order (“Initial Order”). The amount to be paid by EcoNavigation to the Company under the Initial Order
will be between $5 million and $10 million, depending on the number of processors ordered.
Technology
License and Referral Agreement
The
Technology License and Referral Agreement provides that the Company will grant EcoNavigation a non-exclusive license in the United
States for a twenty-year term to use and apply certain technology owned by the Company for the processing of plastic feedstock
using the processors purchased by EcoNavigation from the Company pursuant to the Equipment Supply Contract. In exchange for the
license granted, the Company will receive a monthly royalty equal to five percent of the gross revenues from sales by EcoNavigation
of fuel and other byproducts generated by the processors. This Agreement also provides for an escrow of certain know-how related
to the catalyst, which will be automatically licensed to EcoNavigation in the event of certain failures by the Company to meet
its obligations under the Catalyst Supply Agreement so that EcoNavigation may seek an alternate catalyst supplier until the failure
is remedied.
Catalyst
Supply Agreement
The
Catalyst Supply Agreement provides that, for the same term as the Technology License and Referral Agreement, the Company will
supply the catalyst needed by EcoNavigation for all processors purchased from the Company. EcoNavigation will pay the Company
$0.50 per pound for the catalyst, subject to Consumer Price Index adjustments.
Monitoring,
Maintenance, Repair and Upgrade Agreement
The
Monitoring, Maintenance, Repair and Upgrade Agreement provides that, for twenty years from the operational commencement of the
last processor supplied to EcoNavigation, the Company will perform monitoring, special maintenance, and upgrades in connection
with the processors purchased by EcoNavigation. EcoNavigation will pay for parts and labor in accordance with a schedule set forth
in the Agreement.
EcoNavigation
has the right to terminate each of the Processor Agreements upon either of the following events: (i) if EcoNavigation does not
accept the results of a pilot test program to be performed within the first 120 days of the execution date (“Pilot Program”);
or (ii) EcoNavigation does not obtain adequate funding for the Pilot Program, or the Initial Processor Order and/or lacks adequate
working capital. In addition, the Processor Agreements contain certain customary termination rights, including without limitation,
upon a material breach of one or more of the Processor Agreements or upon the other party’s bankruptcy or insolvency. A
termination of any one of the Processor Agreements triggers a termination of the other Processor Agreements.
These
negotiation periods are lengthy in nature and have no effect in our ability to continue marketing our processors or negotiate
with potential buyers. We continue to have business discussions with other qualified and interested potential customers on the
sale and licensing of our proprietary processors.
Unseasonably
cold temperatures in the winter of 2013/2014
The
temperature in winter 2013/2014 was far below what we had ever operated through, with some periods sustaining below zero Fahrenheit
temperatures. This low temperature caused many local issues with off-the-shelf diesel freezing and gelling. Our Fuel Oil #6 meets
ASTM D396 fuel standards which include a pour point (or freezing point) of -6 C pour point (21° F). The temperature often
dropped below 5°F and at some periods below 0°F. These unseasonably cold temperatures and high winds froze our fuel and
in some places our new water lines. We experimented with pour point depressants used in diesel for artic temperatures. After testing
and verifying compatibility and functionality, we secured a good pour point depressant that will allow our fuel to flow at temperatures
down to -30°C or -22°F. Subsequently to the weather damage and condenser failure (see below), we idled our processors
in late December 2013. We also temporarily reduced our operation and fabrication work force in January 2014. We repaired temperature
damage from the 2013/2014 winter in the spring of 2014. We replaced the new condensers on Processor #3 with condensers that have
historically never failed in the process. We are adding equipment to our facility support systems to inject additives for lubricity
and pour point to meet off road diesel use. The additives we tested performed well in off-road diesel equipment and the pour depressant
is tested to work in extremely cold temperatures.
We
use a device called a condenser to cool hot liquids or heat cold liquids. Numerous condensers are located throughout a processor
and plant. Our legacy condensers were performing well over the past few years however there were different sizes and manufacturers
used. This posed lead time problems and higher costs when sourcing parts for future sales. In the spring of 2013, we standardized,
acquired and installed new condensers for cooling to standardize all condensers across the factory. We also designed, procured,
and installed central plant support systems for our processors including: centralized water chilling and storage, centralized
gas compression for collect, compress and distribute off-gas generated by processors, centralized hot oil system for cooling high
temperature fluids, and developed a site control system to monitor all of the auxiliary plant support systems. In late December
2013, the new condensers installed across the plant and in the processors began to fail. Over a six week period, all the new condensers
failed in operation. Upon reviewing the failure in the condenser, we found the stitch welding used to manufacture them was defective.
Management believes we have developed a comprehensive front-line QC procedure to ensure plastic is not littered tools, steel or
bad fillers. All new vendor equipment must be tested on our R&D system, Processor#1, before deploying on other processors.
This will mitigate the risk of poor quality components from being sources or installed without significant testing.
Feedstock
Procurement
Historically,
we operated under the premise that we would be able to obtain significant quantities of waste plastic at little or no cost to
us, as we offered companies a more cost-effective disposal method for this waste stream. During 2013, as we processed increasing
amounts of waste plastic, we made the determination that in order to obtain the most optimal feedstock on a consistent basis,
we would be required to purchase this feedstock. We continue to receive free plastic from time to time, however, we have concluded
that these sources are not able to provide us with the amount of feedstock required to consistently feed the processors at the
optimum feedrates.
Data
Recovery & Migration Business
The
Data Recovery & Migration Business is not as capital intensive as our P2O business, but is time consuming with regard to the
allocation of the time of John Bordynuik, our founder and currently a Consultant. His time is needed to interpret and read tape
data and make necessary adjustments to the programming of the tape-reading equipment in order to accurately read the data. Revenues
for this segment will vary based on our ability to read the tape data timely and the availability of Mr. Bordynuik to dedicate
portions of his time to reading and interpreting the data from our customers’ media in the event that certain updates or
changes to the programming are needed. During 2013 and 2014, we were able to complete certain orders for tape reading and recognize
revenue related to this service. Due to the aforementioned time constraints of the Data Business, we are unable to routinely complete
orders for tape reading services and recognize revenue for the work and revenue from this business will be limited and not predictable.
Listing
on the OTCQB
As
at March 31, 2015, we had 120,246,157 shares of common stock issued and outstanding. Our common stock is currently trading on
the OTCQB marketplace in the United States of America under the stock ticker symbol “PTOI.” On March 30, 2015, the
last trading day prior to the date of this filing, the closing price of the common stock on the OTCQB was $0.085.
Sources
of Revenues and Expenses
Revenues
We
currently derive revenues from two defined business segments: (1) P2O, through the manufacture of processor and as well as from
the sale of Fuel Oil No 2, Naphtha and Fuel Oil # 6; and (2) Data Business, through the reading and interpretation of magnetic
tape data. We did not derive any revenue from the operations of Recycling Center, Javaco and Pak-It during the year; however,
the results of operations Recycling Center, Javaco and Pak-It for all prior years presented have been classified as discontinued
in the statement of operations.
Cost
of Sales
Costs
of Sales for P2O consist of the following:
| |
● |
feedstock
procurement costs; |
| |
|
|
| |
● |
overhead
incurred at our Niagara Falls Facility related to the operation of the processors; and |
| |
|
|
| |
● |
freight
costs incurred in shipping of plastics and fuels. |
Costs
of sales for our Data Business mainly consist of direct labor costs incurred in reading and interpreting the tape data as well
as costs for transferring the tape data to storage media.
The
costs of sales for the Recycling Center, Javaco and Pak-It have been classified as discontinued operations in the statement of
operations.
Operating
Expenses
Operating
expenses consist primarily of the following:
| |
● |
personnel-related
costs including employee payroll, payroll taxes, stock based compensation and insurance; |
| |
|
|
| |
● |
plant
and processor related costs including repairs and maintenance, processing and welding consumables, safety equipment and related
costs; |
| |
|
|
| |
● |
professional
fees including legal fees, accounting fees including audit and tax professional costs, certain public company required fees,
consulting fees and other professional and administrative costs; |
| |
|
|
| |
● |
insurance
costs consisting of pollution, workers compensation, general liability, and directors and officers insurance policies; |
| |
|
|
| |
● |
compliance
related costs including environmental consulting fees, stack test and other related testing costs and permitting costs; |
| |
|
|
| |
● |
depreciation
expense related to our property plant and equipment; and |
| |
|
|
| |
● |
Impairment
expense related to our property, plant and equipment. |
Other
Income (Expense)
In
2014, other income (expense) of ($528,711) consisted mainly of the amortization of debt discount ($385,366), and loss on disposal
of assets ($75,052). In 2013, other income (expense) of ($113,584) consisted mainly of the amortization of debt discount ($119,580),
loss on disposal of assets ($17,769) and offset by miscellaneous receipts of payments from scrap metal.
Results
of Operations – Year ended December 31, 2014 compared to Year ended December 31, 2013
Revenue
Revenue
is primarily derived from our P2O business through the sale of our fuels and processed waste paper fiber. As we only recently
shifted our business strategy to selling fuel processors, we did not derive any revenue from processor sales in 2013 or 2014.
Additionally, we supplement this revenue with revenue from our Data Business through reading and interpreting magnetic tape media.
The following table shows a breakdown of our revenues from these sources.
| Revenue | |
Year
ended
December 31, 2014 | | |
Year
ended
December 31, 2013 | | |
%
Change | |
| P2O Revenue | |
| | | |
| | | |
| | |
| Fuels | |
$ | 46,111 | | |
$ | 599,413 | | |
| (92.3 | ) |
| | |
| | | |
| | | |
| | |
| Total
P2O Revenue | |
| 46,111 | | |
| 599,413 | | |
| (92.3 | ) |
| | |
| | | |
| | | |
| | |
| Data
Business | |
| 12,906 | | |
| 93,712 | | |
| (86.2 | ) |
| TOTAL
REVENUE | |
$ | 59,017 | | |
$ | 693,125 | | |
| (91.5 | ) |
Our
fuel revenue comprised approximately 78% and 86% of our total revenue for the years ended December 31, 2014 and December 31, 2013,
respectively. Fuel shipments in 2014 were mainly from existing inventory on hand. Fuel revenues 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 pricing
for our Naphtha. The decrease in fuel revenue in 2014 as compared to 2013 was mainly due to management’s decision to shut
down its production in the fourth quarter of 2013 due to the severe cold weather that caused damage to condensers and other components
of our processors. The damage requires substantial working capital for general repairs and replacement of damaged condensers.
These processors were idle for all of 2014 and are currently idle. Management estimates the processors will remain idle until
the third quarter of 2015, other than pilot runs to support processors sales.
The
following tables provide a comparison of production and sales of our three specific fuels for the years ended December 31, 2014
and 2013.
| |
|
Gallons
Produced
(Year
ended December 31,) |
|
|
Gallons
Sold
(Year
ended December 31,) |
|
| Fuel
Type |
|
2014 |
|
|
2013 |
|
|
%
Change |
|
|
2014 |
|
|
2013 |
|
|
%
Change |
|
| Fuel
Oil No. 6 |
|
|
- |
|
|
|
45,122 |
|
|
|
(63.0 |
) |
|
|
- |
|
|
|
45,190 |
|
|
|
(64.3 |
) |
| Fuel Oil No. 2 |
|
|
12,959 |
|
|
|
199,523 |
|
|
|
88.5 |
|
|
|
17,699 |
|
|
|
168,480 |
|
|
|
55.9 |
|
| Naphtha |
|
|
- |
|
|
|
93,168 |
|
|
|
4.1 |
|
|
|
- |
|
|
|
88,338 |
|
|
|
(1.3 |
) |
| TOTAL |
|
|
12,959 |
|
|
|
337,813 |
|
|
|
6.5 |
|
|
|
8,362 |
|
|
|
302,008 |
|
|
|
(6.9 |
) |
Revenues
from the Data Business were driven by the completion of open and outstanding purchase orders.
Cost
of Goods Sold & Total Gross Profit
Fuel
shipments in 2014 were mainly from existing inventory on hand. Our 2013 costs of goods sold consisted of feedstock procurement
and pre-processing costs, overhead incurred at our Niagara Falls, NY facility as well as the freight associated with the shipments
of our plastics and fuels. Our feedstock procurement strategy is geared towards obtaining significant amounts of high quality
feedstock at the lowest pricing available. The following tables are a breakdown of the costs of goods sold and Total Gross Profit:
| Cost
of Goods Sold | |
Year
ended
December 31, 2014 | | |
Year
ended
December 31, 2013 | | |
%
Change | |
| P2O COGS | |
| | | |
| | | |
| | |
| Fuels | |
$ | 92,500 | | |
| 690,488 | | |
| (86.6 | ) |
| | |
| | | |
| | | |
| | |
| Total
P2O COGS | |
| 92,500 | | |
$ | 690,488 | | |
| (86.6 | ) |
| | |
| | | |
| | | |
| | |
| Data
Business | |
| 5,206 | | |
| 61,072 | | |
| (91.5 | ) |
| TOTAL
COGS | |
$ | 97,706 | | |
$ | 751,560 | | |
| (87.0 | ) |
Total
Gross Profit
| Gross
Profit | |
Year
ended
December 31, 2014 | | |
Gross
Profit
% - Year ended
December
31, 2014 | | |
Year
ended
December 31, 2013 | | |
Gross
Profit
% - Year ended
December
31, 2014 | |
| P2O | |
| | | |
| | | |
| | | |
| | |
| Fuels | |
$ | (46,389 | ) | |
| (100.6 | ) | |
$ | (91,075 | ) | |
| (15.2 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Total
P2O Gross Loss | |
| (46,389 | ) | |
| (100.6 | ) | |
| (91,075 | ) | |
| (15.2 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Data
Business Gross Profit | |
| 7,700 | | |
| 59.7 | | |
| 32,640 | | |
| 34.8 | |
| TOTAL GROSS
LOSS | |
$ | (38,689 | ) | |
| (65.6 | ) | |
$ | (58,435 | ) | |
| (8.4 | ) |
P2O
cost of goods sold decreased significantly in 2014 as compared to 2013 mainly due to the decrease in volume, and the company’s
decision to shut down its production in 2014 due to the damaged condensers and other components of our processors. The 2014 fuel
shipments were from inventory on hand. 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.
For
the years ended December 31, 2014 and 2013, we recorded a total gross loss of $38,689 and $58,435 respectively. The gross loss
related to our fuel sales for year ended December 31, 2014 was negatively impacted by the significant decrease in production and
shipment of our fuel product. This was due to our decision to shut down production in 2014 due to the damaged condensers and other
components of our processors. The gross profit for the years ended December 31, 2014 and 2013 were $7,700 and $32,640, respectively,
for the Data Business. This decrease was mainly due to the reduction of headcount by furloughing our operations personnel needed
to perform these functions.
Operating
Expenses
We
incurred operating expenses of $6,233,619 during the year ended December 31, 2014, compared to $11,034,787 for the year ended
December 31, 2013. This $4,505,425 decrease was mainly due to the reduction of headcount by furloughing our operations and administration
personnel. The major area was driven by a $1,145,895 in non-cash stock compensation decrease, $1,495,491 in wages decrease, $562,882
in repairs and maintenances decrease, and $759,339 of additional operational expenses, offset by a $903,000 non-cash professional
increase. There is also an impairment charge of $927,163 for processor #3 as its production output is reduced from general production
runs to pilot runs. 2014 compensation expense includes $583,818 non-cash accrued wages. A breakdown of the components of operating
expenses for the fiscal years ended December 31, 2014 and 2013, are as follows:
| Operating
Expenses |
|
Fiscal
Year Ended
December 31, 2014 |
|
|
Fiscal
Year Ended
December 31, 2013 |
|
| Selling, General and Administrative
expenses-Professional Fees |
|
$ |
1,368,295 |
|
|
$ |
708,942 |
|
| Selling, General and Administrative expenses-Compensation |
|
|
1,215,293 |
|
|
|
5,315,961 |
|
| Selling, General and Administrative expenses-Other |
|
|
1,656,649 |
|
|
|
2,390,307 |
|
| Depreciation & Accretion |
|
|
1,045,220 |
|
|
|
1,031,077 |
|
| Research & Development |
|
|
20,999 |
|
|
|
465,671 |
|
| Impairment Loss |
|
|
927,163 |
|
|
|
1,122,829 |
|
| Total
Operating Expenses |
|
$ |
6,233,619 |
|
|
$ |
11,034,787 |
|
Non-Operating
Expenses
Interest
Expenses
For
the year ended December 31, 2014, we incurred net interest expense of $438,992 as compared to $119,580 for the year ended December
31, 2013.
Income
Tax Expenses
For
the years ended December 31, 2014, and 2013, we had no federal taxable income due to net losses and recorded a deferred tax asset
and a valuation allowance to the extent that those assets are attributable to net operating losses. We recognized the valuation
allowance because we are unsure as to the ability to use these assets in the near future due to continued operating losses.
For
the years ended December 31, 2014 and 2013, we incurred $Nil current income tax and future income tax expenses from continuing
operations.
Net
Loss
We
incurred a net loss of $6,801,519 in the year ended December 31, 2014 as compared to a net loss of $13,234,265 in the year ended
December 31, 2013. These losses consisted of losses from continuing operations of $6,792,799 and $11,206,806 for the years ended
December 31, 2014 and 2013, respectively, and losses from discontinued operations of $8,720 and $2,027,459 for the years ended
December 31, 2014 and 2013, respectively. The decrease in net loss for the year ended December 31, 2014 was driven mainly by the
losses on discontinued operations from our Niagara Falls recycling center, and coupled with the reductions in operating expenses
we realized in the current year, as discussed previously.
Liquidity
and Capital Resources
At
December 31, 2014, we had a cash balance of $179,652. Our principal sources of liquidity in 2014 were the proceeds of the sale
of secured promissory note, the proceeds from the sale of shares of our common stock in private placements and cash generated
from our P2O operations. As discussed earlier in this MD&A, our processors are currently idle and, thus, we are not producing
fuel or generating fuel sales. Furthermore, we have shifted our business strategy to processor sales, rather than fuel sales.
Our current cash levels are not sufficient to enable us to make the required repairs to our processors or to execute our business
strategy as described in this Report. As a result, we intend to seek significant additional capital through the sale of our equity
and debt securities and other financing methods to enable us to make the repairs, to meet ongoing operating costs and reduce existing
current liabilities. We also intend to seek to cash advances or deposits under any new processor sale agreements and/or related
technology licenses. Management currently anticipates that the processors will remain idle until at least the third quarter of
2015 other than running pilot runs for sale of processors. Due to the many factors and uncertainties involved in capital markets
transactions, there can be no assurance that we will raise sufficient capital to allow us to resume operations in 2015, or at
all. In the interim, we anticipate that our level of operations will continue to be nominal, although we plan to continue to market
our P2O processors with the intention of making additional P2O processor sales and technology licenses.
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 our 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, 2014 includes an explanatory
paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements do not include
any adjustments that might be necessary if we are unable to continue as a going concern.
The
following table provides a comparative summary of our cash flows for the fiscal years ended December 31, 2014 and 2013.
| |
|
Fiscal
Year Ended
December 31, 2014 |
|
|
Fiscal
Year Ended
December 31, 2013 |
|
| Cash Flow from
Operating Activities |
|
|
|
|
|
|
|
|
| Net
Loss from Continuing Operations |
|
$ |
(6,792,799 |
) |
|
$ |
(11,206,806 |
) |
| Net
Loss from Discontinued Operations |
|
|
(8,720 |
) |
|
|
(2,027,459 |
) |
| |
|
|
|
|
|
|
|
|
| Net
Loss |
|
|
(6,801,519 |
) |
|
|
(13,234,265 |
) |
| Net
Cash Used in Operating Activities |
|
|
(1,710,679 |
) |
|
|
(7,607,520 |
) |
| Cash Flows
from Investing Activities |
|
|
|
|
|
|
|
|
| Net
Cash Used in Investing Activities |
|
|
(13,775 |
) |
|
|
(3,227,003 |
) |
| Cash Flows
from Financing Activities |
|
|
|
|
|
|
|
|
| Net
Cash Provided by Financing Activities |
|
|
1,700,157 |
|
|
|
7,072,752 |
|
| |
|
|
|
|
|
|
|
|
| Cash
and Cash Equivalents at Beginning of Year |
|
|
203,949 |
|
|
|
3,965,720 |
|
| Cash
and Cash Equivalents at End of Year |
|
$ |
179,652 |
|
|
$ |
203,949 |
|
Cash
Flow from Operations
Cash
used in operations was $1,710,679 and $7,607,520 for the years ended December 31, 2014 and 2013, respectively. In 2014 cash was
mainly used to continue funding the minimum operating costs. In 2013, cash was mainly used to our increased cash requirements
to fund the continued growth of our Plastic2Oil business.
Cash
Flow from Investing Activities
Cash
used in investing was $13,775 and $3,227,003 for the years ended December 31, 2014 and 2013, respectively. In 2014, the investment
pertains to existing capital leases. In 2013, this was mainly attributable to our significant investment in property, plant and
equipment in the expansion of our business.
Cash
Flow from Financing Activities
Cash
flow from financing activities was $1,700,157, and $7,072,752, for the years ended December 31, 2014 and 2013, respectively. For
both 2014 and 2013, these amounts were mainly driven by the proceeds received from the issuances of a secured note, and Series
B Preferred stock (2013), shares common stock in private placements, slightly offset by the repayment of short term notes and
loans.
Off-Balance
Sheet Arrangements
We
had no off-balance sheet arrangements in the years ended December 31, 2014 and 2013, other than operating leases, as discussed
in Note 7.
Transactions
with Related Parties
At
December 31, 2014, the company’s accounts payable included a $75,218 outstanding balance to Heddle Marine Services, a business
controlled by Mr. Richard Heddle, the company’s Chief Executive Officer and member of the Company’s board of directors.
The amounts payable arose from payments made by Heddle Marine on behalf of our company to a logistics company to transport fuel
from the Niagara Falls site to the blending tanks at our facility in Thorold, Ontario, as well as for labor and material provided
by Heddle Marine towards upkeep of our recycling center, currently reported in discontinued operations.
At
December 31, 2014, the company’s accrued expenses include a $237,000 outstanding balance to 2335524 ONTARIO, INC., a business
controlled by Mr. John Bordynuik, former Chief of Technology of the Company. This amount represents expenses, including laboratory
testing, consumables, catalyst for the processors, and labor costs incurred since 2012 that the company had previously agreed
to reimburse.
In
November 19, 2014, we entered into a Subscription Agreement with Heddle Marine Services, a business controlled by Mr. Richard
Heddle, the Company’s Chief Executive Officer and a member of the Company’s board of directors, pursuant to which
we issued to Heddle Marine 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 $0.12 per share.
From
June 2014 to March 2015, Mr. Heddle, the Company’s Chief Executive Officer, made several personal loans to the company to
provide working capital. As of March 30, 2015, the current aggregate outstanding balance was $398,865.
In
March 2014, the Company’s former Chief of Technology, as personal guarantor of a capital lease from Roynat Lease Finance,
paid the outstanding obligation in the amount of $19,928 on the Company’s behalf and personally assumed the lease. (See
Note 7).
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, pursuant to which we issued to Mr. Heddle a $1 million principal
amount 12% Secured Promissory Note, together with a five-year warrant to purchase up to one million shares of the Company’s
common stock at an exercise price of $0.54 per share. The gross proceeds to the company were $1 million. In September 30, 2013,
the Company entered into second Purchase Agreement with Mr. Heddle, a second note (a $2 million principal amount Note), together
with a Warrant to purchase up to two million shares of the Company’s common stock at an exercise price of $0.54 per share.
The gross proceeds to the Company were $2 million. Both notes bear interest of 12% per annum compounded annually and interest
are payable upon maturity. The notes mature on August 31, 2018 and September 30, 2018, respectively. Repayment of the notes is
secured by a security interest in substantially all of the assets of the Company and its subsidiaries.
Plastic2Oil
Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract
in 2010 with a company owned by Mr. Heddle, who later (in 2014) became our CEO. The contract provides the related company with
a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related
company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations
of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At December 31, 2013,
there were no currently installed marine vessel processors as per the terms of the contract.
Critical
Accounting Policies
Basis
of Consolidation
The
consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, Plastic2Oil (Canada)
Inc., JBI CDE Inc., Plastic2OilI Re One Inc., and JBI Re #1 Inc., Plastic2Oil of NY #1, and Plastic2Oil Marine Inc.. The results
of Javaco and Pak-It are consolidated and classified as discontinued operations for all periods presented. All of our intercompany
transactions and balances have been eliminated on consolidation. Amounts in the consolidated financial statements are expressed
in U.S. dollars. Certain prior year amounts have been classified to confirm with current period presentation with no impact as
the Company’s net loss or equity.
Estimates
The
preparation of financial statements in conformity with U.S. 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 intangible assets, share based compensation, asset retirement
obligations, inventory obsolescence, accrued liabilities and accounts receivable exposures.
Inventories
Inventories,
which consist primarily of plastics, costs to process the plastic and processed fuel are stated at the lower of cost or market.
We use an average costing method in determining cost. Inventories are periodically reviewed for use and obsolescence, and adjusted
as necessary. As of December 31, 2014 and 2013, reserves for obsolescence were $326,526.
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 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 statement of operations in the year of disposal. Repairs
and maintenance expenditures are expensed as incurred and expenditures that increase the value or useful life of the asset are
capitalized.
Construction
in Process
The
Company capitalizes customized equipment built to be used in the future day to day operations at cost. Once complete and available
for use, the cost for accounting purposes is transferred to property, plant and equipment, where normal depreciation rates are
applied.
Impairment
of Long-Lived Assets
The
Company reviews for impairment of long-lived assets on an asset by asset basis. Impairment is recognized on properties held for
use when the expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down
to fair value. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs
to sell. The sale or disposal of a “component of an entity” is treated as discontinued operations. The operating properties
sold by the Company typically meet the definition of a component of an entity and as such the revenues and expenses associated
with sold properties are reclassified to discontinued operations for all periods presented (See Note 15).
As
of December 31, 2014 and 2013, we had recorded impairment losses on property, plant and equipment of $927,163 and $1,122,829,
respectively. The charge in 2014 relates specifically to Processor #3, which along with Processor #2 is being set up mainly for
pilot runs to support ongoing processor sales. The charges in 2013 relates to the Processor #1which is being set up for non-fuel
production as well as on its research & development testing.
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. As at December 31, 2014, the Company concluded that there was an asset retirement obligation associated with its assets
and, accordingly, a provision for retirement obligation has been recorded of $31,215 and $30,306 for the years ended December
31, 2014 and 2013, respectively. This liability is included in other long-term liabilities.
Environmental
Contingencies
We
record environmental liabilities at their undiscounted amounts on our 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.
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.
Leases
The
Company has entered into various leases for buildings and equipment. At the inception of a lease, the Company evaluates whether
it is operating or capital in nature. Operating leases are recorded as expense in the appropriate periods of the lease. Capital
leases are classified as property, plant and equipment and the related depreciation is recorded on the assets. Also, the debt
related to the capital lease is included in the Company’s short- and long-term debt obligations, in accordance with the
lease agreement.
Lease
inducements are recognized for periods of reduced rent or for larger than usual rent escalations over the term of the lease. The
benefit of a rent free period and the cost of future rent escalations are recognized on a straight-line basis over the term of
the lease.
Revenue
Recognition
The
Company recognizes revenue when it is realized or realizable and collection is reasonably assured. The Company considers revenue
realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists,
(ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable,
and (iv) collectability is reasonably assured.
P2O
processor sales are recognized when the customer take possession of the processors since title to the goods and the risk of loss
transfers from P2O to Customer upon delivery. P2O fuel 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 contract or negotiated prior to
the time of pick up. 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).
Research
and Development
The
Company is engaged in research and development activities. Research and development costs are charged as operating expense of
the Company as incurred. For the years ended December 31, 2014, and 2013, the Company expensed $20,999, and $465,671, respectively,
towards research and development costs. Components of the processors that are fabricated or purchased with research and development
plans and then used on the processor in production are capitalized into the cost of the processor and depreciated over the remaining
life of the processor.
Foreign
Currency Translation
The
consolidated financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 830. All monetary items have been translated
using the exchange rates in effect at the balance sheet date. All non-monetary items have been translated using the historical
exchange rates at the time of transactions. Income statement amounts have been translated using the average exchange rate for
the year. Foreign exchange gains and losses are included in the consolidated statements of operations.
Income
Taxes
The
Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax
assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis and are measured using enacted tax rates that apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
The
Company adopted the accounting standards associated with uncertain tax positions as of January 1, 2007. The adoption of this standard
did not have a material impact on the Company’s consolidated statements of operations or financial position. Upon adoption,
the Company had no unrecognized tax benefits. Furthermore, the Company had no unrecognized tax benefits at December 31, 2014 and
2013. The Company files tax returns in the U.S. federal and state jurisdictions as well as a foreign country. The years ending
December 31, 2008 through December 31, 2013 are open tax years for IRS review.
Segment
Reporting
We
operate in two reportable segments. ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”,
establishes standards for the way that public business enterprises report information about operating segments in their annual
consolidated financial statements. Operating segments are components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing
performance. Our operating segments include plastic-to-oil conversion (Plastic2Oil business), which includes processor sales as
well as fuel sales and Data Recovery and Migration, our magnetic tape reading segment. Our Chief Operating Decision Maker is the
Company’s Chief Executive Officer.
Concentrations
and Credit Risk
The
Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Canada Deposit Insurance
Corporation and the U.S. Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and has
not experienced any collection losses with these financial institutions.
During
the years ended December 31, 2014 and 2013, 89.0% and 81.0%, respectively, of total net revenues were generated from two and four
customers. As of December 31, 2014 and 2013 two and three customers, respectively, accounted for 100.0%, and 77.0% of accounts
receivable.
During
the years ended December 31, 2014 and 2013, 27.6% and 26.4% respectively, of total net purchases were made from four vendors.
As of December 31, 2014 and 2013, four suppliers accounted for 38.0%, and 27.9%, of accounts payable, respectively.
Fair
Value of Financial Instruments
Fair
value is defined under FASB ASC Topic 820 as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or the most advantageous market for an asset or liability in an orderly transaction between participants
on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize
the use of unobservable inputs. The standard describes a fair value hierarchy based on the levels of inputs, of which the first
two are considered observable and the last unobservable, that may be used to measure fair value. The levels are as follows:
| |
● |
Level
1 - Quoted prices in active markets for identical assets or liabilities- |
| |
|
|
| |
● |
Level
2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable
market data or substantially the full term of the assets or liabilities |
| |
|
|
| |
● |
Level
3 - Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets
or liabilities |
The
carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, notes payable, mortgage
payable and short-term loans approximate fair value because of the short-term nature of these items. Per ASC Topic 820 framework
these are considered Level 2 inputs where estimates are unobservable by market participants outside of the Company and must be
estimated using assumptions developed by the Company.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities and commitments in the normal course of business. We have experienced negative cash flows from
operations since inception, have incurred net losses from continuing operations of $6,792,799 and $11,206,806 for the years ended
December 31, 2014 and 2013, respectively, and have an accumulated deficit of $67,919,786 at December 31, 2014. These factors raise
substantial doubt about our ability to continue to operate in the normal course of business. We have funded our activities to
date almost exclusively from equity financings. See “Risk Factors—Risks Related to Our Business”.
Financial
Instruments and Other Instruments
We
do not have any outstanding financial instruments and/or other instruments.
Disclosure
of Outstanding Securities
As
of March 31, 2015, we had 120,246,157 shares of common stock issued and outstanding. On May 30, 2014, all of the issued and outstanding
shares of Series A Preferred Stock were cancelled and, on June 3, 2014, a Certificate of Withdrawal relating to the Series A Preferred
Stock was filed with the Secretary of State of Nevada. On June 30, 2014, all of the issued and outstanding shares of Series B
Preferred Stock were converted at the rate of one (1) share of Series B Preferred Stock to seven (7) shares of common stock.
In
conjunction with the Company’s 2012 Long Term Incentive Plan, options to purchase 5,240,000 shares of common stock with
the exercise price of $1.50, 2,060,000 shares of common stock with the exercise price of $0.38, and 50,000 shares of common stock
with the exercise price of $0.05 have been issued, of which 5,345,334 options are outstanding at December 31, 2014. 3,253,334
shares are vested and 2,034,000 shares vest in annual tranches as follows: during, 2015 (734,000 shares), 2016 (650,000 shares)
and 2017 (650,000 shares).
In
conjunction with the Company’s November 19, 2014 private placement, the Company sold a $1,000,000 principal amount of 12%
Promissory Note, together with a five-year warrant to purchase up to one million shares of the company’s common stock at
an exercisable price of $0.12 per share. The gross proceeds to the Company were $1 million.
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. 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 initial exercise price of $0.15
per share of common stock.
On
March 26, 2014, the Company entered into Subscription Agreements with eleven investors in connection with a private placement
of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and
issue to the Purchasers an aggregate of 3.2 million shares of its common stock and Warrants to purchase up to an additional 3.2
million shares of its common stock. The closings occurred between March 17 and 28, 2014. The purchase price per share was $0.05
and the gross proceeds to the Company were $320,000. The Warrants have a three year term, and an initial exercise price of $0.15
per share of common stock.
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 initial exercise price of $0.10
per share of common stock.
In
conjunction with the Company’s August 29, 2013 private placement, the Company sold a $1,000,000 principal amount of 12%
Promissory Note, together with a five-year warrant to purchase up to one million shares of the company’s common stock at
an exercisable price of $0.54 per share. The gross proceeds to the Company were $1 million.
In
conjunction with the Company’s September 30, 2013 private placement, the Company sold a $2,000,000 principal amount of 12%
Promissory Note, together with a five-year warrant to purchase up to two million shares of the company’s common stock at
an exercisable price of $0.54 per share. The gross proceeds to the Company were $2 million.
ITEM
7A. 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
We
mainly operate in the United States and Canada. Due to the relative stability of the Canadian Dollar in comparison to the U.S.
Dollar, we have not experienced foreign currency risk, however, should this stability change, we could be exposed to such risk.
Interest
Rate Risk
We
do not feel that we are subject to significant interest rate risk. We deposit surplus funds with banks earning daily interest
at fixed rates and we do not invest in any instruments for trading purposes. Additionally, all of our outstanding debt instruments
(our mortgage and capital leases) carry fixed rates of interests. We are exposed to opportunity risk should interest rates decrease.
The amount of interest bearing short-term debt outstanding as of December 31, 2014 and 2013 was $8,850 and $23,618, respectively.
Credit
Risk
Financial
instruments which potentially expose us to concentrations of credit risk consist principally of operating demand deposit accounts
and accounts receivable. Our policy is to place our operating demand deposit accounts with high credit quality financial institutions
that are insured by the FDIC, however, account balances may at times exceed insured limits. We extend limited credit to our customers
based upon their creditworthiness and establish an allowance for doubtful accounts based upon the credit risk of specific customers,
historical trends and other pertinent information.
We
maintain cash balances, at times, with financial institutions in excess of amounts insured by the Canada Deposit Insurance Corporation
and the U.S. Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and has not experienced
any collection losses with these financial institutions.
During
the years ended December 31, 2014 and 2013, 89.0%, and 81.0%, respectively, of total net revenues were generated from two and
four customers. As of December 31, 2014 and 2013 two and three customers, respectively, accounted for 100.0% and 77.0% of accounts
receivable.
During
the years ended December 31, 2014, and 2013, 27.6%, and 26.4%, of total net purchases were made from four vendors. As of December
31, 2014 and 2013, four suppliers accounted for 38.0%, and 27.9% respectively, of accounts payable.
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
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM- David Brooks
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and
Stockholders
of Plastic2Oil, Inc.
We
have audited the accompanying consolidated balance sheets of Plastic2Oil, Inc. Inc. as of December 31, 2014, and the related statements
of operations, comprehensive income, stockholder's deficit, and cash flows for year then ended. Plastic2Oil, Inc.'s management
is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audit provide a reasonable basis for our opinion.
We
were not engaged to examine management's assertion about the effectiveness of Plastic2Oil, Inc.'s internal control over financial
reporting as of December 31, 2014 and, accordingly, we do not express an opinion thereon.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Plastic2Oil, Inc. as of December 31, 2014, and the results of its operations and cash flows for year then ended, in conformity
with accounting principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company has incurred operating losses, has incurred negative
cash flows from operations and has a working capital deficit. These and other factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plan regarding these matters is also described in Note 1 to the consolidated
financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
 |
|
| D. Brooks and
Associates CPA's, P.A |
|
| West Palm Beach,
Florida |
|
| March 31, 2015 |
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of JBI, Inc.
We
have audited the accompanying consolidated balance sheet of JBI, Inc. (the “Company”) as of December 31, 2013, and
the related consolidated statements of operations, changes in shareholders’ equity (deficit) and cash flows for the year
then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of JBI, Inc. as of December 31, 2013 and the results of its operations and its cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed
in Note 1, the Company has experienced negative cash flows from operations since inception and has accumulated a significant deficit
which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters
are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 |
|
| |
|
| MNP
LLP |
|
| Toronto,
Canada |
|
| June
3, 2014 |
|
Plastic2Oil,
Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
December
31, 2014 and 2013
| | |
2014 | | |
2013 | |
| ASSETS | |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 179,652 | | |
$ | 203,949 | |
| Cash held in attorney trust (Note 2) | |
| 2,003 | | |
| 12,637 | |
| Restricted cash (Note 2) | |
| 100,222 | | |
| 100,122 | |
| Accounts receivable, net of allowance of $23,182 (2013 - $91,710) | |
| 4,436 | | |
| 80,814 | |
| Inventories (Note 4) | |
| 86,053 | | |
| 147,120 | |
| | |
| | | |
| | |
| Prepaid expenses and other current assets | |
| 20,229 | | |
| 76,305 | |
| TOTAL CURRENT ASSETS | |
| 392,595 | | |
| 620,947 | |
| | |
| - | | |
| - | |
| PROPERTY,
PLANT AND EQUIPMENT, NET (Note 5) | |
| 5,112,506 | | |
| 7,184,008 | |
| | |
| | | |
| | |
| Deposits (Note 2) | |
| 1,483,987 | | |
| 1,484,453 | |
| TOTAL ASSETS | |
$ | 6,989,088 | | |
$ | 9,289,408 | |
| | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | |
| Accounts payable | |
$ | 1,883,465 | | |
$ | 1,510,611 | |
| Accrued expenses | |
| 1,928,361 | | |
| 851,532 | |
| Customer advances | |
| | | |
| 26,120 | |
| Accrued lease obligation – current (Note 7 and 15) | |
| 68,449 | | |
| 83,466 | |
| Long-Term Debt, mortgage payable and capital leases
– current (Note 7) | |
| 335,613 | | |
| 23,618 | |
| | |
| | | |
| | |
| TOTAL CURRENT LIABILITIES | |
| 4,215,888 | | |
| 2,495,347 | |
| | |
| | | |
| | |
| LONG-TERM LIABILITIES | |
| | | |
| | |
| Asset retirement obligations (Note 2) | |
| 31,215 | | |
| 30,306 | |
| Accrued lease obligation (Note 7 and 15) | |
| 314,938 | | |
| 383,388 | |
| Long-Term Debt, mortgage payable and capital leases,
net of current portion (Note 7) | |
| 3,798,956 | | |
| 2,532,079 | |
| TOTAL LIABILITIES | |
| 8,360,997 | | |
| 5,441,120 | |
| Commitments and Contingencies (Note 8) | |
| | | |
| | |
| Subsequent Events (Note 16) | |
| | | |
| | |
| STOCKHOLDERS’
EQUITY(DEFICIT) (Notes 9 and 16) | |
| | | |
| | |
| Preferred stock, Series B, par $0.001; 2,300,000 shares authorized,
convertible into 16,100,000 shares of Common Stock, 2,204,100 shares issued and Nil outstanding (2013 – 2,204,100) | |
| - | | |
| 2,204 | |
| | |
| | | |
| | |
| Common stock, par $0.001; 150,000,000 authorized, 109,917,529 shares issued and outstanding (2013
– 90,692,243) | |
| 109,918 | | |
| 90,692 | |
| Common stock to be issued, 8,097,001, and Nil shares as of December 31, 2014 and 2013, respectively | |
| 8,097 | | |
| - | |
| | |
| | | |
| | |
| Preferred stock, Series A, par $0.001; 1,000,000 authorized, Nil shares issued and outstanding
(2013 – 1,000,000) | |
| - | | |
| 1,000 | |
| Additional paid in capital | |
| 66,371,906 | | |
| 64,872,659 | |
| | |
| | | |
| | |
| Accumulated other comprehensive income | |
| 57,956 | | |
| | |
| Accumulated deficit | |
| (67,919,786 | ) | |
| (61,118,267 | ) |
| TOTAL STOCKHOLDERS’
EQUITY (DEFICIT) | |
| (1,371,909 | ) | |
| 3,848,288 | |
| TOTAL LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
$ | 6,989,088 | | |
$ | 9,289,408 | |
The
accompanying notes are an integral part of the consolidated financial statements.
Plastic2Oil,
Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
Ended December 31,
| | |
2014
| | |
2013 | |
| | |
| | |
| |
| SALES | |
| | | |
| | |
| P20 | |
$ | 46,111 | | |
$ | 599,413 | |
| Data Business | |
| 12,906 | | |
| 93,712 | |
| | |
| 59,017 | | |
| 693,125 | |
| COST OF SALES | |
| | | |
| | |
| P20 | |
| 92,500 | | |
| 690,488 | |
| Data Business | |
| 5,206 | | |
| 61,072 | |
| | |
| 97,706 | | |
| 751,560 | |
| | |
| | | |
| | |
| GROSS LOSS | |
| (38,689 | ) | |
| (58,435 | ) |
| | |
| | | |
| | |
| OPERATING EXPENSES | |
| | | |
| | |
| Selling, general and administrative expenses | |
| | | |
| | |
| Selling, general and administrative expenses – Professional Fees | |
| 1,368,295 | | |
| 708,942 | |
| Selling, general and administrative expenses - Compensation | |
| 1,215,293 | | |
| 5,315,961 | |
| Selling, general and administrative expenses - Other | |
| 1,656,649 | | |
| 2,390,307 | |
| Depreciation of property, plant and equipment and accretion of long-term liability | |
| 1,045,220 | | |
| 1,031,077 | |
| | |
| | | |
| | |
| Research and development expenses | |
| 20,999 | | |
| 465,671 | |
| Impairment loss – property, plant and equipment | |
| 927,163 | | |
| 1,122,829 | |
| | |
| | | |
| | |
| TOTAL OPERATING
EXPENSE | |
| 6,233,619 | | |
| 11,034,787 | |
| | |
| | | |
| | |
| LOSS FROM CONTINUING OPERATIONS | |
| (6,272,308 | ) | |
| (11,093,222 | ) |
| | |
| | | |
| | |
| OTHER INCOME (EXPENSE) | |
| | | |
| | |
| Interest expense, net | |
| (438,992 | ) | |
| (119,580 | ) |
| | |
| | | |
| | |
| Other EXPENSE, net | |
| (6,447 | ) | |
| (23,765 | ) |
| | |
| | | |
| | |
| Disposal of assets | |
| (75,052 | ) | |
| (17,769 | ) |
| OPERATING LOSS BEFORE INCOME TAXES | |
| (7,137,780 | ) | |
| (11,206,806 | ) |
| | |
| | | |
| | |
| INCOME TAXES
(Note 6) | |
| - | | |
| - | |
| | |
| | | |
| | |
| NET LOSS FROM CONTINUING OPERATIONS | |
| (6,792,799 | ) | |
| (11,206,806 | ) |
| NET LOSS FROM DISCONTINUED OPERATIONS
(Note 15) | |
| (8,720 | ) | |
| (2,027,459 | ) |
| | |
| | | |
| | |
| NET LOSS | |
$ | (6,801,519 | ) | |
$ | (13,234,265 | ) |
| Deemed Dividends | |
| (1,713,117 | ) | |
| (3,555,883 | ) |
| Net loss attributable to common shareholders | |
$ | (8,514,636 | ) | |
$ | (16,790,148 | ) |
| | |
| | | |
| | |
| Basic and diluted net loss per share from continuing operations (Note 16) | |
$ | (0.06 | ) | |
$ | (0.12 | ) |
| Basic and diluted net loss per share from discontinued operations (Note
16) | |
$ | - | | |
$ | (0.02 | ) |
| Total basic and diluted net loss per share (Note 16) | |
$ | (0.06 | ) | |
$ | (0.14 | ) |
| | |
| | | |
| | |
| Weighted average number of common shares outstanding – basic and diluted | |
| 105,729,120 | | |
| 90,194,085 | |
The
accompanying notes are an integral part of the consolidated financial statements.
Plastic2Oil,
Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
Years
Ended December 31,
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| NET LOSS | |
$ | (6,801,519 | ) | |
$ | (13,234,265 | ) |
| | |
| | | |
| | |
| OTHER COMPREHENSIVE INCOME, NET OF
INCOME TAX | |
| | | |
| | |
| | |
| | | |
| | |
| Foreign currency items | |
| 57,956 | | |
$ | - | |
| Other comprehensive income | |
| 57,956 | | |
| - | |
| COMPREHENSIVE
LOSS | |
$ | (6,743,563 | ) | |
$ | (13,234,265 | ) |
The
accompanying notes are an integral part of the consolidated financial statements.
Plastic2Oil,
Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
Years
Ended December 31, 2014, and 2013
| | |
Common
Stock $0.001 Par Value | | |
Common
Stock to be issued | | |
Preferred
Stock Series A $0.001 Par Value | | |
Preferred
Stock Series B $0.001 Par Value | | |
Additional
Paid | | |
Accumulated | | |
Other
Comprehensive | | |
Total
Stockholder | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
in
Capital | | |
Deficit | | |
Income | | |
Equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| BALANCE – DECEMBER 31, 2013 | |
| 90,692,243 | | |
$ | 90,692 | | |
| - | | |
$ | - | | |
| 1,000,000 | | |
$ | 1,000 | | |
| 2,204,100 | | |
$ | 2,204 | | |
$ | 64,872,659 | | |
$ | (61,118,267 | ) | |
$ | - | | |
$ | 3,848,288 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for services in 2014 | |
| 3,090,589 | | |
| 3,091 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 698,057 | | |
| - | | |
| - | | |
| 701,147 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for Accounts Payable in 2014 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 21,540 | | |
| - | | |
| - | | |
| 21,540 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common Stock and warrants, subscribed during 2014 (net of issue costs) | |
| 6,750,000 | | |
| 6,750 | | |
| 1,250,000 | | |
| 1,250 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 657,095 | | |
| - | | |
| - | | |
| 665,095 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred Stock - Series A -retired during 2014 | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,000,000 | ) | |
| (1,000 | ) | |
| - | | |
| - | | |
| 1,000 | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for warrants exercised in 2014 | |
| 400,000 | | |
| 400 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 39,600 | | |
| - | | |
| - | | |
| 40,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred stock – Series B – conversion to common stock 6.30.14 | |
| 7,984,697 | | |
| 7,986 | | |
| 6,847,001 | | |
| 6,847 | | |
| - | | |
| - | | |
| (2,204,100 | ) | |
| (2,204 | ) | |
| (12,629 | ) | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for settlement in 2014 | |
| 1,000,000 | | |
| 1,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 84,000 | | |
| - | | |
| - | | |
| 85,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Warrants issued with 12% Secured note | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 54,894 | | |
| - | | |
| - | | |
| 54,894 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock compensation expense related to granting of stock options. | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (44,310 | ) | |
| - | | |
| - | | |
| (44,310 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Foreign currency adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 57,956 | | |
| 57,956 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,801,519 | ) | |
| - | | |
| (6,801,519 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCES - DECEMBER 31, 2014 | |
| 109,917,529 | | |
$ | 109,918 | | |
| 8,097,001 | | |
$ | 8,097 | | |
| - | | |
$ | - | | |
| - | | |
| - | | |
$ | 66,371,906 | | |
$ | (67,919,786 | ) | |
$ | 57,956 | | |
$ |
1,371,909 | |
The
accompanying notes are an integral part of the consolidated financial statements.
Plastic2Oil,
Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
Years
Ended December 31, 2013
| | |
Common
Stock $0.001 Par Value | | |
Common
Stock Subscribed | | |
Preferred
Stock Series A $0.001 Par Value | | |
Preferred
Stock Series B $0.001 Par Value | | |
Additional
Paid in | | |
Accumulated | | |
Total
Stockholder | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| BALANCE – DECEMBER 31, 2012 | |
| 89,855,816 | | |
$ | 89,857 | | |
| 85,415 | | |
$ | 60,818 | | |
| 1,000,000 | | |
$ | 1,000 | | |
| 2,204,100 | | |
$ | 2,204 | | |
$ | 58,010,522 | | |
$ | (47,884,002 | ) | |
$ | 10,280,399 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for services, subscribed
in the prior year, $0.73 per share | |
| 34,247 | | |
| 34 | | |
| (34,247 | ) | |
| (25,000 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 24,966 | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred Stock –Series B, issued
during 2013 (net of issue costs) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred Stock – Series B –
issued during 2013 (net of issue costs) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,998,292 | | |
| - | | |
| 3,998,292 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for services, subscribed
in the prior year, $0.70 per share | |
| 51,168 | | |
| 51 | | |
| (51,168 | ) | |
| (35,818 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 35,767 | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for services, $0.46
per share | |
| 11,911 | | |
| 10 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,470 | | |
| - | | |
| 5,480 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred Stock - Series B, converted to
Common Stock in Q3 | |
| 520,800 | | |
| 521 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (521 | ) | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for services, $0.51
per share | |
| 7,801 | | |
| 8 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,974 | | |
| - | | |
| 3,982 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock subscribed for services, valued
at $0.40 per share | |
| - | | |
| - | | |
| 60,000 | | |
| 24,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 24,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Series B preferred stock converted to common
stock subscribed. | |
| - | | |
| - | | |
| 150,500 | | |
| 74,610 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (74,610 | ) | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common Stock Warrants to purchase shares
of Common Stock for $0.54 per share | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 910,600 | | |
| - | | |
| 910,600 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Reclass of expired warrants during | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred stock – Series B –
Deemed Dividend | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock compensation expense related to granting
of stock options. | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,859,799 | | |
| - | | |
| 1,859,799 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued for services, $0.40
per share | |
| 60,000 | | |
| 60 | | |
| (60,000 | ) | |
| (24,000 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 23,940 | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock issued as an advisory fee
in connection with the private placement | |
| 150,500 | | |
| 151 | | |
| (150,500 | ) | |
| (74,610 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 74,460 | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| | | |
| | | |
| - | | |
$ | (13,234,265 | ) | |
| (13,234,265 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| BALANCES - DECEMBER 31, 2013 | |
| 90,692,243 | | |
$ | 90,692 | | |
| - | | |
$ | - | | |
| 1,000,000 | | |
$ | 1,000 | | |
| 2,204,100 | | |
$ | 2,204 | | |
$ | 64,872,659 | | |
$ | 61,118,267 | | |
$ | 3,848,288 | |
The accompanying
notes are an integral part of the consolidated financial statements.
Plastic2Oil,
Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS[INCOMPLETE]
Years
Ended December 31, 2014, and 2013
| | |
2014 | | |
2013 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
| Net loss from Continuing Operations | |
$ | (6,792,799 | ) | |
$ | (11,206,806 | ) |
| Net loss from Discontinued Operations | |
| (8,720 | ) | |
| (2,027,459 | ) |
| NET LOSS | |
| (6,801,519 | ) | |
| (13,234,265 | ) |
| Items not affecting cash: | |
| | | |
| | |
| Depreciation of property, plant and equipment | |
| 861,509 | | |
| 979,268 | |
| Amortization of debt discount | |
| 184,620 | | |
| 50,700 | |
| Impairment loss - property, plant and equipment | |
| 927,163 | | |
| 1,122,829 | |
| Accrued Interest expense | |
| 380,428 | | |
| 100,000 | |
| Other income | |
| (276 | ) | |
| (11,269 | ) |
| Stock issued for services | |
| 821,974 | | |
| 1,967,869 | |
| Recovery of uncollectible account | |
| | | |
| 12,000 | |
| Write-off of property, plant and equipment | |
| 193,913 | | |
| - | |
| Non-cash items impacting Discontinued operations | |
| - | | |
| 1,664,440 | |
| Working capital changes: | |
| | | |
| | |
| Accounts receivable | |
| 50,258 | | |
| 147,325 | |
| Cash held in attorney trust | |
| 10,634 | | |
| 172,152 | ) |
| Inventories | |
| 61,067 | | |
| (176,927 | ) |
| Prepaid expenses | |
| 56,076 | | |
| 343,544 | |
| Proceeds from sale of assets | |
| 102,374 | | |
| - | |
| Accounts payable | |
| 372,855 | | |
| (584,436 | ) |
| Accrued expenses | |
| 1,076,828 | | |
| (160,750 | ) |
| Other liabilities | |
| 74,893 | | |
| - | |
| Changes attributable to discontinued operations | |
| (83,466 | ) | |
| - | |
| | |
| | | |
| | |
| NET CASH USED IN OPERATING ACTIVITIES | |
| (1,710,679 | ) | |
| (7,607,520 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
| Property, plant and equipment additions | |
| (13,775 | ) | |
| (2,581,555 | ) |
| Decrease in deposits for property, plant and equipment | |
| - | | |
| (645,448 | ) |
| | |
| | | |
| | |
| NET CASH USED IN INVESTING ACTIVITIES | |
| (13,775 | ) | |
| (3,227,003 | ) |
The
accompanying notes are an integral part of the consolidated financial statements.
Plastic2Oil,
Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS - continued
Years
Ended December 31, 2014, and 2013
| | |
2014 | | |
2013 | |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
| Stock issuance proceeds, net | |
| 665,095 | | |
| 74,460 | |
| Proceeds from exercise of warrants | |
| 40,000 | | |
| - | |
| Proceeds from short-term loans | |
| 464,318 | | |
| - | |
| Repayment of short-term loans | |
| (469,256 | ) | |
| - | |
| Proceeds from Preferred Stock – Series B issuance | |
| - | | |
| 3,998,292 | |
| Proceeds from long-term notes payable | |
| 1,000,000 | | |
| 3,000,000 | |
| | |
| | | |
| | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | |
| 1,700,157 | | |
| 7,072,752 | |
| | |
| | | |
| | |
| NET DECREASE IN CASH AND CASH EQUIVALENTS | |
| (24,297 | ) | |
| (3,761,771 | ) |
| | |
| | | |
| | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | |
| 203,949 | | |
| 3,965,720 | |
| | |
| | | |
| | |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | |
$ | 179,652 | | |
$ | 203,949 | |
| | |
| | | |
| | |
| Supplemental disclosure of cash flow information | |
| | | |
| | |
| Cash paid for income taxes | |
| - | | |
| - | |
| Cash paid for interest | |
$ | 26,574 | | |
$ | 15,848 | |
| | |
| | | |
| | |
| Schedule of Non-Cash Investing and Financing Activities | |
| | | |
| - | |
| Settlement of accounts payable with issuance of common stock | |
$ | 21,540 | | |
$ | - | |
The
accompanying notes are an integral part of the consolidated financial statements.
PLASTI2OIL,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2014 AND 2013
NOTE
1 - ORGANIZATION AND GOING CONCERN
Plastic2Oil,
Inc. (the “Company” or “P2O”) 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
purchased 63% of the issued and outstanding shares of 310. During 2009, the Company changed its name to JBI, Inc. and began operations
of its main business operation, transforming waste plastics to oil and other fuel products (“P2O”). During 2014, the
Company changed its name to Plastic2Oil, Inc. P2O is a combination of proprietary technologies and processes developed by P2O
which convert waste plastics into fuel. P2O currently, as of the date of this filing, operates two processors at its Niagara Falls,
NY facility (the “Niagara Falls Facility ”). Our P2O business has begun the transition from research and development
to a commercial manufacturing and production business. We plan to grow mainly from sale of processors first, and fuel seller second.
On
August 24, 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 of the inventory and fixed
assets of Javaco. The operations of Javaco have been classified as discontinued operations for the years presented (Note 15).
On
September 30, 2009, the Company acquired Pak-It, LLC (“Pak-It”), and the operator of a bulk chemical processing, mixing,
and packaging facility. It also has developed and patented a delivery system that packages condensed cleaners in small water-soluble
packages. In February 2012, the Company sold substantially all of the assets of Pak-It and as a result, the operations of Pak-It
have been classified as discontinued operations for the years presented (Note 15).
Going
Concern
These
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, has net losses from continuing operations of $6,792,799, and $11,206,806,
for the years ended December 31, 2014, and 2013, respectively, and has an accumulated deficit of $67,919,786 at December 31, 2014.
These factors raise substantial doubt about the Company’s ability to continue as a going concern and to operate in the normal
course of business. The Company has funded its activities to date almost exclusively from equity financings.
The
Company will continue to require substantial funds to continue the expansion of its P2O business to achieve significant commercial
productions, 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 stock, issuances of debt and 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 such additional funding will be achieved and that it will
succeed in its future operations. The 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 we be unable to continue
in existence.
NOTE
2 - SUMMARY OF ACCOUNTING POLICIES
Basis
of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Plastic2Oil of NY#1 Inc.,
Plastic2Oil (Canada) Inc., JBI CDE Inc., PlasticOilI Re One Inc., JBI Re #1 Inc., Plastic2Oil Marine Inc., Javaco, and Pak-it.
All intercompany transactions and balances have been eliminated on consolidation. Amounts in the consolidated financial statements
are expressed in US dollars. Recycling Center, Pak-It and Javaco have also been consolidated; however, as mentioned their operations
are classified as discontinued operations (Note 15).
Estimates
The
preparation of financial statements in conformity with U.S. 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 long-lived assets, share based compensation, asset retirement
obligations, inventory obsolescence, accrued liabilities and accounts receivable exposures.
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
As
of December 31, 2014 and 2013, the Company had $100,222 and $100,122 respectively of restricted cash, which is used to secure
a line of credit that secures a performance bond on behalf of the Company. The performance bond is required by the State of New
York for fuel distributors in perpetuity.
Cash
Held in Attorney Trust
The
amount held in trust represents retainer payments the Company have made to law firms which were being held on our 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 ninety
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 over 90 days old 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 allowance for uncollectible accounts for
the years ended December 31, 2014 and 2013 was $23,182 and $91,710, respectively.
Inventories
Inventories,
which consist primarily of plastics, costs to process the plastic and processed fuel are stated at the lower of cost or market.
We use 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 year of disposal. Repairs
and maintenance expenditures are expensed as incurred and expenditures that increase the value or useful life of the asset are
capitalized.
Construction
in Process
The
Company capitalizes customized equipment built to be used in the future day to day operations at cost. Once complete and available
for use, the cost for accounting purposes is transferred to property, plant and equipment, where normal depreciation rates are
applied.
Impairment
of Long-Lived Assets
The
Company reviews for impairment of long-lived assets on an asset by asset basis. Impairment is recognized on properties held for
use when the expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down
to fair value. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs
to sell. The sale or disposal of a “component of an entity” is treated as discontinued operations. The operating properties
sold by the Company typically meet the definition of a component of an entity and as such the revenues and expenses associated
with sold properties are reclassified to discontinued operations for all periods presented (Note 15).
During
the year ended December 31, 2014 and 2013, the Company recorded impairment losses on property, plant and equipment of $927,163
and $1,122,829, respectively, in accordance to ASC 360-10-50-2 where an impairment loss will be recognized only if the carrying
amount of the long-lived assets are not recoverable and exceeds its fair value. The Company estimates the fair value of equipment
for impairment purposes using a discounted cash flow method.
Asset
Retirement Obligations
The
fair value of the estimated asset retirement obligation is recognized in the consolidated balance sheets when identified and a
reasonable estimate of fair value can be made. The asset retirement cost, equal to the estimated fair value of the asset retirement
obligation, is capitalized as part of the cost of the related long-lived asset. The balance of the asset retirement obligation
is determined through an assessment made by the Company’s engineers of the total costs expected to be incurred by the Company
when closing a facility. The total estimated cost is then discounted using the current market rates to determine the present value
of the asset as of the date of this valuation of the asset retirement obligation. As of the date of the creation of the asset
retirement obligation is $57,530, the Company determined the present value of the obligation using a discount rate equal to 2.96%.
The present value of the asset retirement obligation is then capitalized on the consolidated balance sheets and is depreciated
over the asset’s estimated useful life and is included in depreciation and accretion expense on the consolidated statements
of operations. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset
retirement obligation in the consolidated statements of operations. Actual expenditures incurred are charged against the accumulated
obligation. As at December 31, 2014 and 2013, carrying value of the asset retirement obligations was $31,215 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. This liability is included in Asset Retirement Obligation on the accompanying balance sheet.
Environmental
Contingencies
The
Company records environmental liabilities at their undiscounted amounts on our balance sheets as other current or long-term liabilities
when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. These
costs may be discounted to reflect the time value of money if the timing of the cash payments is fixed or reliably determinable
and extends beyond a current period. Estimates of our liabilities are based on currently available facts, existing technology
and presently enacted laws and regulations, taking into consideration the likely effects of other societal and economic factors,
and include estimates of associated legal costs. These amounts also consider prior experience in remediating contaminated sites,
other companies’ clean-up experience and data released by the Environmental Protection Agency (EPA) or other organizations.
Our estimates are subject to revision in future periods based on actual costs or new circumstances. We capitalize costs that benefit
future periods and we recognize a current period charge in operation and maintenance expense when clean-up efforts do not benefit
future periods.
We
evaluate any amounts paid directly or reimbursed by government sponsored programs and potential recoveries or reimbursements of
remediation costs from third parties including insurance coverage separately from our liability. Recovery is evaluated based on
the creditworthiness or solvency of the third party, among other factors. When recovery is assured, we record and report an asset
separately from the associated liability on our balance sheets. No amounts for recovery have been accrued to date.
Deposits
Deposits
represent payments made to vendors for fabrication of key pieces of property, plant and equipment that have been made in accordance
with the Company’s agreements to purchase such equipment. Payments are made to these vendors as progress is made on the
fabrication of the equipment, with final payments made when the equipment is delivered. Until we have possession of the equipment,
all payments made to these vendors are classified as deposits on assets. Deposits were $1,484,464 and $1,484,453 for the years
ended December 31, 2014 and 2013, respectively.
Leases
The
Company has entered into various leases for buildings and equipment. At the inception of a lease, the Company evaluates whether
it is operating or capital in nature. Operating leases are recorded as expense in the appropriate periods of the lease. Capital
leases are classified as property, plant and equipment and the related depreciation is recorded on the assets. Also, the debt
related to the capital lease is included in the Company’s short- and long-term debt obligations, in accordance with the
lease agreement (Note7).
Lease
inducements are recognized for periods of reduced rent or for larger than usual rent escalations over the term of the lease. The
benefit of a rent free period and the cost of future rent escalations are recognized on a straight-line basis over the term of
the lease.
Revenue
Recognition
The
Company recognizes revenue when it is realized or realizable and collection is reasonably assured. The Company considers revenue
realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists,
(ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable,
and (iv) collectability is reasonably assured.
P2O
processor sales are recognized when the customer take possession of the processors since Title to the Goods and the risk of loss
transfers from P2O to Customer upon delivery. P2O fuel sales are recognized when the customers take possession of the fuel since
at that stage the customer has completed all prior testing necessary for their acceptance of the fuel. At the time of possession
they have arranged for transportation to pick it up and the sales price has either been set in their purchase contract or negotiated
prior to the time of pick up through the issuance of a purchase order. The Company negotiates the pricing of the fuel based on
the quality of the product and the type of fuel being sold (i.e. Naphtha, Fuel Oil No. 6 or Fuel Oil No. 2).
Shipping
and Handling Costs
The
Company’s shipping and handling costs of $18,639 and $155,451 for the years ended December 31, 2014 and 2013, respectively,
are included in cost of goods sold for the years presented. Shipping and handling costs are capitalized to inventory and expensed
to cost of sales when the related inventory is sold for the years presented.
Advertising
costs
The
Company expenses advertising costs as incurred. Advertising costs were $2,245 and $11,585 for the years ended December 31, 2014
and 2013, respectively. These expenses are included in selling, general and administrative expenses in the consolidated statements
of operations.
Research
and Development
The
Company is engaged in research and development activities. Research and development costs are charged as operating expense of
the Company as incurred. For the years ended December 31, 2014 and 2013, the Company expensed $20,999 and $465,671, respectively,
towards research and development costs. Components of the processors that are fabricated or purchased with research and development
plans and then used on the processor in production are capitalized into the cost of the processor and depreciated over the remaining
life of the processor.
Foreign
Currency Translation
The
consolidated financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 830. All monetary items have been translated
using the exchange rates in effect at the balance sheet date. All non-monetary items have been translated using the historical
exchange rates at the time of transactions. Income statement amounts have been translated using the average exchange rate for
the year. Resulting differences are reflected in accumulated other comprehensive income as the accompanying consolidated balance
sheets. Foreign exchange losses of $2,330 and $11,145 are included as general and administrative expenses in the consolidated
statements of operations for the years ended December 31, 2014 and 2013, respectively.
Income
Taxes
The
Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax
assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis and are measured using enacted tax rates that apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
The
Company adopted the accounting standards associated with uncertain tax positions as of January 1, 2007. The adoption of this standard
did not have a material impact on the Company’s consolidated statements of operations or financial position. Upon adoption,
the Company had no unrecognized tax benefits. Furthermore, the Company had no unrecognized tax benefits at December 31, 2014 and
2013. The Company files tax returns in the U.S federal and state jurisdictions as well as a foreign country. The years ended December
31, 2009 through December 31, 2013 are open tax years for IRS review.
Loss
Per Share
The
financial statements include basic and diluted per share information. Basic net loss per share is computed by dividing net loss
by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed
by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock
during each period. Common stock equivalents are excluded from the computation of diluted loss per share when their effect is
anti-dilutive. For the year ended December 31, 201 4, potential dilutive common stock equivalents consisted of 14,100 shares
underlying common stock warrants and 5,303,334 shares underlying stock options, which were not included in the calculation of
the diluted loss per share.
For
the year ended December 31, 2013, potential dilutive common stock equivalents consisted of 3,143,500 shares underlying common
stock warrant, and 6,806,000 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 annual
consolidated financial statements. Operating segments are components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing
performance. Our operating segments include plastic to oil conversion (Plastic2Oil), which includes processor sales as well as
fuel sales and Data Recovery and Migration, our magnetic tape reading segment. Our Chief Operating Decision Maker is the Company’s
Chief Executive Officer.
Concentrations
and Credit Risk
Financial
instruments which potentially expose the Company to concentrations of credit risk consist principally of operating demand deposit
accounts and accounts receivable. The Company’s policy is to place our operating demand deposit accounts with high credit
quality financial institutions that are insured by the FDIC, however, account balances may at times exceed insured limits. The
Company extends limited credit to its customers based upon their creditworthiness and establishes an allowance for doubtful accounts
based upon the credit risk of specific customers, historical trends and other pertinent information. The Company also routinely
makes an assessment of the collectability of the short-term note receivable and determines its exposure for non-performance based
on the specific holder and other pertinent information.
Fair
Value of Financial Instruments
Fair
value is defined under FASB ASC Topic 820 as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or the most advantageous market for an asset or liability in an orderly transaction between participants
on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize
the use of unobservable inputs. The standard describes a fair value hierarchy based on the levels of inputs, of which the first
two are considered observable and the last unobservable, that may be used to measure fair value. The levels are as follows:
| |
● |
Quoted prices in active markets for identical assets
or liabilities; |
| |
|
|
| |
● |
Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets
or liabilities; and |
| |
|
|
| |
● |
Unobservable inputs that are supported by little
or no market activity and that are significant to the value of the assets or liabilities |
The
carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, long-term debt and mortgage
payable approximate fair value because of the short-term nature of these items. Per ASC Topic 820 framework these are considered
Level 2 inputs where estimates are unobservable by market participants outside of the Company and must be estimated using assumptions
developed by the Company.
NOTE
3 - RECENTLY ISSUED ACCOUNTING STANDARDS AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Changes
in Accounting Policies Including Initial Adoption
There
are no recently adopted accounting pronouncements that impact the Company’s consolidated financial statements.
Recently
Issued Accounting Pronouncements
In
April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”). ASU 2014-08
limits the requirement to report discontinued operations to disposals of components of an entity that represents strategic shifts
that have (or will have) a major effect on an entity’s operations and financial results. The amendments also require expanded
disclosures concerning discontinued operations and disclosures of certain financial results attributable to a disposal of a significant
components of an entity that does not qualify for discontinued operations reporting. The amendments in this ASU are effective
prospectively for reporting periods beginning on or after December 15, 2014, with early adoption permitted. The impact on our
Financial Statements of adopting ASU 2014-08 is being assessed by management.
On
May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard outlines
a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes
most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim
reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. The impact on our
Financial Statements of adopting ASU 2014-09 is being assessed by management.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
NOTE
4 - INVENTORIES
Inventories
at December 31 consist of the following:
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Raw materials | |
$ | 410,540 | | |
$ | 392,147 | |
| Finished goods | |
| 2,039 | | |
| 81,499 | |
| Obsolescence reserve | |
| (326,526 | ) | |
| (326,526 | ) |
| | |
| | | |
| | |
| Total inventories | |
$ | 86,053 | | |
$ | 147,120 | |
NOTE
5 - PROPERTY, PLANT AND EQUIPMENT
| 2014 | |
Cost | | |
Accumulated
Depreciation | | |
Net
Book
Value | |
| | |
| | |
| | |
| |
| Leasehold improvements | |
$ | 218,054 | | |
$ | (12,519 | ) | |
$ | 205,535 | |
| Machinery and office equipment | |
| 4,246,882 | | |
| (1,913,102 | ) | |
| 2,333,780 | |
| Furniture and fixtures | |
| 16,368 | | |
| (14,782 | ) | |
| 1,586 | |
| Land | |
| 273,118 | | |
| - | | |
| 273,118 | |
| Asset retirement obligation | |
| 27,745 | | |
| (4,439 | ) | |
| 23,306 | |
| Office and industrial buildings | |
| 1,433,523 | | |
| (176,909 | ) | |
| 1,256,614 | |
| Equipment under capital lease | |
| 108,317 | | |
| (48,041 | ) | |
| 60,276 | |
| Construction in process | |
| 958,291 | | |
| - | | |
| 958,291 | |
| Total | |
$ | 7,282,298 | | |
$ | (2,169,792 | ) | |
$ | 5,112,506 | |
| 2013 | |
Cost | | |
Accumulated
Depreciation | | |
Net
Book
Value | |
| | |
| | |
| | |
| |
| Leasehold improvements | |
$ | 260,271 | | |
$ | (5,251 | ) | |
$ | 255,020 | |
| Machinery and office equipment | |
| 5,728,587 | | |
| (1,509,954 | ) | |
| 4,218,633 | |
| Furniture and fixtures | |
| 24,918 | | |
| (15,619 | ) | |
| 9,299 | |
| Land | |
| 273,118 | | |
| - | | |
| 273,118 | |
| Asset retirement obligation | |
| 27,745 | | |
| (3,329 | ) | |
| 24,416 | |
| Office and industrial buildings | |
| 1,418,663 | | |
| (118,213 | ) | |
| 1,300,450 | |
| Equipment under capital lease | |
| 108,316 | | |
| (32,567 | ) | |
| 75,749 | |
| Construction in process | |
| 1,027,323 | | |
| - | | |
| 1,027,323 | |
| Total | |
$ | 8,868,941 | | |
$ | (1,684,933 | ) | |
$ | 7,184,008 | |
At
December 31, 2014 and 2013, machinery and equipment with a cost of $108,317, and accumulated amortization of $48,014 and $32,567,
respectively, were under capital lease. During the years ended December 31, 2014 and 2013, the Company recognized $15,447, and
$15,473, respectively, of depreciation expense related to these assets under capital lease.
As
of December 31, 2014 and 2013, the Company recorded impairment losses on property, plant and equipment of $927,163 and $1,122,829,
respectively, in accordance to ASC 360-10-50-2 where an impairment loss will be recognized only if the carrying amount of the
long-lived assets are not recoverable and exceeds its fair value. The 2014 charge related specifically to the impairment of processor
#3 as it takes on with processor #2 in pilot runs to support potential sale of processors. The 2013 charges relate to (i) the
impairment of the Processor#1 for $931,363 as it takes on a more dedicated role in research & development activities and forgoes
revenue generation activities; and (ii) the impairment of capitalized cost of $191,466 related to a discontinued business venture.
During
the third quarter of 2013, the Company announced to the employees of its recycling facility in Thorold, Ontario its plan to close
operations at the facility. The recycling facility for accounting purposes qualified as an operating segment and was reported
as Discontinued Operations. The recycling facility operations primarily consisted of accepting, separating and processing mixed
paper and cardboard for sale to paper mills and various grades of plastic waste for processing into fuel products at the Company’s
Niagara Falls, New York facility. The plan to close the facility was a result of the Company’s continued effort to focus
on its P2O operations, as well as the decision to obtain processor-ready feedstock without further need for pre-processing. As
a result, the Company performed an analysis on several vertical balers and shredder and shredder components for impairment by
comparing carrying values to their undiscounted future cash flows, and concluded that the recording of impairment through discontinued
operations was necessary. As a result, $173,681 was recorded as a loss on discontinued operations and is related to accelerated
depreciation on the recycling center assets to reduce the book value to zero. (Note 15).
NOTE
6 - INCOME TAXES
| | |
2014 | | |
2013 | |
| Statutory tax rate: | |
| | | |
| | |
| U.S. | |
| 34 | % | |
| 34 | % |
| Foreign | |
| 26.50 | % | |
| 26.50 | % |
| | |
| | | |
| | |
| Loss from operations before recovery of income taxes: | |
| | | |
| | |
| U.S. | |
$ | (6.645.641 | ) | |
$ | (10,819,127 | ) |
| Foreign | |
| (474,304 | ) | |
| (387,679 | ) |
| | |
| | | |
| | |
| | |
$ | (7,119,945 | ) | |
$ | (11,206,806 | ) |
| | |
| | | |
| | |
| Expected income tax recovery | |
$ | (2,385,209 | ) | |
$ | (3,781,238 | ) |
| | |
| | | |
| | |
| Permanent differences | |
| (8,417 | ) | |
| (9,418 | ) |
| Other | |
| | | |
| - | |
| Tax rate changes and other adjustments | |
| (363,546 | ) | |
| (713,238 | ) |
| Increase in valuation allowance | |
| 2,740,337 | | |
| 4,503,894 | |
| | |
| | | |
| | |
| Income tax recovery from continuing operations | |
$ | - | | |
$ | - | |
The Company’s income tax recovery is allocated as follows:
The Company’s
deferred tax assets and liabilities as at December 31, 2014 and 2013 are as follows:
| Deferred Tax Assets | |
2014 | | |
2013 | |
| Non-capital losses | |
$ | 16,315,501 | | |
$ | 13,930,292 | |
| Reserve – Contingency | |
| 237,944 | | |
| 173,475 | |
| Property, plant and equipment | |
| 282,503 | | |
| 112,588 | |
| Accounts receivable | |
| 191,172 | | |
| 197,247 | |
| Accrued expenses | |
| 514 | | |
| 514 | |
| Bad debt recovery | |
| - | | |
| 8,874 | |
| Fees and Payroll in Stocks and Options | |
| 318,325 | | |
| 208,736 | |
| Impairment Reserve | |
| 385,116 | | |
| 275,729 | |
| Other | |
| - | | |
| 297 | |
| | |
| 17,731,075 | | |
| 14,907,752 | |
| | |
| | | |
| | |
| Deferred Tax Liabilities | |
| | | |
| | |
| Property, plant and equipment | |
$ | (493,679 | ) | |
$ | (410,693 | ) |
| | |
| | | |
| | |
| Less: Valuation allowance | |
| (17,237,396 | ) | |
| (14,497,059 | ) |
| | |
$ | - | | |
$ | - | |
The
Company’s non-capital income tax losses expire as follows:
| U.S. |
2029 |
|
|
|
|
$ |
526,411 |
|
| |
2030 |
|
|
|
|
|
6,080,091 |
|
| |
2031 |
|
|
|
|
|
9,240,965 |
|
| |
2032 |
|
|
|
|
|
10,853,750 |
|
| |
2033 |
|
|
|
|
|
10,436,738 |
|
| |
2034 |
|
|
|
|
|
5,929,097 |
|
| |
|
|
|
|
|
$ |
43,067,052 |
|
| |
|
|
|
|
|
|
|
|
| Foreign |
2030 |
|
|
|
|
$ |
1,224,680 |
|
| |
2031 |
|
|
|
|
|
1,818,894 |
|
| |
2032 |
|
|
|
|
|
1,284,807 |
|
| |
2033 |
|
|
|
|
|
607,349 |
|
| |
2034 |
|
|
|
|
|
670,870 |
|
| |
|
|
|
|
|
$ |
5,606,600 |
|
The
Company calculates its income tax expense by estimating the annual effective tax rate and applying that rate to the year-to-date
ordinary income (loss) at the end of the period. The Company records a tax valuation allowance when it is more likely than not
that it will not be able to recover the value of its deferred tax assets. For the years ended December 31, 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 $6,792,799 and $11,206,806 loss from continuing operations and $8,720 and $2,027,459
loss from discontinued operations for the years ended December 31, 2014 and 2013, respectively.
The
Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would
more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the
amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the relevant tax authority. The Company recognizes interest accrued on uncertain tax positions as
well as interest received from favorable tax settlements within interest expense. The Company recognizes penalties accrued on
unrecognized tax benefits within selling, general and administrative expenses. As of December 31, 2014 and 2013, 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, 2009 through December 31, 2013 are open tax years.
NOTE
7 - LONG-TERM DEBT, MORTGAGE PAYABLE AND CAPITAL LEASES
| | |
December
31, 2014 | | |
December 31, 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. | |
$ | 240,819 | | |
$ | 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. | |
| 1,424 | | |
| 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. | |
| 5,514 | | |
| 11,201 | |
| Equipment capital lease bears interest at 3.9% per annum, secured by the equipment and matures
on May 10, 2015, Principal and interest are due, in their entirety, at maturity | |
| 19,006 | | |
| 18,140 | |
| Unsecured Demand Promissory Note (provided by a related party) bearing interest of 4% per annum | |
| 8,850 | | |
| - | |
| Mortgage in the amount of $110,000, bears no interest, secured by the land and building, and
matures on November 2016. | |
| 105,000 | | |
| - | |
| Secured Promissory Notes (provided by a related party) bearing interest of 12% per annum compounded
annually and payable upon maturity in 2019 and secured by a security interest in substantially all of the assets of the Company
and its subsidiaries. (Note 9) | |
| 959,736 | | |
| - | |
| Secured Promissory Notes (provided by a related party) bearing interest of 12% per annum compounded
annually and payable upon maturity in 2018 and secured by a security interest in substantially all of the assets of the Company
and its subsidiaries. (Note 9) | |
| 2,794,220 | | |
| 2,240,100 | |
| | |
| 4,134,569 | | |
| 2,555,697 | |
| | |
| | | |
| | |
| Less: current portion | |
| 335,613 | | |
| 23,618 | |
| | |
$ | 3,798,956 | | |
$ | 2,532,079 | |
| Continuity
of Secured Promissory Notes | |
Year
ended
December 31, 2014 | | |
Year
ended
December 31, 2013 | |
| Face value of November 19, 2014 secured note payable | |
$ | 1,000,000 | | |
$ | - | |
| 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 | |
| 4,000,000 | | |
| 3,000000 | |
| Discount on November 19, 2014 secured notes payable | |
| (58,082 | ) | |
| - | |
| 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 | |
| 234,413 | | |
| 50,700 | |
| Interest on secured notes payable | |
| 485,367 | | |
| 100,000 | |
| Carrying value of
Secured Promissory Notes | |
$ | 3,751,098 | | |
$ | 2,240,100 | |
The
following annual payments of principal are required over the next five years in respect of these mortgages and capital leases:
| |
| Annual
Payments |
| |
|
| 2015 |
| |
335,613 |
| 2016 |
| |
45,000 |
| 2017 |
| |
- |
| 2018 |
| |
2,794,220 |
| 2019 |
| |
959,736 |
| Total repayments |
| $ |
4,134,569 |
NOTE
8 - COMMITMENTS AND CONTINGENCIES
Commitments
Plastic2Oil
Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract
during 2010 with a company owned by the current CEO. The contract provides the related company with a share of the operating income
earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a
minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable
marine vessel processors and 10% from all other marine vessel processors. As of December 31, 2014 there are no currently installed
marine vessel processors as per the terms of the contract.
As
of December 31, 2014, the Company has committed to purchase certain pieces of key machinery from vendors related to the future
expansion of our operations. In addition to the payments made to these vendors classified as deposits on assets, the Company will
be required to pay approximately $495,000 upon the delivery of these assets which is expected occer with the delivery of processor
#4 and processor #5
The
Company leases premises in Thorold, Ontario, Canada which was previously used in the operation Plastic2Oil (Canada), Inc. doing
business as Regional Recycling of Niagara (“RRON”). As at September 30, 2013, the remaining lease term was almost
17 years. During the third quarter of 2013, the Company determined that it would shut down the operations of RRON (Note 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 2013, the Company was assessing its options with the facility, including potential sublease, but
determined that a sublease of the facility was not permitted by the lease and officially decided to cease use of the premises
as of September 30, 2013. Accordingly, the Company has applied September 30, 2013 as the cease-use-date in recognizing the liability
for the contract termination costs. In measuring the liability, the Company calculated all remaining contracted lease payments,
being $1,872,650 ($1,926,000 CAD), and performed a present value calculation using a discount rate of 20%. The present value calculation
resulted in an accrued lease liability of $505,747, of which $89,269 is due within the next 12 months and has been presented as
a current liability. The total accrued lease liability expense was reduced by $68,818 of the deferred rent liability which was
being amortized over the period of the lease. The total expense included in loss from discontinued operations in the consolidated
statements of operations is $398,035 for the year ended December 31, 2013 (Note 15).
All
future payments required under various agreements are summarized below:
| Year ending December 31, 2015 | |
$ | 90,594 | |
| 2016 | |
| 90,594 | |
| 2017 | |
| 90,594 | |
| 2018 | |
| 95,923 | |
| 2019 | |
| 95,923 | |
| Thereafter | |
| 1,143,085 | |
| Total | |
$ | 1,606,714 | |
Total
rent expenses recognized under operating leases during the years ended December 31, 2014 and 2013 were $Nil, and $106,580 respectively.
Contingencies
In
August 2010, a former employee filed a complaint against the Company’s subsidiary alleging wrongful dismissal and seeking
compensatory damages. The Company denied the validity of the contract which was signed by the former employee as employee and
president of the subsidiary. The Company entered into negotiations with the former employee to trade-off some of the benefits
of the alleged employment agreement in return for repayment of debts to the Company incurred by the former employee while in the
employment of the Company’s subsidiary. The debt in the amount of $346,386 was written off. Prior to December 31, 2011,
the former employee settled the dispute with the Company and agreed to repay $250,813 to the Company. The employee owns shares
of the Company and will sell and use the proceeds to make the repayments. The Company recognizes these receipts as recoveries
when realized. As of December 31, 2014, the Company has received $129,200 of repayments. This is a cumulative amount from 2012,
2013 and 2014. These recoveries of bad debt totaling $35,000 for the year ended December 2013 are included in selling, general
and administrative expenses for the period ending December 31, 2014.
As
previously reported on July 28, 2011, certain of the Company’s stockholders filed a class action lawsuit (the “Class
Action”) against the Company and Messrs. Bordynuik and Baldwin, former officers of the Company 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 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 control . 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, the Company entered a stipulation agreement (the “Stipulation
Agreement”) in potential settlement of the Class Action. 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 December 18, 2014, the Court granted
that motion, and issued its Order granting preliminary approval of the settlement. The Court ordered that a settlement hearing
be held on April 27, 2015, at which time the Court will determine whether to give final approval of the settlement and enter a
Final Judgment in accordance therewith. 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 (the “SEC Action”) and the other a purported class action by Ellisa Pancoe and Howard Howell
(the “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 of the 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. On or about February
13, 2015, the Company and Mr. Bordynuik entered into a Settlement Agreement with Mr. Seneca, pursuant to a settlement reached
at a mediation. The Settlement Agreement calls for payment by the Company to Mr. Seneca of $110,000, in equal monthly installments
of $5,000, payable over a period of 22 months. These payments are secured by a mortgage of the Company’s property at 20
Iroquois St., Niagara Falls, New York. The settlement also calls for the issuance to Mr. Seneca of one million shares of the Company’s
common stock. Those shares are restricted securities and have been issued. Pursuant to the Settlement Agreement, the lawsuit was
dismissed with prejudice.
On
August 14, 2013, John Bordynuik, Inc. a Company not affiliated with Mr. John Bordynuik, Chief of Technology 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. On January 13, 2015, the Court issued its Order
denying those motions, and on January 30, 2015, the Company filed its Answer to the Complaint, denying the material allegations
of the Complaint and raising a number of affirmative defenses. The Company cannot predict the outcome of this matter at this time.
On
or about June 30, 2014, plaintiff National Maintenance Contracting Corp. filed a complaint in the Supreme Court of the State of
New York, County of Niagara. On September 10, 2014, plaintiff filed an Amended Complaint. On September 12, 2014, the amended complaint
was served upon the Secretary of State of the State of New York. The amended complaint alleges that the Company is indebted to
plaintiff in the amount of $137,461.21 on account of work performed by plaintiff for the Company. The amended complaint consists
of three causes of action: a first cause of action, for breach of contract; a second cause of action, for an account stated; and
a third cause of action, to foreclose on an alleged mechanic’s lien. On November 26, 2014, the Company filed a motion to
dismiss the third cause of action on the grounds that plaintiff failed to give the notice of pendency required by Section 17 of
the New York State lien law. On March 10, 2015, plaintiff filed a cross motion, seeking an Order permitting plaintiff to file
an amended mechanic’s lien nunc pro tunc and to extend same; in the alternative, the cross motion seeks an order permitting
plaintiff to file a lis pendens nunc pro tunc. The motion and cross motion are set for hearing on April 15, 2015. The Company
cannot predict the outcome of this matter at this time.
As
of December 31, 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
9 - STOCKHOLDERS’ EQUITY (DEFICIENCY)
(a)
Common Stock and Additional Paid in Capital
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 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
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 $0.15 per share of common stock.
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 the respective Consulting firms.
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
June 30, 2014, 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.
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 the respective consulting firms.
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.
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 1.250 million shares of its common stock and warrants to purchase up to an additional 1.250
million shares of its common stock. The purchase price per share was $0.10 and the gross proceeds were $125,000. The warrants
have a three-year term and an exercise price of $0.15 per share of common stock.
2013
During
the first quarter of 2013, the Company issued 34,247 shares of common stock for services rendered that had previously been subscribed.
These shares were valued at $0.73 per share, on the date of approval by the Board of Directors. The stock paid for services was
valued based on the market price on the date of approval, which was more reliably determinable as compared to the services rendered.
During
the second quarter of 2013, the Company issued 51,168 shares of common stock for services rendered that had previously been subscribed.
These shares were valued at $0.70 per share, on the date of approval by the Board of Directors. The stock paid for services was
valued based on the market price on the date of approval, which was more reliably determinable as compared to the services rendered.
During
the second quarter of 2013, the Company issued 11,911 shares of common stock for services rendered. These shares were valued at
$0.46 per share, on the date of approval by the Board of Directors. The stock paid for services was valued based on the market
price on the date of approval, which was more reliably determinable as compared to the services rendered.
During
the third quarter of 2013, holders of 74,400 shares of Series B Preferred Stock converted their shares into common stock at the
stated conversion rate of one share of Series B Preferred Stock to seven shares of common stock. This resulted in the issuance
of 520,800 shares of common stock at the effective conversion price of $0.50 per share.
During
the third quarter of 2013, the Company issued 7,801 shares of common stock for services rendered. These shares were valued at
$0.51 per share, on the date of approval by the Board of Directors. The stock paid for services was valued based on the market
price on the date of approval, which was more reliably determinable as compared to the services rendered.
During
the third quarter of 2013, holders of 21,500 shares of Series B Preferred Stock converted their shares into common stock at the
stated conversion rate of one share of Series B Preferred Stock for seven shares of common stock. This resulted in 150,500 shares
of common stock being subscribed as of September 30, 2013 and issued subsequent to this date.
During
the third quarter of 2013, the Company granted 60,000 shares of common stock for services rendered. These shares were valued at
$0.40 per share, on the date of approval by the Board of Directors and subscribed as of September 30, 2013, and issued on October
3, 2013. The stock paid for services was valued based on the market price on the grant date, which was more reliably determinable
as compared to the services rendered.
In
August 29, 2013, the Company entered into a Subscription Agreement with Mr. Richard Heddle, the Company’s Chief Executive
Officer and a member of the Company’s Board of Directors a $1 million principal amount 12% Secured Promissory Note, together
with a five-year warrant to purchase up to one million shares of the Company’s common stock at an exercise price of $0.54
per share. The gross proceeds to the Company were $1 million. The Company allocated $54,894 of the proceeds to the warrants based
on their fair value. Such amount was recorded as a discount against the debt and in being amortized in to interest expense through
the maturity date of the debt. In September 30, 2013, the Company entered into a second Purchase Agreement with Mr. Heddle, a
second note (a $2 million principal amount Note), together with a Warrant to purchase up to two million shares of the Company’s
common stock at an exercise price of $0.54 per share. The gross proceeds to the Company were $2 million. The Notes bear interest
of 12% per annum compounded annually and interest are payable upon maturity. The Notes mature on August 31, 2018 and September
30, 2018, respectively. Repayment of the Notes is secured by a security interest in substantially all of the assets of the Company
and its subsidiaries (Note 7).
Warrants
| | |
| | | |
| Weighted | | |
| Weighted | |
| | |
| Warrants
| | |
| Average | | |
| Average | |
| Details | |
| Number
| | |
| Exercise
Price | | |
| Remaining
Term | |
| OUTSTANDING, DECEMBER 31, 2013 | |
| 3,143,500 | | |
$ | 0.61 | | |
| 3.79 | |
| Issued | |
| 11,500,000 | | |
| 0.19 | | |
| 2.75 | |
| Expired | |
| (143,500 | ) | |
| - | | |
| - | |
| Exercised | |
| 400,000 | | |
| 0.10 | | |
| - | |
| OUTSTANDING, December 31, 2014 | |
| 14,100,000 | | |
$ | 0.61 | | |
| 2.75 | |
The
following table summarizes the activities for the year ended December 31, 2013:
| | |
| | |
Weighted | | |
Weighted | |
| | |
Warrants
| | |
Average | | |
Average | |
| Details | |
| Number
| | |
| Exercise
Price | | |
| Remaining
Term | |
| OUTSTANDING, DECEMBER 31, 2012 | |
| 1,997,500 | | |
$ | 2.00 | | |
| 1.11 | |
| Issued | |
| 3,000,000 | | |
| 0.54 | | |
| 4.51 | |
| Expired | |
| (1,854,000 | ) | |
| - | | |
| - | |
| OUTSTANDING, December 31, 2013 | |
| 3,143,500 | | |
$ | 0.61 | | |
| 3.79 | |
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 $0.15 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 in aggregate 1.250
million shares of common stock at $0.15
Pursuant
to a secured debt issuances on November 19, 2014, the Company issued 1,000,000 warrants, to purchase shares of common stock for
$0.12 per share to the holder of the secured debt (see Note 7x). The warrants have a five year term from the date of issuance,
as such the corresponding expiry dates are November 19, 2019. The Company allocated $54,894 of the proceeds to the warrants
based on their fair value. Such amount was recorded as a discount against the debt and in being amortized in to interest expense
through the maturity date of the debt.
The Company determined this valuation through
use of a Black Scholes pricing model. The assumptions in valuing these Warrants consisted of:
| ● |
Volatility
– between 185.54,% and 234.98%, based on the Company’s historical stock price |
| |
|
| ● |
Risk
Free Rate – between 0.02% and 0.05% based on the long-term US Treasury rate |
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.
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 7). 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.
Preferred
Stock
Series
A Preferred Stock
On
May 30, 2014, all of the issued and outstanding shares of Series A Preferred Stock were cancelled and, on June 3, 2014, a Certificate
of Withdrawal relating to the Series A Preferred Stock was filed with the Secretary of State of Nevada.
Mr.
John Bordynuik, the Company’s founder and formert Chief of Technology, held all outstanding 1,000,000 shares of the Company’s
issued and outstanding Series A Preferred Stock. These shares had no participation rights, however, they carry super voting rights
in which each share of Preferred Stock had 100:1 times the voting rights of common stock. Mr. Bordynuik was a party to a letter
agreement (the “Letter Agreement”) with certain investors (the “Investors”) in our May 2012 private placement,
which Letter Agreement contained certain restrictions on Mr. Bordynuik’s ability to vote his shares of Series A Preferred
Stock.
Series
B Preferred Stock
On
June 30, 2014 the Series B Preferred Shares were converted at the rate of one(1) share of Series B Preferred Stock to seven(7)
shares of common stock. 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 year ended December 31, 2014.
The
Series B Preferred Stock was created pursuant to the Certificate of Designation setting forth the powers, designations, preferences,
rights, qualifications, limitations and restrictions of the Series B Convertible Preferred Stock filed with the Secretary of State
of the State of Nevada on December 24, 2012 (the “Series B Designation”). Pursuant to the Series B Designation, the
Series B Preferred Stock were convertible at the election of the holder into shares of common stock, par value $0.001 per share,
of the Company (“Common Stock”), at the rate of seven (7) shares of Common Stock for each share of Series B Preferred
Stock, subject to proportional adjustment for stock splits, combinations, consolidations, stock dividends, stock distributions,
recapitalizations, reorganizations, reclassifications and other similar events. Upon any conversion, a holder of shares of Series
B Preferred Stock must convert all shares of Series B Preferred Stock then held by such holder. All shares of Series B Preferred
Stock that remain outstanding on June 30, 2014 were automatically converted into Common Stock.
Pursuant
to the Series B Designation, in the event of the liquidation, dissolution or winding up of the Company, the holders of the Series
B Preferred Stock were be entitled to receive out of assets of the Company available for distribution to stockholders of the Company,
prior and in preference to any distribution to the holders of any other capital stock of the Company, an amount per share of Series
B Preferred Stock equal to the original purchase price for such shares of Series B Preferred Stock. The holders of the Series
B Preferred Stock will vote together with the Common Stock and not as a separate class, except as otherwise required by law. Each
share of Series B Preferred Stock will have a number of votes equal to the number of shares of Common Stock then issuable upon
conversion of such share of Series B Preferred Stock. The approval of the holders of a majority of the Series B Preferred Stock
were required to amend the Certificate of Designation or to alter or change the rights, preferences or privileges of the shares
of Series B Preferred Stock in a manner that adversely affects such shares.
The
holders of the Series B Preferred Stock were not entitled to receive dividends on the Series B Preferred Stock; provided, however,
in the event the Board of Directors of the Company (the “Board”) declare and a dividend in respect of any Common Stock,
then the Board shall declare and pay to the holders of the Series B Preferred Stock in an amount per share of Series B Preferred
Stock equal to the number of shares of Common Stock into which the Series B Preferred Stock is convertible on the record date
established by the Board or under applicable law for such dividend multiplied by the per share amount declared and paid in respect
of each share of Common Stock.
NOTE
10 - STOCK-BASED COMPENSATION PLANS AND AWARDS
The
Company’s 2012 Long Term Incentive Plan (the “2012 Plan”) provides for the issuance of stock options, restricted
stock units and other stock-based awards to members of management and key employees. The 2012 Plan is administered by the compensation
committee of the Board of Directors of the Company, or in the absence of a committee, the full Board of Directors of the Company.
The Plan was enacted in July 2012, and prior to this time, no plan and consequently, no stock options or shares of restricted
stock were granted under an equity compensation plan.
Valuation
of Awards
The
per-share fair value of each stock option with a service period condition was determined on the date of grant using the Black-Scholes
option pricing model using the following assumptions:
| |
|
Year
Ended December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Expected
life (in years) |
|
|
7.0 |
|
|
|
5.0 |
|
| Risk-free
interest rate |
|
|
0.02 |
% |
|
|
0.10%-1.03 |
% |
| Expected
volatility |
|
|
193.57 |
% |
|
|
154.30%-157.14 |
% |
| Expected
dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Stock
Options
A summary
of stock option activity for the years ended December 31, 2014 and 2013 are as follows:
| | |
Options
Outstanding
Stock Options | | |
Weighted-Average
Exercise Price | | |
Aggregate
Intrinsic Value (1) | |
| Balance as of December 31, 2013 | |
| 6,806,000 | | |
$ | 1.21 | | |
$ | - | |
| Cancelled | |
| (650,000 | ) | |
| 1.50 | | |
| | |
| Granted | |
| 50,000 | | |
| 0.05 | | |
| 2,000 | |
| Exercised | |
| - | | |
| - | | |
| | |
| Cancelled | |
| (902,666 | ) | |
| 0.38 | | |
| - | |
| | |
| | | |
| | | |
| | |
| Balance as of December 31, 2014 | |
| 5,303,334 | | |
$ | 1.30 | | |
$ | - | |
| | |
| | | |
| | | |
| | |
| Equity awards available for grant, net of restricted stock (176,950) at December 31, 2014 | |
| 4,519,716 | | |
| | | |
| | |
Restricted
Stock
The
fair value of the restricted stock is expensed ratably over the vesting period. During the years ended December 31, 2014 and 2013,
the Company recorded stock-based compensation expense related to restricted stock of approximately $Nil, and $69,000, respectively.
The
following table summarizes the activities for the year ended December 31, 2013:
| |
|
Number
of
Shares |
|
|
Weighted-
Average
Grant-Date
Fair
Value |
|
| Balance
at December 31, 2012 |
|
|
5,240,000 |
|
|
$ |
1.50- |
|
| Granted |
|
|
2,060,000 |
|
|
|
0.38 |
|
| Exercised |
|
|
|
|
|
|
- |
|
| Canceled |
|
|
494,000 |
|
|
|
0.83 |
|
| Balance at December
31, 2013 |
|
|
6,806,000 |
|
|
$ |
1.21 |
|
For the
years ended December 31, 2014 and 2013, the Company recorded compensation expense (included in selling, general and administrative
expense) of $(44,310) and $1,859,799, respectively, related to stock options and restricted stock. The expense for the year ended
December 31, 2014 is a net of estimated forfeiture of $335,024, based on actual forfeiture.
During
the year ended December 31, 2014, 174,000 options and Nil shares of restricted stock vested and no stock options were exercised.
During the year ended December 31, 2013, 2,030,334 stock options and 138,681 shares of restricted stock vested.
As
of December 31, 2014, 3,253,334 options are vested (2,440,000 at $1.50, 763,335 at $0.38, and 50,000 at $.005).
| (1)
|
Amounts
represent the difference between the exercise price and the fair value of common stock at period end for all in the money
options outstanding based on the fair value per share of common stock. As of December 31, 2014, 50,000 options that had been
granted were “in the money.” |
| |
|
| |
As
of December 31, 2014 the company expects to recognize $1,000 of, compensation through July 31, 2015 related to the vesting
of stock options of restricted stock. |
NOTE
11 - RETIREMENT PLAN
The
Company adopted a defined contribution benefit plan (the “Defined Contribution Plan”) for r U.S. employees which complies
with section 401(k) of the Internal Revenue Code. The Company does not currently match any of the employee contributions. Employees
are not required to make contributions into the fund. Total administrative expense under this plan was $3,602, and $3,157 for
the years ended December 31, 2014, and 2013 respectively.
NOTE
12 - RELATED PARTY TRANSACTIONS AND BALANCES
At
December 31, 2014, the company’s accounts payable included a $75,218 outstanding balance to Heddle Marine Services, a business
controlled by Mr. Richard Heddle, the company’s Chief Executive Officer and member of the Company’s board of directors.
The amounts payable arose from payments made by Heddle Marine on behalf of our company to a logistics company to transport fuel
from the Niagara Falls site to the blending tanks at our facility in Thorold, Ontario, as well as for labor and material provided
by Heddle Marine towards upkeep of our recycling center, currently reported in discontinued operations.
At
December 31, 2014, the company’s accrued expenses include a $237,000 outstanding balance to 2335524 ONTARIO, INC., a business
controlled by Mr. John Bordynuik, former Chief of Technology of the Company. This amount represents expenses, including laboratory
testing, consumables, catalyst for the processors, and labor costs incurred since 2012 that the company had previously agreed
to reimburse.
In
November 19, 2014, we entered into a Subscription Agreement with Heddle Marine Services, a business controlled by Mr. Richard
Heddle, the Company’s Chief Executive Officer and a member of the Company’s board of directors, pursuant to which
we issued to Heddle Marine 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 $0.12 per share.
From
June 2014 to March 2015, Mr. Heddle, the Company’s Chief Executive Officer, made several personal loans to the company to
provide working capital. As of March 30, 2015, the current aggregate outstanding balance was $398,865.
In
March 2014, the Company’s former Chief of Technology, as personal guarantor of a capital lease from Roynat Lease Finance,
paid the outstanding obligation in the amount of $19,928 on the Company’s behalf and personally assumed the lease. (See
Note 7).
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, pursuant to which we issued to Mr. Heddle a $1 million principal
amount 12% Secured Promissory Note, together with a five-year warrant to purchase up to one million shares of the Company’s
common stock at an exercise price of $0.54 per share. The gross proceeds to the company were $1 million. In September 30, 2013,
the Company entered into second Purchase Agreement with Mr. Heddle, a second note (a $2 million principal amount Note), together
with a Warrant to purchase up to two million shares of the Company’s common stock at an exercise price of $0.54 per share.
The gross proceeds to the Company were $2 million. Both notes bear interest of 12% per annum compounded annually and interest
are payable upon maturity. The notes mature on August 31, 2018 and September 30, 2018, respectively. Repayment of the notes is
secured by a security interest in substantially all of the assets of the Company and its subsidiaries.
Plastic2Oil
Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract
in 2010 with a company owned by Mr. Heddle, who later (in 2014) became our CEO. The contract provides the related company with
a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related
company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations
of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At December 31, 2014,
there were no currently installed marine vessel processors as per the terms of the contract.
NOTE
13 - SEGMENT REPORTING
During
2014, the Company had two principal operating segments, Plastic2Oil and the Data Business. These operating segments were determined
based on the nature of the products and services offered. Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding
how to allocate resources and in assessing performance. The Company’s Chief Executive Officer has been identified as the
chief operating decision maker, and directs the allocation of resources to operating segments based on the profitability and cash
flows of each respective segment.
The
Company evaluates performance based on several factors, of which the primary financial measure is net income. The accounting policies
of the business segments are the same as those described in “Note 2: Summary of Accounting Policies.” The following
tables show the operations of the Company’s reportable segments:
| | |
2014 | |
| | |
Data
Business | | |
Plastic2Oil | | |
Total | |
| Sales | |
$ | 12,906 | (1) | |
$ | 49,111 | (1) | |
$ | 59,017 | |
| Net Income (Loss) | |
| 7,700 | | |
| (46,389 | ) | |
| (38,689 | ) |
| Total Assets | |
| 4,864 | | |
| 8,196,424 | (3) | |
| 8,201,288 | |
| Accounts Receivable-Net | |
| 4,864 | | |
| 17,255 | | |
| 22,119 | |
| Inventories | |
$ | - | | |
$ | 86,053 | | |
$ | 86,053 | |
| |
|
2013 |
|
| |
|
Data Business |
|
|
Plastic2Oil |
|
|
Total |
|
| Sales |
|
$ |
93,7121 |
(1) |
|
$ |
599,413 |
(1) |
|
$ |
693,125 |
|
| Net Loss |
|
|
32,641 |
|
|
|
(11,239,447 |
) |
|
|
(11,206,806 |
) |
| Total Assets |
|
|
18,481 |
(2)(3) |
|
9,270,927 |
(3) |
|
|
9,289,408 |
|
| Accounts Receivable
- Net |
|
|
18,481 |
|
|
|
62,333 |
|
|
|
80,814 |
|
| Inventories |
|
$ |
- |
|
|
$ |
147,120 |
|
|
$ |
147,120 |
|
| (1)
|
All
sales from the Data Business were recorded in the United States for the year ended December 31, 2014. For the year ended December
31, 2013 P2O sales in the United States and Canada were $6,355 and $42,756, respectively. For the year ended December 31,
2013, P2O sales in the United States and Canada were $143,307 and $455,996, respectively. |
| |
|
| (2)
|
As
of March 31, 2012, due to the conclusion that the Company could not substantiate when a significant amount of revenues would
be earned from the Data Business, all property, plant and equipment assets related to the Data Business were determined to
be impaired and was recorded to write the assets down to $Nil. All other amounts included in the measure of segment profit
or loss related to the Data business are not material. Other than as noted above, the amounts shown for Operating Expenses
and Other Income (Expense) items on the consolidated statements of operations related to the P2O segment. |
| |
|
| (3)
|
P2O
assets include the Company headquarters and various machinery and equipment used at the aforementioned sites and at the Niagara
Falls Facility. As at December 31, 2014, total long-lived assets of $6,515,577 and $668,432 were located in the United States
and Canada, respectively. As at December 31, 2013, total long-lived assets of $6,515,577 and $668,432, were located in the
United States and Canada, respectively. The mortgage payable of $280,000 and the equipment capital lease maturing on May 10,
2015, both disclosed in Note 7, relate to assets held in Canada. The mortgage payable of $105, 000 on December 31, 2014 disclosed
in Note 7, relates to assets held in United States. |
NOTE
14 - RISK MANAGEMENT
Concentration
of Credit Risk
The
Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Canada Deposit Insurance
Corporation and the U.S. Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and has
not experienced any collection losses with these financial institutions.
During
the years ended December 31, 2014 and 2013, 89.0% and 81.0%, respectively, of total net revenues were generated from two and four
customers. As of December 31, 2014 and 2013 two and three customers, respectively, accounted for 100.0%, and 77.0% of accounts
receivable.
During
the years ended December 31, 2014 and 2013, 27.6% and 26.4%, of total net purchases were made from four vendors. As of December
31, 2014 and 2013, four suppliers accounted for 38.0%, and 27.9%, of accounts payable, respectively.
NOTE
15 - DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Regional
Recycling of Niagara
During
the third quarter of 2013, the Company determined that due to the significant losses incurred by Regional Recycling of Niagara,
and the continuous need to fund their operations through the Company’s Plastic2Oil operations, that it would shut down the
operations of the facility. The decision to do this was based on the following factors:
| |
● |
The
inventory processed over the prior months at Regional Recycling of Niagara was comingled with contaminated materials that
made the significant majority of their inventory worthless without significant additional processing and labor (Note 4); |
| |
|
|
| |
● |
The
fixed assets utilized at the facility were old and beginning to become in need of significant repairs, which would have been
a significant cost to maintain (Note 5); |
| |
|
|
| |
● |
The
pre-processing cost of plastic at Regional Recycling of Niagara was significant and was a hindrance to the Company becoming
profitable on a cost per gallon of fuel basis; and |
| |
|
|
| |
● |
The
Company leases the Recycling Facility in Thorold, Ontario, Canada with terms remaining of up to 17 years (Note 15). |
The
results of operations from Regional Recycling of Niagara for the twelve months ended December 31, 2014 and 2013 have been classified
as discontinued operations and are as follows:
Condensed
Statements of Operations
| |
|
Year
Ended December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Revenue |
|
$ |
- |
|
|
$ |
96,615 |
|
| Cost
of sales |
|
|
|
|
|
|
52,377 |
|
| Gross
profit |
|
|
- |
|
|
|
44,238 |
|
| Operating
expenses |
|
|
200,294 |
|
|
|
1,524,748 |
|
| Other
expense |
|
|
|
|
|
|
5,382 |
|
| Loss
before income taxes |
|
|
(200,294 |
) |
|
|
(1,530,130 |
) |
| Future
income tax recovery |
|
|
- |
|
|
|
|
|
| Loss
from discontinued operations, net of tax |
|
$ |
(200,294 |
) |
|
$ |
(1,530,130 |
) |
Sale
of Pak-It
On
February 14, 2013, the Company completed the sale of substantially all of the assets of Pak-It, LLC and Dickler Chemical Company,
Inc. (collectively “Pak-It”). The sale had an effective date of January 1, 2012, in which the new owners of Pak-It
were responsible for the operations of the entity. The results of operations from Pak-It for the years presented have been classified
as discontinued operations and there were no operations for the year ended December 31, 2012 included in the consolidated financial
statements.
The
Company sold Pak-It for $900,000, in exchange for $400,000 cash at the closing of the sale and entry into a note receivable for
$500,000 due on July 1, 2013. In the third quarter of 2013, the Company’s assessed the collectability of the note receivable
from the buyer of Pak-It. It was determined that due to the lack of a payment within forty days of the due date that the collectability
was not assured and the Company has reserved for the full amount of the note receivable. The company settled for $200,000 on February
10, 2014.
As
of December 31, 2013, there were no remaining assets held for sale related to Pak-It.
The
Company’s statements of operations from discontinued operations related to Pak-it for the years ended December 31, 2014
and 2013 are as follows:
Condensed
Statements of Operations of Pak-It
| |
|
2014 |
|
|
2013 |
|
| Sales |
|
$ |
- |
|
|
$ |
- |
|
| Cost
of sales |
|
|
- |
|
|
|
- |
|
| Gross
profit |
|
|
- |
|
|
|
- |
|
| Operating
income (expenses) |
|
|
200,000 |
|
|
|
500,000 |
|
| Impairment
loss |
|
|
- |
|
|
|
- |
|
| Other
income(expense) |
|
|
(8426) |
|
|
|
(10,433) |
|
| Loss
before income taxes |
|
|
- |
|
|
|
- |
|
| Future
income tax recovery |
|
|
- |
|
|
|
- |
|
| Income
from discontinued operations, net of tax |
|
$ |
191,574 |
|
|
$ |
(489,567) |
|
Closure
of Javaco
During
the second quarter of 2012, the Company determined that the operations of Javaco no longer coincided with the strategy of the
Company and that it would close down Javaco’s operations. In July 2012, the Company shut down the Javaco operations, including
the termination of the five employees of Javaco, the liquidation of the inventory and fixed assets and the termination of the
lease for the building. The results of operations from Javaco for the years ended December 31, 2014, and 2013 have been classified
as discontinued operations. As of December 31, 2014 and 2013, there were no remaining assets held for sale related to Javaco.
The
Company’s statements of operations from discontinued operations related to Javaco for the years ended December 31, 2014
and 2013 are as follows:
Condensed
Statements of Operations of Javaco
| |
|
2014 |
|
|
2013 |
|
| Sales |
|
$ |
- |
|
|
$ |
- |
|
| Cost of sales |
|
|
- |
|
|
|
- |
|
| Gross profit |
|
|
- |
|
|
|
- |
|
| Operating expenses |
|
|
- |
|
|
|
7,762 |
|
| Impairment loss |
|
|
- |
|
|
|
- |
|
| Other income |
|
|
- |
|
|
|
- |
|
| Loss before income
taxes |
|
|
- |
|
|
|
- |
|
| Future income
tax recovery |
|
|
- |
|
|
|
- |
|
| Loss
from discontinued operations, net of tax |
|
$ |
- |
|
|
$ |
(7,762 |
) |
NOTE
16 - BASIC AND DILUTED NET LOSS PER SHARE
Loss
per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year.
| |
|
December
31, 2014 |
|
|
December
31, 2013 |
|
| |
|
|
|
|
|
|
| Loss
per share from Continuing Operations |
|
$ |
(0.07 |
) |
|
$ |
(0.12 |
) |
| Loss
per share from Discontinued Operations |
|
|
- |
|
|
|
(0.02 |
) |
| Total
Loss per Share |
|
$ |
(0.07 |
) |
|
$ |
(0.14 |
) |
For
the years ended December 31, 2014 and 2013, there are no adjustments necessary to the numerator or denominator in calculating
the diluted loss per common. Common stock equivalents are excluded from the computation of diluted loss per share when their effect
is anti-dilutive. For the year ended December 31, 201 4, potential dilutive common stock equivalents consisted of 14,100
shares underlying common stock warrants, and 5,303,334 shares underlying stock options, which were not included in the calculation
of the diluted loss per share. For the year ended December 31, 2013, potential dilutive common stock equivalents consisted of
3,143,500 shares underlying common stock warrants, and 6,806,000 shares underlying stock options, which were not included in the
calculation of the diluted loss per share.
NOTE
17 - SUBSEQUENT EVENTS
The
Company has evaluated subsequent events occurring after the balance sheet date and has identified the following:
Private
Placement
On
March 6, 2015 the Company entered into Subscription Agreements with one 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
Purchaser 250,000 shares of its common stock and Warrants to purchase up to an additional 250,000 shares of its common stock.
The purchase price per share was $0.10 and the gross proceeds to the Company were $25,000. The Warrants have a three year term,
and an exercise price of $0.15 per share of common stock.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not
applicable.
ITEM
9A. CONTROLS AND PROCEDURES
Evaluation
of disclosure controls and procedures
Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, 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 December
31, 2014. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December
31, 2014 our disclosure controls and procedures were 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 SEC’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.
We
have taken numerous steps to address the underlying causes of the deficiencies in our disclosure controls and procedures, primarily
through the development and implementation of policies, improved processes and documented procedures, the retention of third-party
experts and contractors, and the hiring of additional accounting personnel with technical accounting and inventory accounting
experience. In 2014, we experienced management turnover, accounting personnel turnover resulting in not having sufficient personnel
to address the controls and procedures weaknesses.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
of the Company is responsible for establishing and maintaining effective internal control over our financial reporting as defined
in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is intended to be designed
to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation
of published financial statements in accordance with United States generally accepted accounting principles (U.S. GAAP), including
those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures
are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on our financial statements. Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control- Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of
our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial
reporting as of December 31, 2014. Based on this assessment, management, including our principal executive officer and our principle
financial officer, concluded that the Company’s internal controls over financial reporting were ineffective as of December
31, 2014 due to the material weakness discussed below.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation. Management’s report was not subject to attestation by our registered public accounting firm.
Management’s
Discussion of Material Weakness
A
material weakness is a significant deficiency in internal controls that results in more than a remote likelihood that a material
misstatement of the financial statements may occur as a result of the deficiency and is important enough to merit attention by
those responsible for oversight of a company’s financial reporting. The Company’s material weakness is a result of
a lack of policies and procedures, with the associated internal controls, to appropriately address entity level matters. Management
concluded that the lack of adherence to the Board of Directors’ policies and more specifically, the Audit Committee Charter,
which requires a three member committee with one member qualified as a “financial expert”, caused a failure at the
entity level for proper governance over the Company’s financial reporting environment. The Company has been working towards
eliminating this material weakness through the search for additional qualified members of our Board of Directors, however, to
the extent this deficiency continues to exist, the accuracy and timeliness of financial reporting may be adversely affected.
Management
acknowledges its responsibility for internal controls over financial reporting and seeks to continually improve these controls.
In order to achieve compliance with Section 404 of the Sarbanes Oxley Act (“Section 404”), we are performing the system
and process documentation and evaluation needed to comply with Section 404, which is both costly and challenging. We believe our
process for documenting, evaluating and monitoring our internal control over financial reporting is consistent with the objectives
of Section 404.
Changes
in Internal Controls over Financial Reporting
We
have taken numerous steps to address the underlying causes of the internal control deficiencies, primarily through the development
and implementation of policies, improved processes and documented procedures, the retention of third-party experts and contractors,
and the hiring of additional accounting personnel with technical accounting and inventory accounting experience.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
information required by this Item is incorporated herein by reference to the section entitled “Directors and Executive Officers
and Corporate Governance” of our 2015 Proxy Statement.
ITEM
11. EXECUTIVE COMPENSATION
The
information required by this Item is incorporated herein by reference to the section entitled “Executive Compensation”
of our 2015 Proxy Statement.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
information required by this Item is incorporated herein by reference to the section entitled “Security Ownership of Certain
Beneficial Owners and Management and Related Matters” of our 2015 Proxy Statement.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
information required by this Item is incorporated herein by reference to the section entitled “Certain Relationship of Certain
Beneficial Owners and Management and Related Matters” of our 2015 Proxy Statement.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by this Item is incorporated herein by reference to the section entitled “Principal Accounting Fees
and Services” of our 2015 Proxy Statement.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The
exhibits required by this item are listed on the Exhibit Index attached hereto.
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
has been signed on its behalf by the undersigned, thereunto duly authorized.
| |
PLASTIC2OIL,
INC. |
| |
|
|
| Date:
March 31, 2015 |
By: |
/s/
Richard Heddle |
| |
Name: |
Richard Heddle |
| |
Title: |
President
and Chief Executive Officer (Principal Executive Officer) |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| /s/
Richard Heddle |
|
President,Chief
Executive Officer |
|
March 31, 2015 |
| Richard Heddle |
|
(Principal Executive
Officer) and |
|
|
| |
|
Chairman of the
Board of Directors |
|
|
| |
|
|
|
|
/s/
Philip J Bradley |
|
Director |
|
March 31, 2015 |
| Philip J. Bradley |
|
|
|
|
| |
|
|
|
|
| /s/
Rahoul S. Banerjea |
|
Chief
Financial Officer |
|
March 31, 2015 |
| Rahoul S.
Banerjea |
|
(Principal Financial
Officer and |
|
|
| |
|
Principal Accounting
Officer) |
|
|
EXHIBIT
INDEX
| Exhibit
No. |
|
Description |
| |
|
|
| 2.1 |
|
Asset
Purchase Agreement, dated February 10, 2012, by and between the Company. and Big 3 Packaging LLC (Incorporated herein by reference
to Exhibit 2.1 to our Current Report on Form 8-K filed on February 16, 2012). |
| |
|
|
| 3.1 |
|
Articles
of Incorporation of the Company. (Incorporated by reference to Exhibit 3(a) to our Registration Statement on Form SB-2 filed
on December 11, 2006). |
| |
|
|
| 3.2 |
|
Certificate
of Amendment to Articles of Incorporation of the Company. dated January 10, 2007 (Incorporated herein by reference to Exhibit
3.1 to our Quarterly Report on Form 10-Q filed on August 9, 2012). |
| |
|
|
| 3.2 |
|
Certificate
of Amendment to Articles of Incorporation of the Company. dated October 5, 2009 (Incorporated herein by reference to Exhibit
3.1 to our Current Report on Form 8-K filed on October 6, 2009). |
| |
|
|
| 3.4 |
|
Certificate
of Amendment to Articles of Incorporation of the Company dated December 11, 2009 (Incorporated herein by reference to Exhibit
3.2 to our Quarterly Report on Form 10-Q filed on August 9, 2012). |
| |
|
|
| 3.5 |
|
Certificate
of Amendment to Articles of Incorporation of the Company dated May 11, 2012 (Incorporated herein by reference to Exhibit 3.5
to our Quarterly Report on Form 10-Q filed on August 9, 2012). |
| |
|
|
| 3.6
|
|
Amended
and Restated Bylaws of the Company (Incorporated herein by reference to Exhibit 3.2 to our Current Report on Form 8-K filed
on December 31, 2012). |
| |
|
|
| 3.7 |
|
Certificate
of Designation of Series A Super Voting Preferred Stock of the Company dated December 1, 2009 (Incorporated herein by reference
to Exhibit 3.3 to our Quarterly Report on Form 10-Q filed on August 9, 2012). |
| |
|
|
| 3.8 |
|
Amendment
to Certificate of Designation of Series A Super Voting Preferred Stock of the Company dated May 10, 2012 (Incorporated herein
by reference to Exhibit 3.4 to our Quarterly Report on 10-Q filed on August 9, 2012). |
| |
|
|
| 3.9 |
|
Certificate
of Correction to Certificate of Designation of Series A Super Preferred Voting Stock of the Company dated May 14, 2012 (Incorporated
herein by reference to Exhibit 3.6 to our Quarterly Report on Form 10-Q filed on August 9, 2012). |
| Exhibit
No. |
|
Description |
| |
|
|
| 3.10 |
|
Certificate
of Designation of Series B Convertible Preferred Stock of the Company dated December 24, 2012 (Incorporated herein by reference
to Exhibit 3.1 to our Current Report on Form 8-K filed on December 31, 2012). |
| |
|
|
| 3.11 |
|
Certificate
of Amendment to Certificate of Designation of Series B Convertible Preferred Stock of the Company dated January 11, 2013 (Incorporated
herein by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on January 17, 2013). |
| |
|
|
| 3.12 |
|
Certificate
of Withdrawal of Certificate of Designation of Series A Super Voting Preferred Stock of the Company dated June 3, 2014. (Incorporated
herein by reference to our Annual Report on Form 10-K filed on June 4, 2014). |
| |
|
|
| 3.13 |
|
Certificate
of Amendment to Articles of Incorporation of the Company dated June 24, 2014 (Incorporated by reference to our Current Report
on Form 8-K filed on June 26, 2014). |
| |
|
|
| 3.14 |
|
Certificate
of Withdrawal of Certificate of Designation Series B Convertible Preferred Stock of the Company dated July 29, 2014 (Incorporated
herein by reference to Exhibit 3.2 to our Quarterly Report filed on July 31, 2014) |
| |
|
|
| 10.1
|
|
Form
of Subscription Agreement (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January
6, 2012). |
| |
|
|
| 10.2 |
|
Promissory
Note, dated February 14, 2012, by Big 3 Packaging LLC in favor of the Company (Incorporated herein by reference to Exhibit
10.1 to our Current Report on Form 8-K filed on February 16, 2012). |
| |
|
|
| 10.3
|
|
Lease,
dated December 1, 2011, between the Company and Avondale Stores Limited. (Incorporated herein by reference to Exhibit 10.5
to our Annual Report on Form 10-K, filed on March 19, 2012) |
| |
|
|
| 10.4
|
|
Form
of Warrant (Incorporated herein by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on January 6, 2012). |
| |
|
|
| 10.5 |
|
Form
of Subscription Agreement (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May
17, 2012). |
| |
|
|
| 10.6 |
|
2012
Long-Term Incentive Plan of the Company dated as of May 23, 2012 (Incorporated herein by reference to Appendix A of our Definitive
Proxy Statement on Schedule 14A filed on June 20, 2012). |
| |
|
|
| 10.7 |
|
Form
of Incentive Stock Option Agreement pursuant to the 2012 Long-Term Incentive Plan of the Company (Incorporated herein by reference
to Exhibit 10.4 to our Current Report on Form 8-K filed on October 19, 2012) |
| |
|
|
| 10.8 |
|
Form
of Subscription Agreement (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December
31, 2012). |
| |
|
|
| 10.91 |
|
Stipulation
Agreement, dated August 8, 2013, between the Company, and certain settling parties signatory thereto (Incorporated herein
by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 9, 2013). |
| |
|
|
| 10.10 |
|
Subscription
Agreement, dated August 29, 2013, between the Company and Richard Heddle (Incorporated herein by reference to Exhibit 10.1
to our Current Report on Form 8-K filed on August 30, 2013). |
| Exhibit
No. |
|
Description |
| |
|
|
| 10.11 |
|
Secured
Promissory Note, dated August 29, 2013, issued by the Company in favor of Richard Heddle (Incorporated herein by reference
to Exhibit 10.2 to our Current Report on Form 8-K filed on August 30, 2013). |
| |
|
|
| 10.12 |
|
Warrant,
dated August 29, 2013, issued by the Company in favor of Richard Heddle (Incorporated herein by reference to Exhibit 10.3
to our Current Report on Form 8-K filed on August 30, 2013). |
| |
|
|
| 10.13 |
|
Security
Agreement, dated August 29, 2013, between the Company, Plastic2Oil of NY #1, LLC, JBI RE #1, Inc., Christiana Trust and Richard
Heddle (Incorporated herein by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on August 30, 2013). |
| |
|
|
| 10.14 |
|
Form
of Subscription Agreement (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on February
24, 2014). |
| |
|
|
| 10.15 |
|
Form
of Warrant (Incorporated herein by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on February 24, 2014). |
| |
|
|
| 10.16 |
|
Joint
Venture and Services Agreement between the Company and RWH Marine Consulting dated February 12, 2010. (Incorporated herein
by reference to Exhibit 10.26 to our Annual Report on Form 10-K filed on June 24, 2014). |
| |
|
|
| 10.17 |
|
Unsecured
Demand Promissory Note dated August 13, 2014 in favor of Richard Heddle (Incorporated herein by reference to Exhibit 10.1
to our Quarterly Report filed on August 14, 2014). |
| |
|
|
| 10.18 |
|
Subscription
Agreement dated November 19, 2014 in favor of Heddle Marine Inc. (Incorporated herein by reference to Exhibit 10.1 to our
Current Report on Form 8-K filed on November 20, 2014). |
| |
|
|
| 10.19 |
|
12%
Secured Promissory Note dated November 19, 2014 in favor of Heddle Marine Inc. (Incorporated herein by reference to Exhibit
10.2 to our Current Report on Form 8-K filed on November 20, 2014). |
| |
|
|
| 10.20 |
|
Warrant
dated November 19, 2014 in favor of Heddle Marine Inc. (Incorporated herein by reference to Exhibit 10.3 to our Current Report
on Form 8-K filed on November 20, 2014). |
| |
|
|
| 10.21 |
|
Equipment
Supply Contract, dated January 4, 2014, by and between Plastic2Oil, Inc. and EcoNavigation, LLC. (1) |
| |
|
|
| 10.22 |
|
Technology
License and Referral Agreement, dated January 4, 2014, by and between Plastic2Oil, Inc. and EcoNavigation, LLC. (1) |
| |
|
|
| 10.23 |
|
Catalyst
Supply Agreement, dated January 4, 2014, by and between Plastic2Oil, Inc. and EcoNavigation, LLC. (1) |
| |
|
|
| 10.24 |
|
Monitoring,
Maintenance, Repair and Upgrade Agreement, dated January 4, 2014, by and between Plastic2Oil, Inc. and EcoNavigation, LLC.
(1) |
| |
|
|
| 21.1
|
|
Subsidiaries
of the Registrant. (1) |
| |
|
|
| |
|
Plastic2Oil
RE ONE Inc., an Ontario, Canada corporation. |
| |
|
Plastic2Oil
(Canada), Inc., an Ontario Canada corporation. |
| |
|
Plastic2Oil
Marine, Inc. a Nevada corporation. |
| |
|
|
| |
|
Javaco,
Inc., an Ohio corporation. |
| |
|
PAK-IT,
LLC a Florida corporation |
| |
|
JBI
CDE., a New York corporation |
| |
|
Plastic2Oil
of NY #1, LLC a New York corporation. |
| |
|
JBI
RE #1, Inc., a New York corporation. |
| |
|
|
| 23.1 |
|
Consent
of MNP LLP (1) |
| |
|
|
| 23.2 |
|
Consent
of MSCM LLP (1) |
| Exhibit
No. |
|
Description |
| |
|
|
| 31.1 |
|
Certification
of our Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
(1) |
| |
|
|
| 31.2
|
|
Certification
of our Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
(1) |
| |
|
|
| 32.1
|
|
Certification
of our Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (2) |
| |
|
|
| 32.2
|
|
Certification
of our Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (2) |
| |
|
|
| 101.INS |
|
XBRL
Instance Document. (2) |
| |
|
|
| 101.SCH |
|
XBRL
Taxonomy Extension Schema Document. (2) |
| |
|
|
| 101.CAL |
|
XBRL
Taxonomy Extension Calculation Linkbase Document. (2) |
| |
|
|
| 101.DEF |
|
XBRL
Taxonomy Extension Definition Linkbase Document. (2) |
| |
|
|
| 101.LAB |
|
XBRL
Taxonomy Extension Label Linkbase Document. (2) |
| |
|
|
| 101.PRE |
|
XBRL
Taxonomy Extension Presentation Linkbase Document. (2) |
| * |
Certain
Confidential Information contained in this Exhibit was omitted by means of redacting a portion of the text and replacing it
with an asterisk. This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without
the redaction pursuant to a Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. |
| (1) |
Filed herewith. |
| |
|
| (2) |
Furnished herewith. |
Exhibit
10.18
SUBSCRIPTION
AGREEMENT
in
connection with
PLASTIC2OIL,
INC.
12%
Secured Promissory Notes
(together
with Warrants to Purchase shares of Common Stock)
November
19, 2014
SUBSCRIPTION
AGREEMENT
This
Subscription Agreement (the “Agreement”), is executed by the undersigned (the “Subscriber”) in connection
with the offering (the “Offering”) by Plastic2Oil, Inc., a Nevada corporation (the “Company”), of five-year
12% Secured Promissory Notes (the “Notes”) and Warrants (the “Warrants”) to purchase shares of Common
Stock, par value $.001 per share, of the Company (the “Shares”) (the Notes and the Warrants are collectively referred
to as the “Offered Securities” and the Offered Securities and the Shares issuable upon the exercise of the Warrants
are collectively referred to herein as the “Securities”). For every $100,000 principal amount of Notes purchased,
the Subscriber shall receive Warrants to purchase 100,000 shares of Common Stock. The Notes shall be substantially in the form
attached hereto as Exhibit A. The Warrants shall be substantially in the form attached hereto as Exhibit B. The
obligations under the Note will be secured pursuant to a Security Agreement substantially in the form attached hereto as Exhibit
C.
SECTION
1
| Section
1.1 |
|
Subscription.
The Subscriber, intending to be legally bound, hereby irrevocably subscribes for and agrees to purchase the principal amount
of Notes indicated on Page 10 hereof, on the terms and conditions described herein. |
| |
|
|
| Section
1.2 |
|
Purchase.
The Subscriber understands and acknowledges that the purchase price to be remitted to the Company in exchange for the Offered
Securities shall be equal to the principal amount of Notes purchased. |
| |
|
|
| Section 1.3 |
|
Payment
for Purchase. PAYMENT FOR THE SECURITIES SHALL BE BY WIRE TRANSFER OR CHECK PAYABLE TO: “PLASTIC2OIL” and
delivered to the Company, together with an original executed copy of this Agreement. Wire transfer instructions are available
upon request from Mr. Rahoul Banerjea at (716) 278-0015; Extension 257. |
| |
|
|
| Section 1.4 |
|
Closings.
The Company may schedule any number of closings to consummate the sale and issuance of the Notes subscribed for by the Investors
in connection with the Offering (the “Closing”). |
SECTION
2
| Section
2.1 |
| Acceptance or Rejection. |
| |
(a) |
The
Subscriber understands and agrees that the Company reserves the right to reject this subscription for the Offered Securities
in whole or in part in any order, if, in its reasonable judgment, it deems such action in the best interest of the Company,
notwithstanding prior receipt by the Subscriber of notice of acceptance of the Subscriber’s subscription. |
| |
|
|
| |
(b) |
In
the event of rejection of this subscription, or in the event the sale of the Offered Securities is not consummated by the
Company for any reason (in which event this Agreement shall be deemed to be rejected), this Agreement and any other agreement
entered into between the Subscriber and the Company relating to this subscription shall thereafter have no force or effect
and the Company shall promptly return or cause to be returned to the Subscriber the purchase price remitted to the Company
by the Subscriber in exchange for the Offered Securities. |
SECTION
3
| Section
3.1 |
|
Subscriber
Representations and Warranties. The Subscriber hereby acknowledges, represents and warrants to, and agrees with, the Company
and its affiliates as follows: |
| |
(a) |
The
Subscriber is acquiring the Offered Securities for the Subscriber’s own account as principal, not as a nominee or agent,
for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof in whole or
in part and no other person has a direct or indirect beneficial interest in such Offered Securities. Further, the Subscriber
does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations
to such person or to any third person, with respect to any of the Securities. |
| |
|
|
| |
(b) |
The
Subscriber acknowledges the Subscriber’s understanding that the offering and sale of the Offered Securities is intended
to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) by virtue of
Section 4(a)(2) of the Securities Act, the provisions of Rule 506 of Regulation D promulgated under the Securities Act (“Regulation
D”) and Regulation S promulgated under the Securities Act (“Regulation S”). In furtherance thereof, the
Subscriber represents and warrants to and agrees with the Company and its affiliates as follows: |
| |
(i) |
The
Subscriber realizes that the basis for the foregoing exemptions may not be present, if, notwithstanding such representations,
the Subscriber has in mind merely acquiring Securities for a fixed or determinable period in the future, or for a market rise,
or for sale if the market does not rise. The Subscriber does not have any such intentions; |
| |
|
|
| |
(ii) |
The
Subscriber has the financial ability to bear the economic risk of the Subscriber’s investment, has adequate means for
providing for the Subscriber’s current needs and personal contingencies and has no need for liquidity with respect to
the Subscriber’s investment in the Company; and |
| |
|
|
| |
(iii) |
The
Subscriber has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and
risks of the prospective investment. If other than an individual, the Subscriber also represents it has not been organized
for the purpose of acquiring the Offered Securities. |
| (c) |
|
The
Subscriber represents and warrants to the Company as follows: |
| |
(i) |
The
Subscriber has been given the opportunity for a reasonable time prior to the date hereof to ask questions of, and receive
answers from the Company or its representatives concerning the terms and conditions of the Offering, and other matters pertaining
to this investment, and has been given the opportunity for a reasonable time prior to the date hereof to obtain such additional
information in connection with the Company in order for the Subscriber to evaluate the merits and risks of purchase of the
Offered Securities, to the extent the Company possesses such information or can acquire it without unreasonable effort or
expense; and |
| |
|
|
| |
(ii) |
The
Subscriber has not been furnished with any oral representation or oral information in connection with the offering of the
Offered Securities; and |
| |
|
|
| |
(iii) |
The
Subscriber has determined that the Offered Securities are a suitable investment for the Subscriber and that at this time the
Subscriber could bear a complete loss of the Subscriber’s investment; and |
| |
|
|
| |
(iv) |
The
Subscriber is not relying on the Company, or its affiliates with respect to economic considerations involved in this investment;
and |
| |
|
|
| |
(v) |
The
Subscriber realizes that it may not be able to resell readily any of the Securities purchased hereunder because (A) there
may only be a limited public market for any Securities and (B) none of the Securities have been registered under the “blue
sky” laws; and |
| |
|
|
| |
(vi) |
The
Subscriber understands that the Company has the absolute right to refuse to consent to the transfer or assignment of the Securities
if such transfer or assignment does not comply with applicable state and federal securities laws; and |
| |
|
|
| |
(vii) |
No
representations or warranties have been made to the Subscriber by the Company, or any officer, employee, agent, affiliate
or subsidiary of any of it, other than the representations of the Company in this Agreement; and |
| |
|
|
| |
(viii) |
Any
information which the Subscriber has heretofore furnished to the Company with respect to the Subscriber’s financial
position and business experience is correct and complete as of the date of this Agreement and if there should be any material
change in such information the Subscriber will immediately furnish such revised or corrected information to the Company; and |
| |
|
|
| |
(ix) |
The
Subscriber has received and reviewed the Company’s Confidential Private Placement Memorandum dated as of August 9, 2013,
as amended, and has had access to the reports of the Company filed pursuant to the Securities Exchange Act of 1934, as amended;
and |
| |
|
|
| |
(x) |
The
foregoing representations, warranties and agreements shall survive the sale of the Securities and acceptance by the Company
of the Subscriber’s subscription. |
SECTION
4
The
Company represents and warrants to the Subscriber as follows:
| Section
4.1 |
|
Organization,
Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under
the laws of the State of Nevada and has all requisite corporate power and authority to carry on its business as now conducted
and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction
in which the failure to so qualify would have a material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. |
| |
|
|
| Section 4.2 |
|
Authorization.
All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and the authorization,
issuance (or reservation for issuance) and delivery of the Securities being sold hereunder have been taken, and this Agreement
constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms. |
| |
|
|
| Section 4.3 |
|
Valid
Issuance of Securities. The Securities, when issued, sold and delivered in accordance with the terms hereof for the consideration
expressed herein, will be validly issued, and, based in part upon the representations of the Subscriber in this Agreement,
will be issued in compliance with all applicable U.S. federal and state securities laws. |
| |
|
|
| Section 4.4 |
|
No
Conflicts. The execution and delivery of this Agreement and the consummation of the issuance of the Securities and the
transactions contemplated by this Agreement do not and will not conflict with or result in a breach by the Company of any
of the terms or provisions of, or constitute a default under, the certificate of incorporation or bylaws of the Company, or
any indenture, mortgage, deed of trust or other material agreement or instrument to which the Company is a party or by which
it or any of its properties or assets are bound, or any existing applicable decree, judgment or order of any court, Federal
or State regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any of
its properties or assets. |
| |
|
|
| Section 4.5 |
|
Compliance
with Laws. As of the date hereof, the conduct of the business of the Company complies in all material respects with all
material statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto. The Company shall
comply with all applicable securities laws with respect to the sale of the Securities. |
SECTION
5 (CANADIAN SECURITIES REQUIREMENTS)
If
the Subscriber is a resident of Alberta, Ontario or British Columbia, such Subscriber’s subscription for Offered Securities
is subject to the terms and conditions of this Section 5.
| Section
5.1 | | Offering Exemption. |
If
the Subscriber is a resident of Alberta, Ontario or British Columbia, the sale of the Offered Securities by the Company to the
Subscriber is conditional upon such sale being exempt from the requirements as to the filing of a prospectus and as to the preparation
of an offering memorandum contained in any statute, regulation, instrument, rule or policy applicable to the sale of the Offered
Securities or upon the issue of such orders, consents or approvals as may be required to permit such sale without the requirement
of filing a prospectus or delivering an offering memorandum.
Section
5.2 Representations and Warranties.
By
the Subscriber’s acceptance of this Agreement, the Subscriber represents and warrants to the Company (which representations
and warranties shall survive the Closing) that:
| |
● |
the
Subscriber is a resident of Alberta, Ontario or British Columbia and the Subscriber complies with one of the following: |
(i)
the Subscriber is purchasing as principal or is deemed to be purchasing as principal in accordance with applicable Canadian securities
legislation and meets the definition of “accredited Subscriber” as such term is defined under NI 45-106 and has completed
and signed the Subscriber questionnaire set forth on Annex B; or
(ii)
the Subscriber is purchasing as principal and has purchased that number of Offered Securities having an acquisition cost to the
Subscriber of not less than $150,000 to be paid in cash on the date of Closing;
| |
● |
The
Subscriber is not a person created or used solely to purchase or hold securities in order to comply with an exemption from
the prospectus requirements of applicable Canadian securities legislation; and |
| |
|
|
| |
● |
The
Subscriber and any beneficial purchaser for whom it is acting is resident in the jurisdiction set out in column (1) on Schedule
I, such address was not created and is not used solely for the purpose of acquiring the Offered Securities and the Subscriber
was solicited to purchase in such jurisdiction. |
Section
5.3 Anti-Money Laundering.
The
Subscriber represents and warrants that the funds representing the Purchase Price for the Offered Securities being subscribed
for herein which will be advanced by the Subscriber to the Company hereunder will not represent proceeds of crime for the purposes
of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada)(the “PCMLTFA”) and the Subscriber
acknowledges that the Company may in the future be required by law to disclose the Subscriber’s name and other information
relating to this Agreement and the Subscriber’s subscription hereunder, on a confidential basis, pursuant to PCMLTFA. To
the best of the Subscriber’s knowledge: (a) none of the subscription funds to be provided by the Subscriber (i) have been
or will be derived from or related to any activity that is deemed criminal under the laws of Canada or the United States of America
or any other jurisdiction, or (ii) are being tendered on behalf of a person or entity who has not been identified to the Subscriber;
and (b) it shall promptly notify the Company if the Subscriber discovers that any of such representations ceases to be true, and
to provide the Company with appropriate information in connection therewith.
Section
5.4 Ontario Securities Commission Disclosure.
If
the Subscriber is resident in Ontario, it acknowledges it has been notified by the Company: (i) of the delivery to the Ontario
Securities Commission (the “OSC”) of the Subscriber’s personal information; (ii) that the Subscriber’s
personal information is being collected indirectly by the OSC under the authority granted to it in the securities legislation;
(iii) the Subscriber’s personal information is being collected for the purposes of the administration and enforcement of
the securities legislation of Ontario; and (iv) the contact information of the public official in Ontario who can answer questions
about the OSC’s indirect collection of personal information is, Administrative Assistant to the Director of Corporate Finance,
Ontario Securities Commission, Suite 1903, Box 5520 Queen Street West, Toronto, Ontario, M5H 3S8, telephone (416) 593-8086, facsimile
(416) 593-8252.
| Section
5.5 |
|
Stock
Legends. If the Subscriber is a resident of Alberta, Ontario or British Columbia, in addition to the securities legends
set forth in Section 3.7, such Subscriber hereby agrees with the Company as follows: the certificates evidencing the Securities
issued to such Subscriber, and each certificate issued in transfer thereof within the four month period after issuance of
the Securities, will bear the following or similar legend: |
UNLESS
PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS 4 MONTHS
AND A DAY AFTER THE LATER OF (I) [INSERT THE DISTRIBUTION DATE], AND (II) THE DATE THE ISSUER BECAME A REPORTING ISSUER IN ANY
PROVINCE OR TERRITORY OF CANADA.
SECTION
6
| Section
6.1 |
|
Additional
Representations and Warranties of Non-U.S. Persons. Each Subscriber that is not a U.S. Person (as defined under Regulation
S), severally and not jointly, further represents and warrants to the Company as follows: (i) at the time of (A) the offer
by the Company and (B) the acceptance of the offer by such Person, of the Securities, such Person was outside the U.S; (ii)
no offer to acquire the Securities or otherwise to participate in the transactions contemplated by this Agreement was made
to such Person or its representatives inside the U.S.; (iii) such Person is not purchasing the Securities for the account
or benefit of any U.S. Person, or with a view towards distribution to any U.S. Person, in violation of the registration requirements
of the Securities Act; (iv) such Person will make all subsequent offers and sales of the Securities either (A) outside of
the U.S. in compliance with Regulation S; (B) pursuant to a registration under the Securities Act; or (C) pursuant to an available
exemption from registration under the Securities Act; (v) such Person is acquiring the Securities for such Person’s
own account, for investment and not for distribution or resale to others; (vi) such Person has no present plan or intention
to sell the Securities in the U.S. or to a U.S. Person at any predetermined time, has made no predetermined arrangements to
sell the Securities and is not acting as an underwriter or dealer with respect to such securities or otherwise participating
in the distribution of such securities; (vii) neither such Person, its Affiliates nor any Person acting on behalf of such
Person, has entered into, has the intention of entering into, or will enter into any put option, short position or other similar
instrument or position in the U.S. with respect to the Securities at any time after the date of Closing through the one year
anniversary of the date of Closing except in compliance with the Securities Act; (viii) such Person consents to the placement
of a legend on any certificate or other document evidencing the Securities as required under applicable law (ix) such Person
is not acquiring the Securities in a transaction (or an element of a series of transactions) that is part of any plan or scheme
to evade the registration provisions of the Securities Act. |
| |
|
|
| Section 6.2 |
|
Opinion.
Such Subscriber will not transfer any or all of such Subscriber’s Securities pursuant to Regulation S or absent an effective
registration statement under the Securities Act and applicable state securities law covering the disposition of such Subscriber’s
Securities, without first providing the Company with an opinion of counsel (which counsel and opinion are reasonably satisfactory
to the Company) to the effect that such transfer will be made in compliance with Regulation S or will be exempt from the registration
and the prospectus delivery requirements of the Securities Act and the registration or qualification requirements of any applicable
U.S. state securities laws |
SECTION
7
| Section
7.1 |
|
Indemnity.
The Subscriber agrees to indemnify and hold harmless the Company, its officers and directors, employees and its affiliates
and each other person, if any, who controls any thereof, against any loss, liability, claim, damage and expense whatsoever
(including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any false representation
or warranty or breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber herein
or in any other document furnished by the Subscriber to any of the foregoing in connection with this transaction. |
| |
|
|
| Section 7.2 |
|
Modification.
Neither this Agreement nor any provisions hereof shall be waived, amended, modified, discharged or terminated except by an
instrument in writing signed by the party against whom any waiver, amendment, modification, discharge or termination is sought. |
| |
|
|
| Section 7.3 |
|
Notices.
Any notice, demand or other communication which any party hereto may be required, or may elect, to give to anyone interested
hereunder shall be in writing and shall be deemed given when (a) deposited, postage prepaid, in a United States mail letter
box, registered or certified mail, return receipt requested, addressed to such address as may be given herein, or (b) delivered
personally, to the other party hereto at their address set forth in this Agreement or such other address as a party hereto
may request by notifying the other party hereto. |
| Section
7.4 |
|
Counterparts.
This Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on all parties, notwithstanding that all parties are
not signatories to the same counterpart. |
| |
|
|
| Section 7.5 |
|
Binding
Effect. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties
and their heirs, executors, administrators, successors, legal representatives and assigns. If the Subscriber is more than
one person, the obligation of the Subscriber shall be joint and several and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors,
administrators and successors. |
| |
|
|
| Section
7.6 |
|
Entire
Agreement. The Exhibits attached hereto are hereby incorporated herein by reference. This Agreement together with the
Annex and Exhibits contains the entire agreement of the parties and there are no representations, covenants or other agreements
except as stated or referred to herein. |
| |
|
|
| Section
7.7 |
|
Assignability.
This Agreement is not transferable or assignable by the Subscriber except as may be provided herein. |
| |
|
|
| Section
7.8 |
|
Applicable
Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. |
| |
|
|
| Section
7.9 |
|
Amendments.
The provisions of this Agreement may be amended at any time and from time to time, and particular provisions of this Agreement
may be waived, with and only with an agreement or consent in writing signed by the Company and by the Subscribers currently
holding fifty percent (50%) of the aggregate principal amount of the outstanding Notes as of the date of such amendment or
waiver. |
| |
|
|
| Section
7.10 |
|
Neutral
Gender. The use in this Agreement of words in the male, female or neutral gender are for convenience only and shall not
affect or control any provisions of this Agreement. |
| |
|
|
| Section 7.11 |
|
Captions.
The Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. |
[Subscription
signature pages follow]
Principal
Amount of Note = $1,000,000.
| B. |
MANNER
IN WHICH TITLE IS TO BE HELD (Please check One): |
| 1. |
[ ] |
Individual |
7. |
[ ] |
Trust/Estate/Pension
or Profit Sharing Plan, and
Date
Opened: _______________ |
| |
|
|
|
|
|
| 2. |
[ ] |
Joint
Tenants with Rights of Survivorship |
8. |
[ ] |
As
a Custodian for ___________
___________________________
UGMA
____________ (State) |
| |
|
|
|
|
|
| 3. |
[ ] |
Community
Property |
|
|
|
| |
|
|
|
|
|
| 4. |
[ ] |
Tenants
in Common |
9. |
[ ] |
Married
with Separate Property |
| |
|
|
|
|
|
| 5. |
[ ] |
Corporation/Partnership |
10. |
[ ]
|
Keogh |
| |
|
|
|
|
|
| 6. |
[ ] |
IRA |
11. |
[ ] |
Tenants
by the Entirety |
| |
|
|
|
|
|
| 12. |
Other |
|
|
|
|
| C. |
ACCREDITED
INVESTOR REPRESENTATION: |
Subscriber
must complete and sign the Accredited Investor Questionnaire attached as Annex A and Annex B (for Canadian Subscribers only) to
this Agreement.
PLEASE
GIVE THE EXACT AND COMPLETE NAME IN WHICH TITLE TO THE SECURITIES ARE TO BE HELD: Heddle Marine Service Inc.
____________________________________________________________________
____________________________________________________________________
IN
WITNESS WHEREOF, the Subscriber has executed this Agreement on the 19th day of November, 2014.
Heddle
Marine Service Inc.
| Signature:
|
/S/
Richard Heddle |
|
Signature: |
| Name:
|
Richard Heddle |
|
Name: |
| Title: |
President |
|
|
Address On File with Plastic2Oil, Inc.
***DO
NOT WRITE BELOW DOTTED LINE***
ACCEPTED
ON BEHALF OF THE COMPANY:
| PLASTIC2OIL, INC. |
|
|
|
| By: |
/S/
Rahoul Banerjea
|
|
Principal
Amount of Notes: |
$1,000,000
|
| Name: |
Rahoul Banerjea |
|
No. of Warrants: |
1,000,000 |
| Title: |
Chief Financial Officer |
|
|
|
Exhibit
10.19
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO
AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT AND SUCH STATE LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
12%
SECURED PROMISSORY NOTE
DUE
NOVEMBER 19, 2019
| No.
2014-1 |
|
|
| $1,000,000 |
|
November
19, 2014 |
FOR
VALUE RECEIVED, PLASTIC2OIL, INC., a Nevada corporation (herein called the “Company”), for value received hereby promises
to pay on November 19, 2019, to Heddle Marine Service Inc., with an address at 208 Hillyard St., Hamilton, Ontario, Canada L8L
6B6 (herein called the “Holder”), the principal sum of One Million Dollars ($1,000,000), together with interest upon
the principal hereof at the rate of 12% per annum. Interest on this Note shall be compounded annually and shall accrue on the
outstanding principal amount on this Note from the date of issuance until the date of repayment of the principal and payment of
accrued interest in full. Interest shall be calculated on the basis of a 365 day year and shall be payable at maturity. Payments
hereunder shall be made at such place as the holder hereof shall designate to the undersigned, in writing, in lawful money of
the United States of America. Any payment which becomes due on a Saturday, Sunday or legal holiday shall be payable on the next
business day.
This
Note shall, (i) upon declaration by the Holder or (ii) automatically upon acceleration pursuant to clause (c) below, become immediately
due and payable upon the occurrence of any of the following specified events of default:
| (a) |
If
the Company shall default in the due and punctual payment of the principal amount of this Note when and as the same shall
become due and payable, whether at maturity or by acceleration; or
|
| |
|
| (b) |
If
the Company shall default in the due and punctual payment of interest on this Note when the same shall become due and
payable; or
|
| |
|
| (c) |
If
the Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking of possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall take any
corporate action to authorize any of the foregoing; or an involuntary case or other proceeding shall be commenced against
the Company seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall
remain undismissed or unstayed for a period of 60 consecutive days; or |
| |
|
| (d) |
Company
defaults in the performance of any covenant or other provision with respect to this Note or any other agreement between
Company and the Holder or the Collateral Agent (as defined in the Security Agreement referred to below); or
|
| |
|
| (e) |
Company
fails to pay when due (whether at the stated maturity, by acceleration or otherwise) any indebtedness for borrowed money
owing to the Holder (other than under this Note), any third party or the occurrence of any event which could result in
acceleration of payment of any such indebtedness or the failure to perform any agreement with any third party; or
|
| |
|
| (f) |
any
representation or warranty made in this Note, any related document, any agreement between Company and the Holder or the
Collateral Agent or in any financial statement of Company proves to have been misleading in any material respect when made;
Company omits to state a material fact necessary to make the statements made in this Note, any related document, any
agreement between Company and the Holder or the Collateral Agent or any financial statement of Company not misleading in
light of the circumstances in which they were made; or, if upon the date of execution of this Note, there shall have been any
material adverse change in any of the facts disclosed in any financial statement, representation or warranty that was not
disclosed in writing to the Holder at or prior to the time of execution hereof; or
|
| (g) |
any
pension plan of Company fails to comply with applicable law or has vested unfunded liabilities that, in the opinion of
the Holder, might have a material adverse effect on Company’s ability to repay its debts; or
|
| |
|
| (h) |
if
the validity of this Note or any mortgage, pledge agreement, security agreement or any other collateral agreement, including
without limitation the Security Agreement, shall have been challenged or disaffirmed by or on behalf of any of such parties
thereto; or if, other than as a direct result of any action or inaction of the Holder, the liens created or intended to
be created by any such collateral agreements shall at any time cease to be valid and perfected first priority liens in
favor of Holder’s collateral agent, subject to no equal or prior liens.
|
Declaration
of this Note being immediately due and payable by the Holder may only be made by written notice to the Company declaring the unpaid
balance of the principal amount of this Note and accrued interest thereon to be due. Such declaration shall be deemed given upon
the occurrence of any event specified in clause (c) above. In the event of a default, all costs of collection, including reasonable
attorneys’ fees, shall be paid by the Company.
This
Note may be prepaid by the Company in whole or in part at any time or from time to time without penalty or premium. This Note
is not assignable by the holder hereof and any such purported assignment shall be null and void.
The
Company for itself and its successors and assigns hereby waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance or endorsement of this Note, and agrees that this Note shall
be deemed to have been made under, and shall be interpreted and governed by reference to, the laws of the State of New York.
Except
as expressly agreed in writing by the Holder, no extension of time for payment of this Note, or any installment hereof, and no
alteration, amendment or waiver of any provision of this Note shall release, discharge, modify, change or affect the liability
of the Company under this Note.
All
of the covenants, stipulations, promises and agreements made by or contained in this Note on behalf of the undersigned shall bind
its successors, whether so expressed or not.
No
failure on the part of the Holder to exercise, and no delay in exercising, any right under this Note shall operate as a waiver
thereof, nor shall any single or partial exercise of such rights preclude any other or further exercise thereof or the exercise
of any other right.
It
is the intention of the Company and the Holder that all payments due hereunder will be treated for accounting and tax purposes
as indebtedness of the Company to the Holder. Each of the Company and the Holder agrees to report such payments due hereunder
for the purposes of all taxes in a manner consistent with such intended characterization.
If
any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions
herein shall in no way be affected thereby.
The
Company’s obligations under this Note shall be secured pursuant to that certain Security Agreement, dated as of August 29,
2013 (the “Security Agreement”), by the Company and certain of its subsidiaries, each as grantor, in favor of the
Collateral Agent for the benefit of the purchasers of 12% secured promissory notes of like tenor issued by the Company, including
Mr. Richard Heddle, personally, as purchaser of 12% secured promissory notes in August or September of 2013 in an aggregate principal
amount of $2 million (this Note and such other notes are collectively, the “12% Company Notes”). The Company’s
obligations under this Note and the other 12% Company Notes are also secured by each of the following agreements made in favor
of the holders of 12% Company Notes by the Company (and if requested by the Collateral Agent or the Holder, one or more of its
subsidiaries) (the “Additional Collateral Documents”):
| (a) |
mortgages
in the Company’s (or one of its subsidiaries’, as applicable) real properties located in Niagara Falls, New
York;
|
| |
|
| (b) |
one
or more intellectual property security agreements covering material intellectual property owned by the Company (or one of its
subsidiaries, as applicable). |
IN
WITNESS WHEREOF, the Company has caused this Note to be signed in its corporate name by its Chief Financial Officer as of the
date hereinabove set forth.
| |
PLASTIC2OIL,
INC. |
| |
|
|
| |
By: |
/S/
Rahoul Banerjea |
| |
Name: |
Rahoul
Banerjea |
| |
Title: |
Chief
Financial Officer |
Exhibit
10.20
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IN ACCORDANCE WITH AN EXEMPTION FROM REGISTRATION
UNDER THAT ACT, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
TO PURCHASE
SHARES
OF COMMON STOCK OF
PLASTIC2OIL,
INC.
This
certifies that Richard Heddle or any party to whom this Warrant is assigned in accordance with its terms is entitled to subscribe
for and purchase 1,000,000 shares of the Common Stock of Plastic2Oil, Inc., a Nevada corporation, on the terms and conditions
of this Warrant.
1.
Definitions. As used in this Warrant, the term:
1.1
“Business Day” means any day other than a Saturday, Sunday, or a day on which banking institutions in the State of
New York are authorized or obligated to be closed by law or by executive order.
1.2
“Common Stock” means the Common Stock, par value $.001 per share, of the Corporation.
1.3
“Corporation” means Plastic2Oil, Inc. a Nevada corporation, or its successor.
1.4
“Expiration Date” means November 19, 2019.
1.5
“Holder” means Heddle Marine Service Inc. or any party to whom this Warrant is assigned in accordance with its terms.
1.6
“1933 Act” means the Securities Act of 1933, as amended.
1.7
“Warrant” means this Warrant and any warrants delivered in substitution or exchange for this Warrant in accordance
with the provisions of this Warrant.
1.8
“Warrant Price” means $0.12 per share of Common Stock, as such amount may be adjusted pursuant to Section 4 hereof.
2.
Exercise of Warrant. At any time before the Expiration Date, the Holder may exercise the purchase rights represented by
this Warrant, in whole or in part, by surrendering this Warrant (with a duly executed subscription in the form attached) at the
Corporation’s principal corporate office (located on the date hereof in Niagara Falls, New York) and by paying the Corporation,
by certified or cashier’s check, the aggregate Warrant Price for the shares of Common Stock being purchased.
2.1
Delivery of Certificates. Within thirty (30) days after each exercise of the purchase rights represented by this Warrant, the
Corporation shall deliver a certificate for the shares of Common Stock so purchased to the Holder and, unless this Warrant has
been fully exercised or expired, a new Warrant representing the balance of the shares of Common Stock subject to this Warrant.
2.2
Effect of Exercise. The person entitled to receive the shares of Common Stock issuable upon any exercise of the purchase rights
represented by this Warrant shall be treated for all purposes as the holder of such shares of record as of the close of business
on the date of exercise.
3.
Stock Fully Paid; Reservation of Shares. The Corporation covenants and agrees that all securities that it may issue upon
the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable and free from all
taxes, liens and charges. The Corporation further covenants and agrees that, during the period within which the Holder may exercise
the rights represented by this Warrant, the Corporation shall at all times have authorized and reserved for issuance enough shares
of its Common Stock or other securities for the full exercise of the rights represented by this Warrant. The Corporation shall
not, by an amendment to its Articles of Incorporation or through reorganization, consolidation, merger, dissolution, issue or
sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant.
4.
Adjustments. The Warrant Price and the number of shares of Common Stock that the Corporation must issue upon exercise of
this Warrant shall be subject to adjustment in accordance with Sections 4.1 through 4.3.
4.1
Adjustment to Warrant Price for Combinations or Subdivisions of Common Stock. If the Corporation at any time or from time to time
after the date hereof (1) declares or pays, without consideration, any dividend on the Common Stock payable in Common Stock; (2)
creates any right to acquire Common Stock for no consideration; (3) subdivides the outstanding shares of Common Stock (by stock
split, reclassification or otherwise); or (4) combines or consolidates the outstanding shares of Common Stock, by reclassification
or otherwise, into a lesser number of shares of Common Stock, the Corporation shall proportionately increase or decrease the Warrant
Price, as appropriate.
4.2
Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon exercise of this Warrant changes into shares
of any other class or classes of security or into any other property for any reason other than a subdivision or combination of
shares provided for in Section 4.1, including without limitation any reorganization, reclassification, merger or consolidation,
the Corporation shall take all steps necessary to give the Holder the right, by exercising this Warrant, to purchase the kind
and amount of securities or other property receivable upon any such change by the owner of the number of shares of Common Stock
subject to this Warrant immediately before the change.
4.3
Spin Offs. If the Corporation spins off any subsidiary by distributing to the Corporation’s shareholders as a dividend or
otherwise any stock or other securities of the subsidiary, the Corporation shall reserve until the Expiration Date enough of such
shares or other securities for delivery to the Holders upon any exercise of the rights represented by this Warrant to the same
extent as if the Holders owned of record all Common Stock or other securities subject to this Warrant on the record date for the
distribution of the subsidiary’s shares or other securities.
4.4
Certificates as to Adjustments. Upon each adjustment or readjustment required by this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with this Section, cause independent public accountants selected
by the Corporation to verify such computation and prepare and furnish to the Holder a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.
5.
Fractional Shares. The Corporation shall not issue any fractional shares in connection with any exercise of this Warrant.
6.
Dissolution or Liquidation. If the Corporation dissolves, liquidates or winds up its business before the exercise or expiration
of this Warrant, the Holder shall be entitled, upon exercising this Warrant, to receive in lieu of the shares of Common Stock
or any other securities receivable upon such exercise, the same kind and amount of assets as would have been issued, distributed
or paid to it upon any such dissolution, liquidation or winding up with respect to such shares of Common Stock or other securities,
had the Holder been the holder of record on the record date for the determination of those entitled to receive any such liquidating
distribution or, if no record is taken, upon the date of such liquidating distribution. If any such dissolution, liquidation or
winding up results in a cash distribution or distribution of property which the Corporation’s Board of Directors determines
in good faith to have a cash value in excess of the Warrant Price provided by this Warrant, then the Holder may, at its option,
exercise this Warrant without paying the aggregate Warrant Price and, in such case, the Corporation shall, in making settlement
to Holder, deduct from the amount payable to Holder an amount equal to such aggregate Warrant Price.
7.
Transfer and Exchange.
7.1
Transfer. Subject to Section 7.3, the Holder may transfer all or part of this Warrant at any time on the books of the Corporation
at its principal office upon surrender of this Warrant, properly endorsed. Upon such surrender, the Corporation shall issue and
deliver to the transferee a new Warrant or Warrants representing the Warrants so transferred. Upon any partial transfer, the Corporation
shall issue and deliver to the Holder a new Warrant or Warrants with respect to the Warrants not so transferred.
7.2
Exchange. The Holder may exchange this Warrant at any time at the principal office of the Corporation for Warrants in such denominations
as the Holder may designate in writing. No such exchanges will increase the total number of shares of Common Stock or other securities
that are subject to this Warrant.
7.3
Securities Act of 1933. By accepting this Warrant, the Holder agrees that this Warrant and the shares of the Common Stock issuable
upon exercise of this Warrant may not be offered or sold except in compliance with the 1933 Act, and then only with the recipient’s
agreement to comply with this Section 7 with respect to any resale or other disposition of such securities. The Corporation may
make a notation on its records in order to implement such restriction on transferability.
8.
Loss or Mutilation. Upon the Corporation’s receipt of reasonably satisfactory evidence of the ownership and the loss,
theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) of a reasonably satisfactory
indemnity or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Corporation shall execute and deliver
a new Warrant to the Holder.
9.
Successors. All the covenants and provisions of this Warrant shall bind and inure to the benefit of the Holder and the
Corporation and their respective successors and assigns.
10.
Notices. All notices and other communications given pursuant to this Warrant shall be in writing and shall be deemed to
have been given when personally delivered or when mailed by prepaid registered, certified or express mail, return receipt requested.
Notices should be addressed as follows:
| (a)
|
If to Holder, then to:
|
Heddle
Marine Service Inc.
208
Hillyard Street Hamilton
Ontario,
Canada L8L6B6
| (b)
|
If to the Corporation, then to:
|
Plastic2Oil,
Inc.
20
Iroquois Street
Niagara
Falls, NY 14303
Attention:
Chief Financial Officer
Such
addresses for notices may be changed by any party by notice to the other party pursuant to this Section 10.
11.
Amendment. This Warrant may be amended only by an instrument in writing signed by the Corporation and the Holder.
12.
Construction of Warrant. This Warrant shall be construed as a whole and in accordance with its fair meaning. A reference
in this Warrant to any section shall be deemed to include a reference to every section the number of which begins with the number
of the section to which reference is made. This Warrant has been negotiated by both parties and its language shall not be construed
for or against any party.
13.
Law Governing. This Warrant is executed, delivered and to be performed in the State of New York and shall be construed
and enforced in accordance with and governed by the New York law without regard to any conflicts of law or choice of forum provisions.
Dated
as of November 19, 2014
| |
By: |
/S/
Rahoul Banerjea |
| |
Name: |
Rahoul Banerjea |
| |
Title: |
Chief Financial
Officer |
SUBSCRIPTION
FORM
(To
be executed only upon exercise of Warrant)
The
undersigned registered owner of this Warrant irrevocably exercises this Warrant and agrees to purchase _______ shares of Common
Stock of Plastic2Oil, Inc., all at the price and on the terms and conditions specified in this Warrant.
The
undersigned acknowledges that, by issuing shares of Common Stock to the undersigned upon exercise of the Warrant, the Company
is relying on an exemption from the registration of such shares under the Securities Act of 1933, as amended, or other applicable
law. In accordance therewith, the undersigned represents and warrants that the representations and warranties of the undersigned
contained in the Subscription Agreement between the Company and the undersigned, pursuant to which the undersigned purchased the
Warrant, along with the undersigned’s answers to the applicable investor questionnaires annexed thereto, are true and correct
in all material respects as of the date hereof.
Dated:
_________
| |
|
| |
(Signature
of Registered Holder) |
| |
|
| |
|
| |
(Street
Address) |
| |
|
| |
|
| |
(City)
(State) (Zip) |
ISSUE
OF A NEW WARRANT
(To
be executed only upon partial exercise,
exchange,
or partial transfer of Warrant)
Please
issue ______ Warrants, each representing the right to purchase ________ shares of Common Stock of Plastic2Oil, Inc. to the registered
holder.
Dated:
________________
| |
|
| |
(Signature
of Registered Holder) |
FORM
OF ASSIGNMENT
FOR
VALUE RECEIVED, the undersigned registered Holder of this Warrant sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under the Warrant, with respect to the number of shares of Common Stock set forth below (the
“Transfer”):
| Name
of Assignee |
|
Address |
|
No.
of Shares |
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
The
undersigned irrevocably constitutes and appoints _______ as the undersigned’s attorney-in-fact, with full power of substitution,
to make the transfer on the books of Plastic2Oil, Inc.
Dated:
________________
Exhibit
10.21
EQUIPMENT
SUPPLY CONTRACT
THIS
EQUIPMENT SUPPLY CONTRACT (“Contract”) is made as of January 2, 2015 (the “Effective Date”)
by and between PLASTIC2OIL, INC., a Nevada corporation with an address of 20 Iroquois Street, Niagara Falls, NY 14303 (“P2O”),
and ECONAVIGATION, LLC, a New York limited liability company with an address of 1600 Moseley Road, Suite 200, Victor, NY 14564
(“Customer”).
WHEREAS,
P2O has developed certain proprietary technology for the processing of feed stocks through the controlled use of thermal
conversion techniques and processes and as part of such technology has developed proprietary equipment used with such
processes;
WHEREAS,
P2O produces and sells processing machinery and related equipment utilizing and for the deployment of such proprietary technology;
WHEREAS,
Customer is engaged in the business of processing feedstocks consisting of plastic and using, when reasonably necessary, used
oil, for the purposes of, among other things, creating fuel;
WHEREAS,
Customer and P2O are parties to a certain Technology License and Referral Agreement dated as of the Effective Date (the “Technology
Agreement”) pursuant to which, among other things, (i) P2O licenses certain technology to Customer for Customer’s
use in processing plastic feedstocks (the “Technology”), (ii) P2O agrees to direct and refer to Customer certain
inquiries it or any affiliate receives regarding processing plastic feedstocks with the Technology, and (iii) Customer agrees
to pay P2O a 5% royalty on Gross Sales (as defined in the Technology Agreement) received by Customer and/or its affiliates through
the use of the Technology (the “License Fee”);
WHEREAS,
Customer and P2O desire to establish P2O as the exclusive supplier of the processing equipment to be used by Customer in connection
with the application of the Technology in connection with the Processing Business (defined herein); and
WHEREAS,
P2O agrees to supply and Customer desires to obtain from P2O the Goods (defined below) in accordance with the terms and conditions
of this Contract.
NOW,
THEREFORE, in consideration of the mutual covenants contained herein and for such other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1.1.
“Affiliate” of a Person means any Person directly or indirectly controlling, controlled by, or under
common control with, that Person. The term “control” for purposes of this Contract means the power to
direct or cause the direction of the actions, management and/or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, and “controlled by” and “under common control with” have
correlative meanings.
1.2.
“Certificate of Functionality” or “COF” has the meaning set forth in Section
5.2.2.
1.3.
“Claim” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of
violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal,
administrative, regulatory or otherwise, whether at law, in equity or otherwise.
1.4.
“Contingencies” shall mean, collectively, the Pilot Program Contingency and the Financing
Contingency.
1.5.
“Financing Contingency” shall have the meaning set forth in Section 27.2.
1.6.
“Goods” shall have the meaning set forth in Section 2.1.
1.7.
“Initial Order” shall have the meaning set forth in Schedule “A” attached hereto and made part
hereof.
1.8.
“Minimum Performance Levels” has the meaning set forth in Schedule “B” attached hereto and
made a part hereof and shall be established on a Purchase Order and/or Processor basis as provided in Schedule
“B” attached hereto.
1.9.
“MMRU Agreement” means that certain Monitoring, Maintenance, Repair and Upgrade Agreement dated as of the
Effective Date between P2O and Customer.
1.10.
“Performance Factors” shall have the meaning set forth in Schedule “B” hereto.
1.11.
“Permitted Assignee” has the meaning set forth in Section 22.1.
1.12.
“Person” means any person or entity of every kind and is to be construed as broadly as
possible.
1.13.
“Personnel” means agents, employees or subcontractors engaged or appointed by P2O or Customer.
1.14.
“Pilot Program” has the meaning set forth in Section 27.1.
1.15.
“Pilot Program Contingency” has the meaning set forth in Section 27.1.
1.16.
“Price” shall have the meaning set forth in Section 5.1.
1.17.
“Processing Business” shall have the same meaning as set forth therefor in the Technology
Agreement.
1.18.
“Processing Facility” shall have the same meaning as set forth therefor in the Technology
Agreement.
1.19.
“Processor” shall mean one (1) unit of the Processing Equipment as set forth, described and defined in the
Technology Agreement.
1.20.
“Purchase Order” has the meaning set forth in Section 2.2.
1.21.
“Technology Consultant” has the meaning set forth in Section 5.5.
2.1.
P2O agrees to sell, and Customer agrees to buy, exclusively from P2O for a period commencing with the Effective Date and
expiring on the twentieth (20th) anniversary of the Effective Date (the “Term”), the following
products (the “Goods”) in accordance with the terms and conditions of this Contract:
| Description |
|
Quantity |
|
Price |
| |
|
|
|
|
| Processor(s) |
|
Per
Order |
|
(See
Schedule “A” hereto) |
2.2.
P2O shall be Customer’s and Customer’s Affiliates’ exclusive source for Processors. As used herein, the
term “Customer” shall be deemed to include Customer’s Affiliates as the context requires in order to
be consistent with the previous sentence. As used herein, “Per Order(s)” shall mean as reasonably ordered
pursuant to P2O’s existing specifications or Customer’s reasonable specifications from time to time pursuant to
the form of purchase order attached hereto as Attachment 1 (a “Purchase Order”) or as otherwise
agreed by the parties.
2.3.
Anything herein to the contrary notwithstanding, Customer agrees to purchase at least six (6) Processors over the first three
years of the Term and at least two (2) Processors shall be, and up to four (4) Processors may be, ordered by Customer on the
Effective Date as part of the Initial Order as defined and set forth in Schedule “A”.
The
Goods shall comply with P2O’s current specifications which may be improved by mutual consent of the parties.
Customer
shall issue to P2O one or more Purchase Orders. By issuing a Purchase Order to P2O, Customer makes an offer to purchase Goods
pursuant to the terms and conditions of this Contract, and on no other terms. For the avoidance of doubt, any variations made
to the terms and conditions of this Contract in any Purchase Order, including any additional terms, are void and have no effect
unless agreed to and accepted in writing by P2O. Customer shall be obligated to purchase from P2O quantities of Goods specified
in a Purchase Order. P2O may accept any Purchase Order by confirming the order in writing. No Purchase Order is binding on P2O
unless accepted by P2O as provided in this Contract.
5.1. Price.
Customer shall purchase the Goods from P2O at the prices set forth on Schedule “A” attached hereto
(“Price”).
5.2. Payment
Terms. Payment for Goods ordered pursuant to a Purchase Order shall be paid by Customer to P2O by certified check, wire
transfer or other secured payment instrument as agreed to between the parties, and paid in two (2) installments as
follows:
5.2.1.
The first installment shall be due within fifteen (15) calendar days of when Goods are delivered and accepted, or deemed
accepted, by Customer as provided in Section 7.1 and shall be in an amount equal to eighty percent (80%) of the total Price
under the corresponding Purchase Order.
5.2.2.
The second installment for the twenty percent (20%) balance of the Price for Goods shall be made within fifteen (15) calendar
days of when the Technology Consultant (defined below) certifies that the Goods for which payment is due are installed and
functioning or capable of functioning at the Minimum Performance Levels established for such Goods by providing a Certificate
of Functionality in the form attached hereto as Attachment 2 or in such other form as mutually agreed by the parties
(a “Certificate of Functionality” or “COF”). Notwithstanding the foregoing, if, within
sixty (60) calendar days after delivery of any Goods, P2O has not received either (i) a COF for such Goods; or (ii) written
notice of the reason(s) why a COF cannot be issued (as detailed in Section 5.3 below) for such Goods, the COF will be deemed
issued with respect to such Goods, and payment of the balance of the Price therefor shall be made within fifteen (15) days of
the date of the COF.
5.3.
Customer agrees to cause the Technology Consultant, who shall be Customer’s agent, to diligently and expeditiously
examine, review and test the Goods and their operation for the purpose of seeking to issue one or more COFs, as applicable,
and to promptly issue all such COFs that are capable of being issued. If the Technology Consultant determines that a COF
cannot be issued for Goods delivered pursuant to this Contract, the Technology Consultant shall promptly inform P2O and
Customer accordingly, providing in such notice a reasonable detailed explanation of why a COF cannot be issued for the Goods
in question, and upon receipt of such notice, P2O shall have the option of: (i) making such modifications, repairs or
replacements to the subject Goods as necessary for the Technology Consultant to issue a COF for the same; or (ii) disputing
the Technology Consultant’s determination and submitting the determination to arbitration in accordance with Section 14
below. Customer represents to P2O that, as of the Effective Date, the Technology Consultant has reviewed and acknowledged its
ability and willingness to provide such certification.
5.4.
In the event P2O elects to modify, repair or replace any Goods so as to obtain a COF therefor, Customer shall arrange for
P2O’s access, entry, and use of the applicable Processing Facility as necessary. P2O shall pay, and/or reimburse
Customer (as applicable), for any costs incurred or to be incurred by Customer, related to P2O’s use of a Processing
Facility for the purposes set forth in this Section 5.4, and as reasonably agreed by P2O and Customer, and P2O shall pay the
same within thirty (30) days of written notice thereof provided, however, that any payment of costs to be incurred shall be
made before such obligations become delinquent. Upon the completion of such action(s), P2O shall notify Customer accordingly
and Customer shall promptly instruct the Technology Consultant to examine, review and test the Goods as reasonably necessary
to determine whether a COF can be issued, and, if a COF can be issued, to issue one promptly. Customer will provide P2O with
any access to the Goods necessary, in P2O’s opinion, for such modification, repair, or replacement. If the Technology
Consultant does not issue a COF, P2O shall have the options set forth at the end of the preceding paragraph. Notwithstanding
the foregoing, if, within thirty (30) calendar days after P2O’s notification of completion to Customer (described
above), P2O has not received either: (i) a COF for such Goods; or (ii) written notice of the reason(s) a COF cannot be issued
for such Goods, then the COF will be deemed issued with respect to such Goods. If the Technology Consultant issues a COF for
the Goods, or the COF is deemed issued, payment of the balance of the purchase price therefor shall be made within fifteen
(15) days of Customer’s receipt of the COF for such Goods (or, where the COF is deemed issued, upon the date the COF is
deemed issued).
5.5.
As used herein, “Technology Consultant” shall mean a professional engineering firm, licensed in the
jurisdiction in which the Goods are installed and intended to function, selected by Customer and reasonably acceptable to
P2O. Whenever in this Contract it is provided that the Technology Consultant will take an action or make a determination,
such action or determination shall be taken and made in the context of the Technology Consultant acting in its professional
capacity, subject to the standards and practices of professional engineers in the locality and subject jurisdiction of the
placed or installed Goods for which such action is being taken or determination made. P2O hereby consents to O’Brien
& Gere Engineering, P.C. as the Technology Consultant.
5.6.
In addition to the initial purchase price of Goods ordered pursuant to a Purchase Order, Customer may be required to make
Increased Price Payments as defined and set forth in, and in accordance with, Schedule “A”.
5.7.
If any payment is not made when due, interest will be added to and payable on all overdue amounts at one and one-half (1.5%)
per month, or the maximum percentage allowed within applicable laws, whichever is less. Customer shall pay all costs of
collection, including without limitation reasonable attorney fees. For purposes of interest accrual, P2O is not required to
give formal notice of late payment.
5.8.
At P2O’s option, exercised in connection with P2O’s acknowledgment of a Purchase Order for Goods hereunder by
indicating with such acknowledgment “Letter of Credit Required” or otherwise providing written notice of such
exercise, Customer shall cause to be issued within twenty (20) business days of P2O’s exercise of such option, for the
account of Customer and for the benefit of P2O, an irrevocable letter of credit meeting the requirements in the next sentence
(a “Letter of Credit”). Any Letter of Credit issued with respect to a Purchase Order must: (a) be issued
by a state or federally chartered U.S. bank reasonably acceptable to P20; (b) allow presentation of drafts under the Letter
of Credit by fax to the issuer of the Letter of Credit or allow presentation of drafts to the counters of the issuer of the
Letter of Credit in Buffalo, New York; (c) provide for the total available amount to be drawn under the Letter of Credit
equal to the total sum payable pursuant to such Purchase Order (but not in the potential amount of any Increased Price
Payments as provided in Schedule “A”); (d) allow multiple draws; (e) allow a draw on presentation of a sight
draft with a certificate signed by an authorized officer of P2O that the amount of the draw represents the amount that is due
and payable to P2O with respect to such Purchase Order under the Contract at such time; (f) have an expiration date of no
less than eighteen (18) months following the issuance date, and (g) be otherwise in form and content reasonably acceptable to
P2O. If P2O exercises its option to require a Letter of Credit with respect to a Purchase Order, P2O will not begin any
performance in connection with any Goods purchased under such Purchase Order until a Letter of Credit meeting the above
requirements has been issued to P2O and will have no obligation to perform with respect to such Purchase Order if a Letter of
Credit is not timely issued to P2O. Following the execution and delivery of this Contract, P2O and Customer will cooperate to
come up with a preapproved form of Letter of Credit so that a Letter of Credit can be expeditiously issued if a Letter of
Credit is required.
6.1.
Time is of the essence in the performance of this Contract. Goods shall be delivered FCA (Incoterms 2010) at P2O’s
facility located at 20 Iroquois Street, Niagara Falls, New York 14303, or such facility acceptable to Customer in
Customer’s reasonable discretion (the “FCA Facility”) on or before that date which is two hundred
forty (240) days after P2O’s acknowledgement of the Purchase Order for the same or as mutually agreed in writing by the
parties; provided, however, that with respect to the Initial Order, delivery shall occur within two hundred forty (240) days
of Customer delivering to P2O written notice of the satisfaction or waiver of all the Contingencies or as mutually agreed in
writing by the parties.
6.2. Title/Risk
of Loss. Title to the Goods and the risk of loss thereto shall be transferred from P2O to Customer upon delivery as set
forth in Section 6.1 or as otherwise mutually agreed by the parties in writing.
7.1.
Customer, in seeking to accept delivery of Goods ordered pursuant hereto, shall have a reasonable opportunity to inspect such
Goods at the FCA Facility to determine if they materially conform to the requirements of this Contract. P2O shall make
reasonable accommodation at the FCA Facility for Customer or Customer’s agent to inspect all Goods ordered pursuant
hereto. If the Customer, in good faith, determines that all or a portion of any Goods are non-conforming, Customer may refuse
delivery of such Goods. Customer must provide written notice to P2O of the reason for rejecting the Goods, stating with
specificity all defects and nonconformities, and furnishing such other written evidence or other documentation as may be
reasonably required by P2O to set forth the nature and scope of any defects and/or non-conformities. Except for Goods
remedied as set forth in Section 6.2, Customer shall have no obligation to pay any part of the Price for Goods that are
defective and/or non-conforming. Customer will be deemed to have accepted Goods unless it provides P2O with the
above-described written notice within thirty (30) days following the delivery by P2O to the FCA Facility as set forth in
Section 6.1. All defects and nonconformities that are not so specified will be deemed waived by Customer, such Goods shall be
deemed to have been accepted by Customer, and no attempted revocation of acceptance will be effective.
7.2.
P2O will have a reasonable period of time to remedy any Goods determined to be defective or non-conforming, under the terms
of this Contract which period, however, shall in no event exceed thirty (30) days.
7.3.
Any contrary provision in this Section 7 notwithstanding, any examination and determination of the character and quality of
any Goods made at the FCA Facility shall not affect or change in any way (i) the requirement that a Certificate of
Functionality for such Goods be delivered prior to payment of the 20% balance of the Price therefor in accordance with
Section 5.2.2, (ii) the limited warranty set forth in Section 9.1 hereof, or (iii) P2O’s obligations under the MMRU
Agreement.
7.4.
Customer acknowledges and agrees that the remedy set forth in Section 7.1 and, as applicable, the Limited Warranty set forth
in Section 9.1 hereof are Customer’s exclusive remedy for the delivery of defective and/or non-conforming goods and
that P2O shall have the ability to remedy such defects and/or non-conformities as provided in Sections 7.2 and
9.2.
Customer
shall pay for, and shall hold P2O harmless from, all shipping charges and insurance costs. In addition, all Prices are exclusive
of, and Customer is solely responsible for, and shall pay, and shall hold P2O harmless from, all taxes of every description, federal,
state, and municipal, with respect to, or measured by, the manufacture, sale, shipment, use or Price of the Goods (including interest
and penalties thereon).
9.1. Limited
Product Warranty. P2O warrants to Customer that:
9.1.1.
for a period of six (6) months from the date of delivery of the Goods (“Warranty Period”), such Goods will
be free of material defects in material and workmanship; and
9.1.2.
for the term of the MMRU Agreement, the Goods will perform or be capable of performing at the Minimum Performance Levels for
such Goods as defined in and established pursuant to the provisions of Schedule “B,” provided that the feedstock
used with the subject Processor is substantially the same as the feedstock used to determine the applicable Minimum
Performance Level.
9.2.
EXCEPT FOR THE WARRANTY SET FORTH IN SECTION 9.1, P2O MAKES NO WARRANTY WHATSOEVER WITH RESPECT TO THE GOODS, INCLUDING ANY
(a) WARRANTY OF MERCHANTABILITY; QUALITY; FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT AND WARRANTIES, WHETHER EXPRESS
OR IMPLIED BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE OR OTHERWISE.
9.3.
P2O shall not be liable for a breach of the warranty set forth in Section 9.1 unless: (i) Customer gives written notice of
the defect, reasonably described, to P2O within fifteen (15) days of the time when Customer discovers or ought to have
discovered the defect; (ii) P2O is given a reasonable opportunity after receiving the notice to examine such Goods; and (iii)
P2O reasonably verifies Customer’s claim that the Goods are defective. In seeking to make any such verification of
defects in any Goods, P2O shall take such action in a diligent and expeditious manner.
9.4.
P2O shall not be liable for a breach of the warranty set forth in Section 9.1 if: (i) the defect arises due to abuse, misuse,
neglect, negligence, accident, improper testing, improper installation, improper storage, improper handling, abnormal
physical stress, abnormal environmental conditions or use contrary to any instructions issued by P2O; or (ii) Customer alters
or repairs such Goods without the prior written consent of P2O.
9.5.
Subject to Sections 9.3 and 9.4 above, with respect to any such Goods during the Warranty Period, Customer’s sole
remedy for any breach of the limited warranty set forth in Section 9.1.1 is repair or replacement of the subject Goods or a
portion thereof, by P2O as determined by P2O or, during the inspection period for any Goods, non-payment for such Goods as
set forth in Section 7.1. Subject to Sections 9.3 and 9.4 above, with respect to any such Goods during the term of the MMRU
Agreement, Customer’s sole remedy for any breach of the limited warranty set forth in Section 9.1.2 is P2O’s
service of the subject Goods as set forth in the MMRU Agreement, at Customer’s expense, and at the parts and labor
rates set forth in the MMRU. THIS SECTION SETS FORTH CUSTOMER’s SOLE REMEDY AND P2O’S ENTIRE LIABILITY FOR ANY
BREACH OF THE LIMITED WARRANTIES SET FORTH IN SECTION 9.1.
| 10. | LIMITATIONS
OF LIABILITY |
10.1. NO
LIABILITY FOR CONSEQUENTIAL OR INDIRECT DAMAGES. EXCEPT FOR OBLIGATIONS TO MAKE PAYMENT UNDER THIS CONTRACT, LIABILITY
FOR BREACH OF CONFIDENTIALITY, OR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS, INCLUDING
ANY BREACH OF SECTION 15.1 BELOW, IN NO EVENT SHALL EITHER PARTY OR THEIR REPRESENTATIVES BE LIABLE FOR CONSEQUENTIAL,
INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, PUNITIVE OR ENHANCED DAMAGES, LOST PROFITS OR REVENUES OR DIMINUTION IN VALUE,
ARISING OUT OF OR RELATING TO ANY BREACH OF THIS CONTRACT, REGARDLESS OF (A) WHETHER SUCH DAMAGES WERE FORESEEABLE, (B)
WHETHER OR NOT THE OTHER PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND (C) THE LEGAL OR EQUITABLE THEORY
(CONTRACT, TORT OR OTHERWISE) UPON WHICH THE CLAIM IS BASED, AND NOTWITHSTANDING THE FAILURE OF ANY AGREED OR OTHER REMEDY OF
ITS ESSENTIAL PURPOSE.
10.2. MAXIMUM
LIABILITY FOR DAMAGES. EXCEPT FOR OBLIGATIONS TO MAKE PAYMENT UNDER THIS AGREEMENT, LIABILITY FOR INDEMNIFICATION,
LIABILITY FOR BREACH OF CONFIDENTIALITY, OR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS,
INCLUDING WITHOUT LIMITATION BREACH OF THE LICENSE RESTRICTIONS, IN NO EVENT SHALL EACH PARTY’S AGGREGATE LIABILITY
ARISING OUT OF OR RELATED TO THIS CONTRACT, WHETHER ARISING OUT OF OR RELATED TO BREACH OF CONTRACT, TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, EXCEED THE TOTAL OF (i) THE AMOUNTS PAID OR TO BE PAID FOR PROCESSORS FOR WHICH A PURCHASE ORDER
HAS BEEN DELIVERED AND ACCEPTED BUT NOT YET FILLED AT THE TIME OF THE EVENT GIVING RISE TO THE CLAIM PLUS (ii) AN AMOUNT
EQUAL TO ONE-HALF (1/2) THE AMOUNT DETERMINED PURSUANT TO PRECEDING CLAUSE (i).
10.3. ASSUMPTION
OF RISK. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT FOR RESULTS RELATED TO MINIMUM PERFORMANCE LEVELS OF
PROCESSORS SET FORTH IN SECTION 9.1.2 AND FURTHER DESCRIBED IN THE MMRU AGREEMENT, CUSTOMER ASSUMES ALL RISK AND LIABILITY
FOR THE RESULTS OBTAINED BY THE USE OF ANY GOODS IN THE PRACTICE OF ANY PROCESS, WHETHER IN TERMS OF OPERATING COSTS, GENERAL
EFFECTIVENESS, SUCCESS OR FAILURE, AND REGARDLESS OF ANY ORAL OR WRITTEN STATEMENTS MADE BY P2O, BY WAY OF TECHNICAL ADVICE
OR OTHERWISE, RELATED TO THE USE OF THE GOODS.
| 11. | INDEMNIFICATION;
INSURANCE |
11.1. Indemnification.
Subject to the terms and conditions of this Contract, Customer (as “Indemnifying Party”) shall indemnify,
defend and hold harmless P2O and its officers, directors, employees, agents, Affiliates, successors and permitted assigns
(collectively, “Indemnified Party”) against any and all losses, damages, liabilities, deficiencies,
claims, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including
reasonable attorneys’ fees, fees and the costs of enforcing any right to indemnification under this Contract and the
reasonable cost of pursuing any insurance providers, incurred by Indemnified Party (collectively,
“Losses”), arising out or resulting from any Claim of a third party alleging:
| (a) | any
grossly negligent or more culpable act or omission of Indemnifying Party or its Personnel
(including any willful misconduct) in connection with the performance of its obligations
under this Contract; or |
| | | |
| (b) | any
bodily injury, death of any Person or damage to real or tangible personal property caused
by the willful or grossly negligent acts or omissions of Indemnifying Party or its Personnel;
or |
| | | |
| (c) | any
failure by Indemnifying Party or its Personnel to comply with any applicable laws. |
11.2. Insurance.
During the Term, Customer shall, at its own expense, maintain and carry in full force and effect, commercial general
liability with coverage in an amount of no less than $1,000,000 single occurrence and in the aggregate, with financially
sound and reputable insurers, and upon P2O’s reasonable request, shall provide P2O with a certificate of insurance
evidencing the insurance coverage specified in this Section 11.2. Customer shall provide P2O with thirty (30) days’
advance written notice in the event of a cancellation or material change in such insurance policy.
12.1. P2O’s
Right to Terminate. P2O may terminate this Contract upon written notice to Customer:
12.1.1.
if Customer fails to pay any amount due under this Contract on the due date for payment and remains in default not less than
thirty (30) calendar days after P2O’s written notice to make such payment, including the payment of interest in
accordance with Section 5.7;
12.1.2.
if Customer materially breaches any material provision of this Contract (other than through a failure to pay any amounts due
under this Contract), and either the breach cannot be cured or, if the breach can be cured, it is not cured by Customer
within thirty (30) calendar days after Customer’s receipt of written notice of such breach;
12.1.3.
if Customer (i) files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes
subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, (ii)
makes or seeks to make a general assignment for the benefit of its creditors, or (iii) applies for or has appointed a
receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or
sell any material portion of its property or business;
12.1.4.
if P2O terminates any other agreement between P2O and Customer, due to Customer’s breach or non-performance thereof in
accordance with and as provided pursuant to such agreement; or
12.1.5.
as provided under and in accordance with Section 27.3 hereof.
12.2. Customer’s
Right to Terminate. Customer may terminate this Contract upon written notice to P2O:
12.2.1.
if P2O materially breaches any material provision of this Contract and either the breach cannot be cured or, if the breach
can be cured, it is not cured by P2O within thirty (30) calendar days after P2O’s receipt of written notice of such
breach;
12.2.2.
if P2O (i) files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes subject,
voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency Law, (ii) makes or
seeks to make a general assignment for the benefit of its creditors, or (iii) applies for or has appointed a receiver,
trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any
material portion of its property or business;
12.2.3.
if Customer terminates any other agreement between P2O and Customer, due to P2O’s breach or non-performance thereof in
accordance with and as provided pursuant to such agreement;
12.2.4.
as provided under and in accordance with Section 27.3 hereof.
12.3.
Effect of Termination.
12.3.1.
[Intentionally omitted.]
12.3.2.
[Intentionally omitted]
12.3.3.
Upon the expiration or earlier termination of this Contract, Customer shall promptly:
| |
(i) |
remove
all references to P2O in Customer’s letterheads, advertising literature and places of business, and shall not thereafter
use any similar or deceptive name or trademark intending to give the impression that there is any relationship between Customer
and P2O; |
| |
|
|
| |
(ii) |
immediately
cease using any and all Licensed Technology, trademarks, logos and copyrighted materials related to the Licensed Technology; |
| |
|
|
| |
(iii) |
return
to P2O or destroy all documents and tangible materials (and any copies) containing, reflecting, incorporating or based on
P2O’s Confidential Information; |
| |
|
|
| |
(iv) |
permanently
erase all of P2O’s Confidential Information from its computer systems; and |
| |
|
|
| |
(v) |
certify
in writing to P2O that it has complied with the requirements of this clause. |
12.3.4.
Upon the expiration or earlier termination of this Contract, P2O shall promptly:
(i) remove all references to Customer in P2O’s letterheads, advertising literature and places of business, and shall not thereafter use any similar or deceptive name or trademark intending to give the impression that there is any relationship between Customer and P2O;
(ii) return to Customer or destroy all documents and tangible materials (and any copies) containing, reflecting, incorporating or based on Customer’s Confidential Information;
(iii) permanently erase all of Customer’s Confidential Information from its computer systems; and
(iv) certify in writing to Customer that it has complied with the requirements of this clause.
12.4. Survival.
The rights and obligations of the parties set forth in Section 1 (Definitions), Section 9 (Warranties), Section 10 (Limitations
of Liability), Section 11 (Indemnification), Section 15 (Intellection Property Rights), Section 16 (Confidentiality), Section
12.3 (Effect of Termination), and Section 17 (Notices), and any right, obligation or required performance of the parties in this
Contract which, by its express terms or nature and context is intended to survive termination or expiration of this Contract,
shall survive any such termination or expiration.
13.1.
If performance of this Contract or any obligation under this Contract is prevented, restricted or interfered with by causes
beyond either party’s reasonable control (“Force Majeure”), and if the party unable to carry out its
obligations gives the other party prompt written notice of such event, then the obligations of the party invoking this
provision shall be suspended to the extent necessary by such event. The term Force Majeure shall include, without limitation,
acts of God, fire, explosion, vandalism, storm or other similar occurrence, orders or acts of military or civil authority, or
by national emergencies, insurrections, riots or wars.
13.2.
The excused party shall use reasonable efforts under the circumstances to avoid or remove such causes of non-performance and
shall proceed to perform with reasonable dispatch whenever such causes are removed or ceased. An act or omission shall be
deemed within the reasonable control of a party if committed, omitted or caused by such party or its employees, officers,
agents or affiliates.
14.1.
Except as provided under Section 26 below, related to equitable remedies, any controversies or disputes arising out of or
relating to this Contract shall be resolved by binding arbitration in accordance with the then-current Commercial Arbitration
Rules of the American Arbitration Association. The parties shall select a mutually acceptable arbitrator knowledgeable about
issues relating to the subject matter of this Contract. In the event the parties are unable to agree to such a selection,
each party will select an arbitrator and the two arbitrators in turn shall select a third arbitrator, all three of whom shall
preside jointly over the matter. The arbitration shall take place in Rochester, New York or as otherwise agreed by the
parties.
14.2.
All documents, materials and information in the possession of each party that are in any way relevant to the dispute shall be
made available to the other party for review and copying no later than 30 days after the notice of arbitration is
served.
14.3.
The arbitrator(s) shall not have the authority to modify any provision of this Contract or to award punitive damages. The
arbitrator(s) shall have the power to issue mandatory orders and restraint orders in connection with the arbitration. The
decision rendered by the arbitrator(s) shall be final and binding on the parties, and judgment may be entered in conformity
with the decision in any court having jurisdiction. The Contract to arbitration shall be specifically enforceable under the
prevailing arbitration law. During the continuance of any arbitration proceeding, the parties shall continue to perform their
respective obligations under this Contract.
| 15. | INTELLECTUAL
PROPERTY RIGHTS. |
15.1. Trade
Secrets. Notwithstanding anything to the contrary herein, all patents and other intellectual property rights in relation
to Goods supplied by P2O are and shall remain the sole and exclusive property of P2O. Customer by purchasing the Goods
acknowledges and agrees that the Goods embodies and/or utilizes P2O’s valuable intellectual property, know-how and
trade secrets (collectively, the “Trade Secret Information”). Customer hereby agrees, represents and
warrants that it will not, nor will it aid, assist or permit any other person to: (i) tamper with the Goods, (ii) attempt to
reverse engineer the Goods, or (iii) otherwise discover and/or utilize any of the Trade Secret Information. Customer further
agrees, represents and warrants that it will not disclose, nor will it aid, assist or permit any other person to disclose,
any information which it may learn or discover about the materials and methods of manufacturing, or the make-up of the Goods.
Customer furthermore agrees that Customer shall be liable to P2O, for any and all actual and potential, direct and indirect,
incidental and consequential damages, including, without limitation, lost profits, arising from or related to any violation
of these provisions, as well as any and all equitable relief as a court may impose, to remedy any such violation. In
addition, Customer agrees and binds itself to make no claim by means of possession to any right, title or interest either by
means of patent application, trademark, trade secret or other proprietary right with regard to results derived from, or based
upon, the Goods. Nothing in this Contract shall be construed as granting to Customer any license or grant of intellectual
property rights.
15.2. Ownership. Customer
acknowledges and agrees that: (a) P2O (or its licensors) will retain all Intellectual Property Rights used to
create, embodied in, used in and otherwise relating to the Goods and any of their component parts; (b) any and all
P2O’s Intellectual Property Rights are the sole and exclusive property of P2O or its licensors; (c) Customer shall not
acquire any ownership interest in any of P2O’s Intellectual Property Rights under this Contract; (d) any goodwill
derived from the use by Customer of P2O’s Intellectual Property Rights inures to the benefit of P2O or its licensors,
as the case may be; (e) if Customer acquires any Intellectual Property Rights in or relating to any product (including any
Good) purchased under this Contract, by operation of law, or otherwise, such rights are deemed and are hereby irrevocably
assigned to P2O or its licensors, as the case may be, without further action by either party; and (f) Customer shall use
P2O’s Intellectual Property Rights only in accordance with this Contract and the Technology Agreement and as otherwise
mutually agreed in writing by the parties hereto.
15.3. Prohibited
Acts. Customer shall not: (a) take any action that may interfere with any of P2O’s rights in or to P2O’s
Intellectual Property Rights, including P2O’s ownership or exercise thereof; (b) challenge any right, title or interest
of P2O in or to P2O’s Intellectual Property Rights; (c) make any claim or take any action adverse to P2O’s
ownership of P2O’s Intellectual Property Rights; (d) register or apply for registrations, anywhere in the world, for
P2O’s trademarks or any other trademark that is similar to P2O’s trademarks or that incorporates P2O’s
Trademarks; (e) use any mark, anywhere, that is confusingly similar to P2O’s trademarks; or (f) engage in any action
that tends to disparage, dilute the value of, or reflect negatively on the products purchased under this Contract (including
Goods) or any P2O trademark.
16.1. Scope
of Confidential Information. From time to time during the Term, either party (as the “Disclosing
Party”) may disclose or make available to the other Party (as the “Receiving Party”) information
about its business affairs, goods and services, confidential information and materials comprising or relating to intellectual
property rights, including without limitation, trade secrets, third-party confidential information, and other sensitive or
proprietary information, as well as the terms of this Contract, whether orally or in written, electronic or other form or
media, and whether or not marked, designated or otherwise identified as “confidential” (collectively,
“Confidential Information”). Confidential Information does not include information that, at the time of
disclosure and as established by documentary evidence:
| |
(i) |
is
or becomes generally available to and known by the public other than as a result of, directly or indirectly, any breach of
this Section 16 by the Receiving Party or any of its Representatives; |
| |
|
|
| |
(ii) |
is
or becomes available to the Receiving Party on a non-confidential basis from a third-party source, provided that such third
party is not and was not prohibited from disclosing such Confidential Information; |
| |
|
|
| |
(iii) |
was
known by or in the possession of the Receiving Party or its Representatives prior to being disclosed by or on behalf of the
Disclosing Party; |
| |
|
|
| |
(iv) |
was
or is independently developed by the Receiving Party without reference to or use of, in whole or in part, any of the Disclosing
Party’s Confidential Information; or |
| |
|
|
| |
(v) |
is
required to be disclosed pursuant to applicable law. |
16.2. Protection
of Confidential Information. The Receiving Party shall, for during the Term and extending five years from any expiration
or termination of this Contract:
| |
(i) |
protect
and safeguard the confidentiality of the Disclosing Party’s Confidential Information with at least the same degree of
care as the Receiving Party would protect its own Confidential Information, but in no event with less than a commercially
reasonable degree of care; |
| |
|
|
| |
(ii) |
not
use the Disclosing Party’s Confidential Information, or permit it to be accessed or used, for any purpose other than
to exercise its rights or perform its obligations under this Contract; and |
| |
|
|
| |
(iii) |
not
disclose any such Confidential Information to any Person, except to the Receiving Party’s Representatives who need to
know the Confidential Information to assist the Receiving Party, or act on its behalf, to exercise its rights or perform its
obligations under this Contract. |
Notwithstanding
the foregoing, any Confidential Information that constitutes a trade secret shall not be subject to such five (5) year term, but
shall continue to be subject to the obligations of confidentiality and non-use set forth in this Contract for as long as such
Confidential Information remains a trade secret under New York law (including New York’s version of the Uniform Trade Secrets
Act if and when adopted).
16.3.
The Receiving Party shall be responsible for any breach of this Section 16 caused by any of its Representatives. On the
expiration or earlier termination of this Contract, the Receiving Party and its Representatives shall, pursuant to Section
12.3, promptly return all Confidential Information and copies thereof, or destroy and certify such destruction of all
Confidential Information and copies thereof, that it has received under this Contract.
17.1.
All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be
deemed to have been given in accordance with this Section:
| P2O’s
Address: |
|
Plastic2Oil,
Inc. |
| |
|
20
Iroquois Street |
| |
|
Niagara
Falls, NY 14303 |
| |
|
Attn.:
Richard W. Heddle, President & CEO |
| |
|
|
| With
a copy sent to: |
|
Hodgson
Russ LLP |
| |
|
The
Guaranty Building |
| |
|
140
Pearl Street, Suite 100 |
| |
|
Buffalo,
NY 14202 |
| |
|
Attn.:
Alfonzo I. Cutaia, Esq. |
| |
|
|
| Customer’s
Address: |
|
EcoNavigation,
LLC |
| |
|
1600
Moseley Road, Suite 200 |
| |
|
Victor,
NY 14564 |
| |
|
Attn.:
Mark D. Ragus, President |
| |
|
|
| With
a copy sent to: |
|
Lane
Law PLLC |
| |
|
1400
Crossroads Building |
| |
|
2
State Street |
| |
|
Rochester,
NY 14614 |
| |
|
Attn.:
Gregory W. Lane, Esq. |
Notices
sent in accordance with this Section 17.1 shall be deemed effectively given: (a) when received, if delivered by hand (with written
confirmation of receipt); (b) when received, if sent by a nationally recognized overnight courier (receipt requested); (c) on
the date sent by facsimile (with confirmation of transmission), if sent during normal business hours of the recipient, and on
the next business day if sent after normal business hours of the recipient; or (d) on the fifth day after the date mailed, by
certified or registered mail, return receipt requested, postage prepaid.
17.2.
Notice will be given to such other representatives or at such other addresses as a party may furnish to the other party
entitled to notice pursuant to the foregoing. If notice is given pursuant to Section 22 of a permitted successor or assign of
a party, then notice will thereafter be given as set forth above also to such successor or assign of such party.
This
Contract contains the entire Contract of the parties regarding the subject matter of this Contract and there are no other promises
or conditions in any other Contract whether oral or written. This Contract supersedes any prior written or oral Contracts between
the parties.
This
Contract may be modified or amended if the amendment is made in writing and signed by both parties.
If
any provision of this Contract shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this Contract is invalid or unenforceable, but that by limiting
such provision it would become valid and enforceable, then such provision shall be deemed to be written, construed and enforced
as so limited.
| 21. | WAIVER
OF CONTRACTUAL RIGHT |
Neither
the failure nor any delay by any party hereto in exercising any right, power or privilege under this Contract or the documents
referred to in this Contract will operate as a waiver of the right, power or privilege, and no single or partial exercise of any
right, power or privilege will preclude any other or further exercise of the right, power or privilege or the exercise of any
other right, power or privilege. To the extent permitted by Applicable Law: (i) no claim or right arising out of this Contract
or the documents referred to in this Contract can be discharged by one party, in whole or in part, by a waiver or renunciation
of the claim or right unless in writing signed by the other party; (ii) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (iii) no notice to or demand on one party will be deemed to be a waiver
of any obligation of that party or of the right of the party giving the notice or demand to take further action without notice
or demand as provided in this Contract or the documents referred to in this Contract.
22.1.
Customer shall have the right to assign all its right, title and interest in this Contract to a third party in which Customer
has a direct or indirect economic interest (a “Permitted Assignee”) provided Customer is not in material
default hereunder or a cure or grace period applicable to an event of default shall not have expired and the Permitted
Assignee executes an instrument expressly assuming all such right, title interest and the obligations to be performed in
connection with this Contract.
22.2.
Upon or in connection with any assignment permitted under this Section 22, upon Customer’s request, P2O agrees to
execute an estoppel certificate regarding the status of this Contract and to immediately deliver the same to
Customer.
22.3.
Each Permitted Assignee shall agree to be bound by all of the obligations, terms and conditions that obligate, bind or affect
Customer under this Contract. Notwithstanding anything to the contrary in this Contract, no assignment shall relieve the
Customer of any of its obligations and liabilities for any breach of confidentiality or for any infringement or
misappropriation of intellectual property rights, including any breach of Section 15.1 above; and Customer shall be and
remain responsible for the performance by a Permitted Assignee of all of such Permitted Assignee’s obligations with
respect to confidentiality provided herein.
During
the Term, at Customer’s option, in the case of any proposed single order of more than ten (10) Processors, the parties may
enter into a separate agreement (other than this Contract) for the supply of such Processors, provided such agreement is on terms
and conditions mutually agreeable to the parties, and in no event less favorable to P2O than the terms of this Agreement in any
material respect.
| 24. | COMPLIANCE
WITH THE LAW |
Customer
shall comply with all applicable laws, regulations and ordinances. Customer shall maintain in effect all the licenses, permissions,
authorizations, consents and permits that it needs to carry out its obligations under this Contract and for Customer’s use
of the Goods. Customer shall comply with all export and import laws of all countries involved in the sale of the Goods under this
Contract or any resale of the Goods by Customer.
This
Contract, including all exhibits, schedules, attachments and appendices attached hereto and thereto are governed by, and construed
in accordance with, the Laws of the State of New York, United States of America, without regard to the conflict of laws provisions
thereof. The parties agree that the United Nations Convention on Contracts for the International Sale of Goods does not apply
to this Contract.
Customer
acknowledges and agrees that (a) a breach or threatened breach by Customer of any of its obligations under Sections 16 and 15
would give rise to irreparable harm to P2O for which monetary damages would not be an adequate remedy and (b) in the event of
a breach or a threatened breach by Customer of any such obligations, P2O shall, in addition to any and all other rights and remedies
that may be available to P2O at law, at equity or otherwise in respect of such breach, be entitled to equitable relief, including
a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of
competent jurisdiction, without any requirement to post a bond or other security, and without any requirement to prove actual
damages or that monetary damages will not afford an adequate remedy. Customer agrees that Customer will not oppose or otherwise
challenge the appropriateness of equitable relief or the entry by a court of competent jurisdiction of an order granting equitable
relief, in either case, consistent with the terms of this Section 26.
27.1. Pilot
Program Contingency. Customer’s obligations under this Contract shall be and hereby are contingent upon the
institution, completion by that date which is one hundred twenty (120) days after the Effective Date (which date may be
extended for an additional thirty (30) days at Customer’s option upon prior written notice to P2O), and
Customer’s acceptance, in its sole discretion, of the results of, of a pilot test program (a “Pilot
Program”) whereby Customer shall utilize, on terms mutually agreeable to P2O and Customer, P2O’s facility
(the “Test Facility”) at 20 Iroquois Street, Niagara Falls, New York (the “Pilot Program
Contingency”) to ascertain Customer’s willingness to go forward with the transactions contemplated herein,
and, if so ascertained, to establish Minimum Performance Levels for the Initial Order and using the relevant feedstock.
Immediately upon the execution and delivery of this Contract by the parties hereto, the parties shall in good faith
diligently negotiate the terms of an agreement for use of the Test Facility for the Pilot Program.
27.2. Financing
Contingency. Customer’s obligations under this Contract shall be and hereby are contingent upon Customer obtaining
funding for (i) the Pilot Program on terms acceptable to Customer in its sole discretion, on or before that date which is
thirty (30) calendar days after the Effective Date, and (ii) the Initial Order and working capital in amounts and upon terms
acceptable to Customer in Customer’s sole discretion, on or before that date which is sixty (60) days after
Customer’s written notice of removal or satisfaction of the Pilot Program Contingency.
27.3. Right
to Terminate. In the event any of the Contingencies hereunder shall not be satisfied or waived in writing on or before
the date specified herein for the satisfaction of the same, either party hereto may terminate this Contract upon five (5)
calendar days’ notice to the other; provided, however, that any such termination notice delivered by P2O shall be null
and void if Customer, upon receipt of P2O’s termination notice, delivers written notice to P2O prior to the expiration
of the five-day period of P2O’s notice removing the Contingency or Contingencies upon which P2O’s notice of
termination was based.
This
Contract may be signed in counterparts, each of which shall be considered an original and all of which taken together shall constitute
a single instrument. Electronic and facsimile copies of the signatures to this Contract shall have the same force and effect as
original signatures.
[NO
FURTHER TEXT THIS PAGE; SIGNATURE PAGE FOLLOWS]
[Signature
Page to Equipment Supply Contract]
IN
WITNESS WHEREOF, the parties hereto have executed and delivered this Contract as of the Effective Date.
| |
PLASTIC2OIL, INC., a Nevada corporation |
| |
|
|
| |
By: |
/s/ Richard
W. Heddle |
| |
|
Richard
W. Heddle |
| |
|
President
& CEO |
| |
ECONAVIGATION, LLC, a New York limited liability company |
| |
|
|
| |
By: |
/s/ Mark D.
Ragus |
| |
|
Mark
D. Ragus |
| |
|
President |
Schedule
“A”
PRICING
1. Initial
Order Price. The Price for any one or more Processors ordered via a Purchase Order dated as of or prior to the date upon
which Customer delivers written notice to P2O of the satisfaction or waiver of the Financing Contingency (the
“Initial Order”) shall be $2,500,000 per Processor (the “Initial Order
Price”).
2. Subsequent
Order Price. The Price for Processors ordered after the Initial Order (“Subsequent Orders” and
“Subsequent Processors”) shall be $2,500,000 per Subsequent Processor subject to the CPI Adjustment
described below (the “Subsequent Order Price”). Additionally, a Subsequent Order Price shall be subject to
adjustment upwards based on the productivity of Subsequent Processors as provided below.
3. CPI
Adjustment. Commencing with April 1, 2016 and continuing on the anniversary of such date throughout the Term, P2O shall
notify Customer of the percentage change, if any, in the Consumer Price Index for “All Cities, All Urban
Consumers” as published by the Bureau of Labor Statistics of the U.S. Department of Labor (the
“Index”) as published for the month of December in the preceding calendar year from the Index published
for December 2014 (using the December 2014 Index as the base). Such percentage change in the Index shall be applied to the
Initial Order Price to calculate the Subsequent Order Price for Purchase Orders dated from such April 1st date to
March 31st of the following calendar year.
4. Subsequent
Order Price Adjustments. Subsequent Order Prices shall be subject to upward adjustment based on productivity as
follows:
(a)
After the first year of Stabilized Operation (defined below) of a Subsequent Processor, the Subsequent Processor’s
actual levels of the Performance Factors (defined in Schedule “B”) (“Actual Performance
Levels”) for such year shall be compared to the Minimum Performance Levels. The percentage increase, if any, in the
Actual Performance Levels over the Minimum Performance Levels (the “Initial Increase”) shall be applied to
the Subsequent Order Price for such Subsequent Processor to establish a value (the “Initial Value
Increase”), and 75% of the Initial Value Increase (an “Initial Increased Price Payment”) shall
be due from Customer to P2O and paid in three (3) equal consecutive annual installments with the first installment due within
sixty (60) days after the end of the first year of such Subsequent Processor’s Stabilized Operation and the second and
third installments being due on or before the first and second anniversaries of the first payment date.
(b)
In the event Actual Performance Levels for a Subsequent Processor’s first year of Stabilized Operation are equal to or
lower than the Minimum Performance Levels, there shall be no initial price adjustment on such Subsequent Processor after the
first year of Stabilized Operation. Such Subsequent Processor shall be eligible, however, for a price adjustment at the end
of the third year of Stabilized Operation, as provided in the following paragraph.
(c)
As a second possible adjustment (or a first possible adjustment for a Subsequent Processor for which there was no price
adjustment after its first year of Stabilized Operation), at the end of the third year of Stabilized Operation of a
Subsequent Processor, its average Actual Performance Levels for the first, second and third years of Stabilized Operation
(the total divided by three) (the “3-Year Average”) shall be compared to the Minimum Performance Levels.
In the event of an increase in the 3-Year Average over the Minimum Performance Levels:
(i)
for a Subsequent Processor for which a price adjustment was made after the first year of its Stabilized Operation, if the
amount of the increase in the 3-Year Average over the Minimum Performance Levels exceeds the Initial Increase Amount, the
difference in such amounts (the “Additional Increase”) shall be applied to the Subsequent
Processor’s Subsequent Order Price to establish a value (the “Additional Value Increase”), and 75%
of the Additional Value Increase (the “Additional Increased Price Payment” shall be due from Customer to
P2O and paid within thirty (30) days of the conclusion of the Subsequent Processor’s third year of Stabilized
Operation; and
(ii)
for a Subsequent Processor for which no price adjustment was made after its first year of Stabilized Operation, if such
Subsequent processor’s 3-Year Average exceeds the minimum Performance Levels, the percentage increase in the Subsequent
processor’s 3-Year Average over the minimum Performance levels shall be applied to its Subsequent Order Price to
establish a value (the “3-Year Value Increase”), and 75% of such Subsequent Processor’s 3-Year Value
Increase (a “3-Year Increased Price Payment”) shall be due from Customer to P2O and paid with thirty (30)
days of the conclusion of the Subsequent Processor’s third year of Stabilized Operation.
(d)
If a Subsequent Processor’s 3-Year Average is lower than the Model Performance Levels, the difference in such amounts
(the “Decrease Amount”) shall be applied to the Subsequent Processor’s Subsequent Order Price to
establish a value (the “Value Decrease”). The amount of the Value Decrease up to the amount of any Initial
Increased Price Payment for the Subsequent Processor shall be due and payable by P2O to Customer and shall be paid first, by
crediting to Customer the amount of any installments of the Initial Increased Price Payment yet to be paid for the Subsequent
Processor; and thereafter, by Customer offsetting the License Fee due pursuant to the Technology Agreement as a result of the
operation of the Subsequent Processor until the Value Decrease is paid in full; provided, however, that in the event of an
expiration of the Term prior to the complete receipt by Customer of the amount of any and all Value Decrease payments due and
owing to Customer, P2O shall pay to Customer all such due and owing sums on or prior to the last day of the Term.
(e)
As used herein, the term “Stabilized Operation” shall mean a year of consecutive operation of a Processor,
whether included as part of the Initial Order or a Subsequent Order, with breaks in operation only for scheduled maintenance
and non-extraordinary repairs and/or replacements, at feedstock input levels equal to or exceeding those set forth in the
Model at Schedule B – Exhibit A.
Schedule
“B”
MINIMUM
PERFORMANCE LEVELS
The
Model attached hereto as Schedule B - Exhibit 1 sets forth levels and rates of plastic feedstock input and processing as well
as levels of byproduct generation (each, a “Performance Factor” and collectively, the “Performance
Factors”).
In
connection with the Initial Order, subject to the satisfaction of the Pilot Program financing portion of the Financing Contingency
set forth in Section 27.2, Customer shall institute a Pilot Program to ascertain the Performance Factor levels for the type(s)
of plastic feedstock that Customer intends to process with the Initial Order Processors. Upon the completion of such Pilot Program,
provided Customer has not terminated this Contract in accordance with Section 27.3, the Performance Factor levels established
for the type of plastic feedstock processed during the Pilot Program shall constitute the “Minimum Performance Levels”
for the Processors to be included in the Initial Order and for the tested feedstock(s) to be processed by such Processors, and
shall be deemed incorporated into and made a part of this Contract
For
Subsequent Orders, prior to submitting the same, if the type or preparation of the plastic feedstocks that Customer intends to
process with the Subsequent Processor(s) is substantially different than the type of or preparation method for plastic feedstocks
for which Minimum Performance Levels have been established in accordance with this Schedule “B” and Schedule B –
Exhibit 1 hereto, Customer shall institute a Pilot Program for such feedstocks at the Test Facility or another location mutually
acceptable to the parties and upon the completion of each such Pilot Program, the Performance Factor levels for the feedstocks
and preparation methods tested pursuant thereto shall become the Minimum Performance Levels for the Subsequent Processors to be
used for such feedstocks and preparation methods and the Pilot Program information and Minimum Performance Levels determined pursuant
thereto shall be noted in the Purchase Order for each Subsequent Order, as applicable, and shall be deemed incorporated into and
made a part of this Contract.
SCHEDULE
B – EXHIBIT 1
Model
|
Inputs
|
|
Outputs1 |
|
Plastic
(lbs/hr)2:
|
Waste
Oil (gal/hr)3:
|
|
#2
Fuel Oil (gal/day)4:
|
Naptha
(gal/day)5:
|
| |
|
|
|
|
| 1500 |
100 |
|
3600 |
900 |
1
Assuming normal maintenance, standard operating procedures, and run time of no more than 25 days during any calendar month.
2
Dry basis, no fill. 100% hydrocarbons
3
NYSDEC Spec used oil (no bio oil), dry basis (no water) – after centrifuge, solids removed
4
Per ASTM standard D-396-02
5
Low grade
Attachment
1
PLASTIC2OIL,
INC.
20
Iroquois Street
Niagara
Falls, NY 14303
PURCHASE
ORDER
Date:
____________
Purchase
Order #: [YEAR] – [#]
| Customer
Name: |
|
EcoNavigation,
LLC |
| Customer
Address: |
|
1600
Moseley Road, Suite 200, Victor, NY 14564 |
| Customer
Contact: |
|
Mark
D. Ragus, President |
| Customer
Email: |
|
mdragus@econavllc.com |
| Customer
Telephone: |
|
(585)
___-____ |
This Purchase
Order is made pursuant to and is governed by that certain Equipment Supply Contract dated January 2, 2015 between Customer and
Plastic2Oil, Inc. (“P2O”) (the “Equipment Supply Contract”).
| Description |
|
Specifications |
|
Quantity |
| |
|
|
|
|
| __________ |
|
__________ |
|
__________ |
Description
of the Pilot Program, the results of which established the Minimum Performance Levels for the Processor(s) covered by this Purchase
Order (the “Pilot Program”):
Location
of the Pilot Program and dates of commencement and completion:
___________________________________________________________________________________.
Feedstock
and preparation method subjected to the Pilot Program:
___________________________________________________________________________________.
Minimum
Performance Levels established by the Pilot Program for the Processor(s) subject to this Purchase Order:
| INPUT |
|
OUTPUT |
Plastic
(lbs/hr):
|
Waste
Oil (gal/hr):
|
|
#2
Fuel Oil (gal/day):
|
Naptha
(gal/day):
|
| |
|
|
|
|
| __________ |
__________ |
|
__________ |
__________ |
Customer
Rep. Signature:________________________________ Date: _________________
P2O Rep.
Acceptance:___________________________________ Date: _________________
| [ ] | If
checked, a letter of credit is required as provided in Section 5.8 of the Equipment Supply
Contract. If not checked, P2O may still require such a letter of credit by written notice
to Customer sent within five (5) business days of P2O’s acceptance date. |
This
Purchase Order shall not be effective until signed and dated by both parties.
Attachment
2
CERTIFICATE
OF FUNCTIONALITY
THE
UNDERSIGNED is a professional engineer licensed in the State of ____________ (“Consultant”). Consultant hereby certifies
to EcoNavigation, LLC (“Customer”), and its successors and assigns, that the Plastis2Oil plastic feedstock processing
unit(s) set forth and described in that certain Purchase Order of Customer bearing Number ___________ and dated _________ __,
20__, accepted by Plastic2Oil, Inc. (“P2O”) on _______ __, 20__, is installed at the location set forth below and
operating or capable of operating at the Minimum Performance Levels set forth in such Purchase Order.
| Dated:
_____ __, 20__ |
[NAME OF CONSULTANT] |
| |
|
|
| |
By: |
|
| |
Name: |
|
| |
Title: |
|
Exhibit
10.22
TECHNOLOGY
LICENSE AND REFERRAL AGREEMENT
THIS
TECHNOLOGY LICENSE AND REFERRAL AGREEMENT (“Agreement”) dated January 2, 2015 (the “Effective Date”)
by and between PLASTIC2OIL, INC., a Nevada corporation having an address of 20 Iroquois Street, Niagara Falls, NY 14303 (hereinafter
referred to as “P2O”), and ECONAVIGATION, LLC, a New York limited liability company with an address of 1600
Moseley Road, Suite 200, Victor, NY 14564 (hereinafter referred to as “Licensee”);
W
I T N E S S E T H :
WHEREAS,
P2O has developed certain proprietary technology for the processing of feedstocks through the controlled use of thermal conversion
techniques and processes and as part of such technology has developed a proprietary formula for catalyst used as part of such
processes;
WHEREAS,
P2O produces and sells processing machinery and related equipment utilizing and for the deployment of such proprietary technology;
WHEREAS,
Licensee is engaged in the business of processing waste feedstocks consisting of waste plastic and utilizing, when reasonably
necessary, used oil, for the purposes of, among other things, creating fuel;
WHEREAS,
P2O has agreed to grant a license for its technology to Licensee and to make referrals to Licensee in accordance with the terms
herein set forth including, without limitation, the payment by Licensee to P2O of royalties in consideration for the license granted
and referrals to be made hereunder;
WHEREAS,
P2O and Licensee have also agreed, simultaneously herewith, that P2O shall provide Licensee with catalyst to be used by Licensee
in the deployment of the technology licensed hereunder, as more specifically provided in that certain Catalyst Supply Agreement
between the parties dated as of the Effective Date (the “Catalyst Supply Agreement”);
WHEREAS,
Licensee will purchase P2O processors (as described in Attachment 1 of this Agreement; the “Processing Equipment”)
from P2O in accordance with the Equipment Supply Contract between the parties dated as of the Effective Date herewith (“Equipment
Supply Contract”);
WHEREAS,
in the event that P2O does not perform its obligation to supply the catalyst to be supplied pursuant to the Catalyst Supply Agreement,
P2O has also agreed that the license granted hereunder shall extend to the formula and other know-how necessary to produce the
catalyst to be supplied under the Catalyst Supply Agreement, but only for the period of P2O’s supply inability; and
WHEREAS,
P2O has agreed to monitor, maintain, repair, and upgrade the Processing Equipment pursuant to and in accordance with the terms
of a certain Monitoring, Maintenance, Repair and Ugrade Agreement between the parties dated as of the Effective Date (the “MMRU
Agreement”); and
NOW,
THEREFORE, in consideration of One Dollar in hand paid, the covenants herein expressed, Licensee’s commitment to purchase
Processing Equipment and catalyst from P2O, P2O’s performance under the MMRU Agreement, and such other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
As
used herein, the following terms shall have the following meanings:
1.1.
“Affiliate” of a Person means any Person directly or indirectly controlling, controlled by, or under common
control with, that Person. The term “control” for purposes of this Agreement means the power to direct or cause the
direction of the actions, management and/or policies of a Person, whether through the ownership of voting securities, by contract
or otherwise, and “controlled by” and “under common control with” have correlative meanings.
1.2.
“Agreement” has the meaning given in the opening paragraph hereof.
1.3.
“Applicable Law” means each applicable provision of any constitution, statute, law, ordinance, code, rule,
regulation, decision, order, decree, judgment, award, injunction, verdict subpoena, release, license or other legally binding
pronouncement of any Governmental Body.
1.4.
“Auditor” shall having the meaning set forth in Section 4.2.1.
1.5.
“Business Day” means any day other than Saturday, Sunday or any public or legal holiday, whether federal
or state, in the place in which a duty or obligation is to be performed.
1.6.
“Catalyst Supply Agreement” shall have the meaning set forth in the recitals hereto.
1.7.
“Catalyst Supply Failure” means a supply failure as set forth and described in Section 19 of the Catalyst
Supply Agreement.
1.8.
“Catalyst Technology” means P2O’s proprietary formulae and other Know-How necessary to produce and
transport catalysts for processing waste plastic and used oil into fuel.
1.9.
“Confidential Information” shall have the meaning set forth in Section 8.1.
1.10.
“Contingencies” shall mean, collectively, the Pilot Program Contingency and the Financing
Contingency.
1.11.
“Copyrights” shall have the meaning set forth in Section 1.45.
1.12.
“Disclosing Party” shall have the meaning set forth in Section 8.1.
1.13.
“Effective Date” shall be the date first set forth above and defined as such.
1.14.
“Embodied Trade Secrets” shall have the meaning set forth in Section 2.2.2.
1.15.
“Encumbrance” shall mean any charge, claim, condition, equitable interest, lien, option, pledge, security
interest, right of refusal or restriction of any kind, including any restriction on use, voting, transfer, receipt of income
or exercise of any other attribute of ownership.
1.16.
“Equipment Supply Contract” shall have the meaning set forth in the recitals hereto.
1.17.
“Fees” shall have the meaning set forth in Section 3.
1.18.
“Financing Contingency” shall have the meaning set forth in Section 13.2.
1.19.
“Force Majeure” shall mean an event or circumstance which is beyond
the control and without the fault or negligence of the party affected and which by the exercise of reasonable diligence the
party affected was unable to prevent provided that event or circumstance is limited to the following: (i) riot, war,
invasion, act of foreign enemies, hostilities (whether war be declared or not), acts of terrorism, civil war, rebellion,
revolution, insurrection of military or usurped power, or requisition or compulsory acquisition by any governmental or
non-governmental entity, army or combatant; (ii) ionizing radiation or contamination, radioactivity from any nuclear fuel or
from any nuclear waste from the combustion of nuclear fuel, radioactive toxic explosive or other hazardous properties of any
explosive assembly or nuclear component; (iii) pressure waves caused by aircraft or other aerial devices travelling at sonic
or supersonic speeds; (iv) earthquakes, flood, fire or other physical natural disaster, but excluding weather conditions
regardless of severity; and (v) strikes at a national level or industrial disputes by labor not employed by the affected
party, its contractors, subcontractors or its suppliers and which affect an essential portion of the obligation(s) to be
performed but excluding any industrial dispute which is specific to the performance of the obligation(s) or this
Agreement.
1.20.
“GAAP” means generally accepted accounting principles, consistently applied.
1.21.
“Governmental Authorization” means any consent, license, permit or other authorization issued, granted,
given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Applicable
Law.
1.22.
“Governmental Body” means any governmental or quasi-governmental body exercising, or entitled to exercise,
any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power.
1.23.
“Gross Sales” means the gross revenues earned and actually received by or credited to Licensee, a
Permitted Assignee and/or sub-licensees (based on the cash basis of accounting in accordance with GAAP) from sales of diesel
fuel, naphtha and other byproducts from the processing of plastic feedstocks using the Licensed Technology.
1.24.
“Initial Order” shall have the meaning set forth in the Equipment Supply Contract.
1.25.
“Know-How” shall mean proprietary and non-proprietary information relating to the Technology.
1.26.
“Knowledge” means, with respect to an individual, “Knowledge” of a particular fact or other
matter if:
(i)
that individual is actually aware of that fact or other matter; or
(ii)
a reasonably prudent individual would have conducted a reasonably comprehensive investigation of that fact or other matter
and, in the course of doing so, could be expected to become aware of that fact or other matter.
1.27.
“Knowledge” means, with respect to a Person (other than an individual), “Knowledge” of a
particular fact or other matter if any individual who is serving as a director, officer, partner, member, manager or trustee
of such Person (or in any similar capacity) has, at the time with respect to which the term is used, “Knowledge”
of such fact or other matter by which an individual would have such “Knowledge.”
1.28.
“License” shall have the meaning set forth in Section 2.1.
1.29.
“License Fee” shall have the meaning set forth in Section 3.
1.30.
“Licensed Technology” means the Technology that is owned, held, used or licensed by P2O with the right to
assign or sub-license the same, and necessary for Licensee’s operation of Processing Equipment and/or use of catalyst
purchased under the Catalyst Supply Agreement for the Processing Business.
1.31.
“MMRU Agreement” shall have the meaning set forth in the recitals hereto.
1.32.
“Order” means any award, decision, injunction, judgment, ruling or verdict entered, issued, made or
rendered by any Governmental Body or by any arbitrator.
1.33.
“P2O’s Business” means the development and licensing of proprietary technology for the processing of
waste feedstocks through the controlled use of thermal conversion techniques and processes and as part of such technology,
the development of proprietary formulae for catalyst used as part of such processes, and the production and sale of
processing machinery and related equipment utilizing and the deploying such proprietary technology.
1.34.
“Patents” shall have the meaning set forth in Section 1.45.
1.35.
“Permitted Assignee” shall have the meaning set forth in Section 6.1.
1.36.
“Person” means any person or entity of every kind and is to be construed as broadly as
possible.
1.37.
“Personnel” shall have the meaning set forth in the Equipment Supply Contract.
1.38.
“Pilot Program” has the meaning set forth in Section 13.1.
1.39.
“Pilot Program Contingency” has the meaning set forth in Section 13.1.
1.40.
“Processing Business” means the processing of plastic and, when reasonably necessary, used oil, into
diesel fuel, naphtha and other byproducts through the controlled use of thermal conversion and/or pyrolysis techniques and
processes using the Processing Equipment and catalyst supplied in accordance with the Catalyst Supply Agreement for the
deployment of the Licensed Technology.
1.41.
“Processing Equipment” shall have the meaning set forth in the recitals hereto and described in Attachment
1.
1.42.
“Processing Facility” means a facility operated or to be operated by or for Licensee for deployment of the
Licensed Technology in connection with the Processing Business where at least one or more units of the Processing Equipment
is or is intended to be located and operated.
1.43.
“Receiving Party” shall have the meaning set forth in Section 8.1.
1.44.
“Representatives” means a party’s and its Affiliates’ employees, officers, directors,
consultants and legal advisors.
1.45.
“Technology” shall mean all inventions, whether patentable or not, prototypes, Confidential Information,
designs, drawings, software, controllers, conceived and/or developed by P2O and related to the Processing Business, as the
same may be reengineered and/or updated from time to time, including:
(i)
all patents, patent applications, continuations, and continuations in part and any renewal rights with respect thereto
(collectively, “Patents”);
(ii)
all registered and unregistered copyrights (collectively, “Copyrights”);
(iii)
all inventions and discoveries that may be patentable, know-how, trade secrets, moral rights, confidential information,
customer lists, software, programs or applications (in both source and object code form), prototypes, designs, technical
information, data, process technology, engineering and manufacturing information, procedures, specifications, rights in mask
works, plans, drawings and blue prints (collectively, “Trade Secrets”); and
(iv)
all licenses, internet websites, internet domain names and other rights held by or on behalf of P2O and used in connection
with the Processing Business, in any third party product, intellectual property, proprietary or personal rights,
documentation or tangible or intangible property, including the types of intellectual property and intangible proprietary
information set out immediately above.
1.46.
“Term” shall mean the period commencing with the Effective Date and expiring on the twentieth
(20th) anniversary of the Effective Date.
1.47.
“Territory” shall mean the United States of America.
1.48.
“Trade Secrets” has the meaning set forth in Section 1.45.
2.1.
Subject to the terms and conditions in this Agreement, P2O hereby grants and conveys to Licensee a non-exclusive license (the
“License”) to use and apply the Licensed Technology in the Territory for the Term, solely for the
processing of plastic feedstocks using Processing Equipment purchased from P2O under the Equipment Supply Contract and with
catalyst purchased under the Catalyst Supply Agreement or as otherwise produced in the case of a Catalyst Supply Failure.
Notwithstanding the foregoing or anything in this Agreement to the contrary, (i) the Licensed Technology includes the
Catalyst Technology only upon and only for the duration of a Catalyst Supply Failure during the Term, if any; and (ii) the
License to use and apply the Catalyst Technology to produce catalysts, is granted only upon, and exists only for the duration
of, a Catalyst Supply Failure during the Term, if any. The License may not be assigned nor may Licensee sub-license the
Licensed Technology other than in accordance with the provisions of Section 6 of this Agreement.
2.2.
License Restrictions.
2.2.1.
Without limiting the generality of the foregoing, Licensee’s rights to the Licensed Technology do not extend beyond
those specifically set forth in this Agreement, and except for the rights and licenses granted by P2O hereunder, this
Agreement does not grant to Licensee or any other Person, any right, title, or interest by implication, estoppel, or
otherwise.
2.2.2.
Notwithstanding anything to the contrary herein, all Licensed Technology supplied by P2O is and shall remain the sole and
exclusive property of P2O. Licensee, by purchasing catalyst under the Catalyst Supply Agreement and/or purchasing Processing
Equipment under the Equipment Supply Contract, acknowledges and agrees that such catalyst and Processing Equipment embodies
and/or utilizes P2O’s valuable intellectual property, know-how and trade secrets, including, without limitation,
confidential, proprietary information associated with the design, operation and use of the Processing Equipment and the
formula of the catalyst (collectively, the “Embodied Trade Secrets”). Licensee hereby agrees, represents
and warrants that it will not, nor, other than the performance by P2O of its obligations under the MMRU Agreement, will it
aid, assist or permit any other Person to: (i) tamper with the Processing Equipment and catalyst, (ii) utilize any imaging
equipment or other modality to reveal the inner structures and/or designs of the Processing Equipment, (iii) attempt to
disassemble or reverse engineer the Processing Equipment or catalyst, or (iv) otherwise discover and/or utilize any of the
Embodied Trade Secrets. Licensee further agrees, represents and warrants that it will not disclose, nor will it aid, assist
or permit any other Person to disclose any Licensed Technology or any information which it may learn or discover about the
materials and methods of construction, design, assembly, functioning, geometries, measurements, tolerances, and operation of
the Processing Equipment or the formula of the catalyst other than as may be necessary to produce or have produced catalyst
during a Catalyst Supply Failure. Licensee furthermore agrees that Licensee shall be liable to P2O for any and all actual and
potential, direct and indirect, incidental and consequential damages, including, without limitation, lost profits,
arising from or related to any violation of these provisions, as well as any and all equitable relief as a court may impose,
to remedy any such violation. In addition, Licensee agrees and binds itself to make no claim by means of possession to any
right, title or interest either by means of patent application, trademark, trade secret or other proprietary right with
regard to results derived from, or based upon, the Licensed Technology, any Processing Equipment or any catalyst. Nothing in
this Agreement shall be construed as granting to Licensee any license or grant of intellectual property rights, other than
the license expressly granted in Section 2.1.
2.3.
The parties acknowledge that there may be patentable technology included in the Licensed Technology. The parties agree that
P2O’s rights are not limited to patent rights and that Licensee is licensing the Licensed Technology in all
jurisdictions specified in the Territory regardless of the existence or non-existence of patents in effect in any one or more
jurisdictions encompassed in the Territory. P2O retains all rights with respect to filing, prosecution, maintenance and
enforcement of the patents (or any patent applications) relating to the Licensed Technology.
2.4.
Inventions, whether patentable or not, conceived and/or developed in connection with the development and operation of the
Licensed Technology, whether developed under the Licensed Technology or otherwise, shall be the sole and exclusive property
of P2O, and shall be included in the Licensed Technology subject to the license rights established hereunder.
2.5.
The parties agree to notify each other in writing of any actual or threatened infringement by a third party of any patent, or
of any claim of invalidity, unenforceability, or non-infringement of any patent relating to the Licensed
Technology.
2.6.
P2O shall retain all recoveries arising out of prosecutions of infringers by P2O except for: (i) recoveries relating to
actual damages suffered by Licensee and (ii) an amount from any such recoveries to compensate Licensee for Licensee’s
reasonable costs and expenses incurred in connection with such recoveries, including without limitation attorney fees and
disbursements, and Licensee shall, if requested, provide reasonable assistance to P2O in connection with the prosecution of
such claims. Reasonable assistance is defined as providing supporting documentation, information on contacts and legal
agreements, etc.
2.7.
P2O shall have the right to control the defense of any claim of invalidity, unenforceability, or non-infringement of any
patent relating to the Licensed Technology. Licensee shall, if requested, provide reasonable assistance to P2O in connection
with the defense of such claims. Reasonable assistance is defined as providing supporting documentation, information on
contacts and legal agreements, etc.
2.8.
[Intentionally omitted.]
2.9.
Escrow. Within fourteen (14) calendar days of the earlier of: (1) the Initial Order as defined in the Equipment Supply
Contract; or (2) any order of Processing Equipment under an agreement between the parties pursuant to Section 23 of the Equipment
Supply Contract; P2O will (i) provide to the Licensee an encrypted hard drive containing the formula and a description of the
Know-How necessary to produce the catalyst according to the formula, and (ii) deposit the private key necessary to decrypt the
encrypted hard drive with an escrow agent acceptable to both parties. Upon the occurrence of a Catalyst Supply Failure, the escrow
agent shall release the private key necessary to decrypt the encrypted hard drive to Licensee, and Licensee shall have the right
to use the key to decrypt the encrypted hard drive. Upon the conclusion of a Catalyst Supply Failure, Licensee will return the
encrypted hard drive and any information obtained or derived from the encrypted hard drive, P2O will provide a newly encrypted
hard drive to the Licensee and deposit a corresponding private key with the escrow agent accordingly, and the foregoing conditions,
limitations and rights shall apply to the new encrypted hard drive.
3.1.
In consideration for the License granted hereunder, P2O shall receive a royalty of five percent (5%) of all Gross Sales (the
“License Fee”) and any fees due under Section 6.2 below (collectively, the “Fees”). The
Fees shall be due and payable to P2O on a monthly basis for all Gross Sales in a particular calendar month during the Term
(or a partial month), in arrears and no later than thirty (30) days after the end of the calendar month for which the Fees
apply. The expiration of the Term notwithstanding, Licensee shall owe P2O the License Fee as provided under this Agreement
for all Gross Sales.
3.2.
Payment Statement. On or before the due date for all payments to P2O pursuant to Section 3.1, Licensee shall provide P2O
with a statement showing the quantities sold and fees received, making up the Gross Sales corresponding to such payment to P2O
and such other particulars as are necessary for an accurate accounting of the payments made pursuant to this Agreement.
3.3.
Late Payment. If payments are not received by P2O by the due date, Licensee shall pay to P2O interest on the overdue payment
from the date such payment was due to the date of actual payment at a rate of 1.5% per month, or if lower, the maximum amount
permitted under Applicable Law.
3.4.
No Set-off Right. Licensee shall not, and acknowledges that it will have no right, under this Agreement, the Equipment
Supply Contract, the Catalyst Supply Agreement, or any other agreement, document or Law, to withhold, offset, recoup or debit
any amounts owed (or to become due and owing) to P2O or any of its Affiliates, whether under this Agreement or otherwise, against
any other amount owed (or to become due and owing) to it by P2O, whether relating to P2O’s breach or non-performance of
this Agreement or any other agreement(s) of the parties.
4.1.
Records. For the Term and a period of five years from any termination or expiration of this Agreement, Licensee shall keep
complete and accurate records of its sales, uses, transfers and other dispositions of products making up the Gross Sales necessary
for the calculation of payments to be made to P2O hereunder.
4.2.
Audit.
4.2.1.
P2O, at its own expense, may at any time within five years after receiving any payment statement from Licensee, but not more
often than once per calendar year, nominate an independent Certified Public Accountant (the “Auditor”) who
shall have access to Licensee’s records, including without limitation, access to any servers or other computer
equipment that maintains the process database, during Licensee’s normal business hours for the purpose of verifying all
payments made under this Agreement.
4.2.2.
P2O shall provide to Licensee a copy of the Auditor’s audit report within thirty days of P2O’s receipt of the
report. If the report shows that payments made by Licensee are deficient, Licensee shall pay P2O the deficient amount plus
interest on the deficient amount, as calculated pursuant to Section 3.3, within thirty days after Licensee’s receipt of
the audit report. If payments made by Licensee are found to be deficient by more than five percent, Licensee shall pay for
the reasonable cost of the audit.
| 5. | Warranties
and Representations. |
5.1.
Mutual Representations and Warranties. Each party represents and warrants to the other party that as of the date of this
Agreement:
5.1.1.
it is duly organized, validly existing and in good standing as a corporation or other entity as represented herein under the
laws and regulations of its jurisdiction of incorporation, organization or chartering; it has, and throughout the Term shall
retain, the full right, power and authority to enter into this Agreement and to perform its obligations hereunder; the
execution of this Agreement by its representative whose signature is set forth at the end hereof has been duly authorized by
all necessary organizational action of the party; and
5.1.2.
when executed and delivered by such party, this Agreement constitutes the legal, valid and binding obligation of that party,
enforceable against that party in accordance with its terms; and the party has the absolute and unrestricted right, power,
authority and capacity to execute and deliver this Agreement and to perform its obligations under this Agreement;
5.1.3.
neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions
contemplated by this Agreement will, directly or indirectly (with or without notice or lapse of time):
(i)
contravene, conflict with, or result in a violation of any provision of the organizational documents of the party or any
resolution adopted by the board of directors or stockholders of the party;
(ii)
contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge
any of the transactions contemplated by this Agreement or to exercise any remedy or obtain any relief under any Applicable
Law or any Order to which the party or, in the case of P2O, the Licensed Technology, may be subject;
(iii)
contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the
right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by the party
and that otherwise relates to the party’s Processing Business or, in the case of P2O, the ownership or use of any of
the Licensed Technology;
(iv)
contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a
default or exercise a remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify, any
contract under which the party has or may acquire any rights, under which the party has or may become subject to any
obligations or liability, or by which the party or any of the assets owned or used by it is or may become bound;
or
(v)
result in the imposition or creation of any Encumbrance upon or with respect to any of the Licensed Technology.
5.2.
P2O represents and warrants to Licensee as follows:
5.2.1.
Consents and Notices. P2O is not required to give any notice to or obtain any approval, consent, ratification, waiver or
other authorization of any Person (including Governmental Authorization) in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the transactions contemplated by this Agreement.
5.2.2.
Rights to the Licensed Technology; Encumbrances. P2O owns all rights in the Licensed Technology and the Licensed Technology
is free and clear of all Encumbrances.
5.2.3.
Compliance with Applicable Laws; Governmental Authorizations.
5.2.3.1.
Regarding P2O’s Business and the Licensed Technology:
(i)
each of P2O’s Business and the Licensed Technology is, and at all times has been, in full compliance with each
Applicable Law that is or was applicable to it or its conduct or any ownership or use of the Licensed Technology, including
the possession of all required Governmental Authorizations;
(ii)
no event has occurred or circumstance exists that (with or without notice or lapse of time) could be reasonably expected to
result in a violation by P2O of, or a failure on the part of P2O to comply with, any Applicable Law, including the
requirements of all Governmental Authorizations, or may give rise to any obligation on the part of P2O to undertake, or to
bear all or any portion of the cost of, any remedial action of any nature; and
(iii)
P2O has not received any notice or communication (whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, or potential violation of, or failure to comply with, any Applicable Law or any actual,
alleged, or potential obligation on the part of P2O to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature.
5.2.4.
There is no Governmental Authorization that is necessary to be held by P2O that pertains to P2O’s Business.
5.2.5.
P2O has not received any written notice regarding any actual, alleged or potential violation of or failure to comply with any
term or requirement of any Governmental Authorization with respect to P2O’s Business or any aspect of the Licensed
Technology, or any actual, proposed or potential revocation, withdrawal, suspension, cancellation, termination of, or
modification to any such Governmental Authorization. All applications required to have been filed for the renewal of the
Governmental Authorizations set forth in Section 5.2.4 have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with respect to those Governmental Authorizations have
been duly made on a timely basis with the appropriate Governmental Bodies. The Governmental Authorizations listed in Section
5.2.4 collectively constitute all of the Governmental Authorizations necessary to permit P2O to lawfully conduct and operate
P2O’s Business and utilize the Licensed Technology for the purposes of the Pilot Program.
5.2.6.
Legal Proceedings. There is no Proceeding that has been commenced against P2O that relates to or may affect P2O’s
Business or that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any
of the transactions contemplated by this Agreement. To the Knowledge of P2O, no such Proceeding has been threatened and no event
has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding.
5.2.7.
Orders.
5.2.7.1.
There is no Order to which P2O is subject that relates to or may affect P2O’s Business and prevent the grant of the
License hereunder.
5.2.7.2.
To the Knowledge of P2O, no officer, director, agent or employee of P2O is subject to any Order that prohibits that officer,
director, agent or employee from engaging in or continuing any conduct, activity or practice relating to P2O’s
Business.
5.2.7.3.
P2O is and has been in full compliance with all of the terms and requirements of each Order to which it has or has been
subject that relates to or affects P2O’s Business or to which any of the Licensed Technology is or has been
subject.
5.2.7.4.
No event has occurred or circumstance exists that could reasonably be expected to result in (with or without notice or lapse
of time) a violation of or failure to comply with any term or requirement of any Order to which P2O is or has been subject
that relates to or affects P2O’s Business.
5.2.7.5.
P2O has not received any notice or other communication (whether oral or written) from any Governmental Body or any other
Person regarding any actual, alleged, possible, or potential violation of, or failure to comply with any term or requirement
of any Order to which P2O’s Business or to which any of the Licensed Technology is or has been subject.
5.2.8.
Intellectual Property.
5.2.8.1.
The Licensed Technology consists solely of property and rights that are (i) owned by P2O, (ii) in the public domain or (iii)
validly licensed to P2O with the right to assign or sub-license the same. P2O is the sole owner worldwide of all right, title
and interest in and to the Licensed Technology or has the right to use for purposes of this Agreement without payment, free
and clear of any Encumbrances or rights of others (including claims of employees, agents, consultants or others involved in
the creation, development, marketing, maintenance or enhancement of intellectual property of any kind for or on behalf of
P2O) except to the extent the Licensed Technology is in the public domain.
5.2.8.2.
The Licensed Technology is all that is necessary for the operation of the Processing Equipment and use of any catalyst
purchased under the Catalyst Supply Agreement and for the production of catalyst in the event of a Catalyst Supply Failure.
None of the Licensed Technology comprised of non-perpetual, non-fully paid-up licenses to P2O has been incorporated into or
made part of any Licensed Technology owned by P2O or any other Licensed Technology licensed by P2O and P2O is in full
compliance with all provisions of any contract pursuant to which it has rights to use intellectual property asset of third
parties.
5.2.8.3.
All former and current employees of P2O involved in the conduct of P2O’s Business or in the creation, development,
marketing, maintenance or enhancement of any of the Licensed Technology have executed written contracts that assign to P2O
all rights to any inventions, improvements, discoveries or information relating to P2O’s Business or the Licensed
Technology and no employee of P2O involved in P2O’s Business has entered into any contract that restricts or limits in
any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign or
disclose information concerning his or her work to anyone other than P2O.
5.2.8.4.
All of the issued Patents, if any, and all registered Copyrights are currently in compliance with formal legal requirements,
are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due during the
Term.
5.2.8.5.
No Patent has been or is now involved in any interference, reissue, reexamination, threatened reexamination or opposition
proceeding. To P2O’s Knowledge, there is no patent or patent application of any third party that claims conflict with,
is in the same field as, or that limits the expansion of, the Patents.
5.2.8.6.
To P2O’s Knowledge, all products made, used or sold under the Patents have been marked with the proper patent notice
and all works encompassing the Copyrights have been marked with a copyright notice.
5.2.8.7.
With respect to each Trade Secret for which documentation exists, the documentation relating to that Trade Secret is current,
accurate and sufficient in detail and content to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual.
5.2.8.8.
P2O has taken all reasonable precautions to protect the secrecy, confidentiality and value of its Trade Secrets.
5.2.8.9.
P2O has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets forming part of the
Licensed Technology. The Trade Secrets are not part of the public knowledge or literature and, to P2O’s Knowledge, have
not been used, divulged, or appropriated either for the benefit of any Person (other than P2O) or to the detriment of P2O. No
such Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.
5.2.8.10.
None of the products manufactured or sold nor any process or know-how used, distributed or licensed by P2O in connection with
P2O’s Business infringes or is alleged to infringe any patent, copyright or other intellectual property rights of any
other Person and, to the Knowledge of P2O, no other Person is infringing any Patent, Copyright or other intellectual property
rights of P2O with respect to P2O’s Business or the Licensed Technology nor to P2O’s Knowledge is there any basis
for any such claim.
5.3.
Disclaimer of P2O Representations and Warranties. EXCEPT FOR THE LIMITED WARRANTY SET FORTH UNDER SECTION 9.1 OF THE EQUIPMENT
SUPPLY CONTRACT AND RELATED OBLIGATIONS TO REMEDY IN SECTION 9.5 OF THE EQUIPMENT SUPPLY CONTRACT (AND DESCRIBED IN THE MMRU AGREEMENT),
P2O EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, WHETHER WRITTEN, ORAL, EXPRESS, IMPLIED STATUTORY OR OTHERWISE, CONCERNING
THE VALIDITY, ENFORCEABILITY AND SCOPE OF ANY PATENT(S), THE ACCURACY, COMPLETENESS, SAFETY, USEFULNESS FOR ANY PURPOSE OR, LIKELIHOOD
OF SUCCESS (COMMERCIAL, REGULATORY OR OTHER) OF THE LICENSED TECHNOLOGY AND ANY OTHER TECHNICAL INFORMATION, TECHNIQUES, MATERIALS,
METHODS, PRODUCTS, PROCESSES OR PRACTICES AT ANY TIME MADE AVAILABLE BY P2O INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY,
QUALITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT AND WARRANTIES ARISING FROM A COURSE OF DEALING, COURSE OF PERFORMANCE,
USAGE OR TRADE PRACTICE. WITHOUT LIMITATION TO THE FOREGOING, P2O SHALL HAVE NO LIABILITY WHATSOEVER TO LICENSEE OR ANY OTHER
PERSON FOR OR ON ACCOUNT OF ANY INJURY, LOSS, OR DAMAGE, OF ANY KIND OR NATURE, SUSTAINED BY, OR ANY DAMAGE ASSESSED OR ASSERTED
AGAINST, OR ANY OTHER LIABILITY INCURRED BY OR IMPOSED ON LICENSEE OR ANY OTHER PERSON, ARISING OUT OF OR IN CONNECTION WITH OR
RESULTING FROM THE USE OF OR ANY ERRORS OF OMISSIONS IN ANY LICENSED TECHNOLOGY.
| 6. | Assignability
and Sub-Licenses. |
6.1.
Licensee shall have the right to assign all its right, title and interest in this Agreement to a third party in which
Licensee has a direct or indirect economic interest (a “Permitted Assignee”) provided Licensee is not in
material default hereunder or a cure or grace period applicable to an event of default shall not have expired and the
Permitted Assignee executes an instrument expressly assuming all such right, title interest and the obligations to be
performed in connection with this Agreement that relate to the License Fee payable by such Permitted Assignee in accordance
with this Agreement.
6.2.
With the prior written approval by P2O, Licensee or a Permitted Assignee shall have the right to enter into from time to time
one or more sub-licenses of the Licensed Technology provided Licensee is not in material default hereunder or a cure or grace
period applicable to an event of default shall not have expired; provided, however, Licensee or a Permitted Assignee, as
applicable, shall remit to P2O one-half of any amount collected by Licensee from such sub-licensee (including, without
limitations, royalties and other fees paid to Licensee) that exceeds the License Fee paid to P2O hereunder.
6.3.
Upon or in connection with any assignment or sub-license permitted under this Section 6, upon Licensee’s request, P2O
agrees to execute an estoppel certificate regarding the status of this Agreement and to immediately deliver the same to
Licensee.
6.4.
Each sub-licensee and Permitted Assignee shall agree to be bound by all of the obligations, terms and conditions that
obligate, bind or affect Licensee under this License Agreement to the extent that such obligations, terms and conditions are
relevant given the nature of the rights granted by Licensee to any given sub-licensee or Permitted Assignee. Licensee shall
be and remain responsible for the performance by each sub-licensee of all of such sub-licensee(s)’s obligations
provided herein. Any failure by Licensee to fulfill its obligations with respect to the oversight and supervision of its
sub-licensees shall be, and be deemed to be, a breach of this Agreement by Licensee. Notwithstanding anything to the contrary
in this Agreement, no assignment shall relieve the Licensee of any of its obligations and liabilities for any breach of
confidentiality or for any infringement or misappropriation of intellectual property rights, including any breach of Section
2.2.2 above; and Licensee shall be and remain responsible for the performance by a Permitted Assignee of all of such
Permitted Assignee’s obligations with respect to confidentiality provided herein.
7.1.
In the event of any contact which P2O or any Affiliate of P2O receives or makes with any Person regarding the deployment of
the Technology in the processing of feedstocks, and where such Person does not have the need or desire, in P2O’s
reasonable opinion, to purchase Processing Equipment from P2O, P2O shall refer all such Persons to Licensee. No fee other
than the License Fee payable hereunder in the manner set forth in Section 3 above shall be due and payable for any such
referrals.
8.1.
Scope of Confidential Information. From time to time during the Term, either party (as the “Disclosing Party”)
may disclose or make available to the other Party (as the “Receiving Party”) information about its business
affairs, goods and services, confidential information and materials comprising or relating to intellectual property rights, including
without limitation, trade secrets, third-party confidential information, the Licensed Technology, and other sensitive or proprietary
information, as well as the terms of this Agreement, whether orally or in written, electronic or other form or media, and whether
or not marked, designated or otherwise identified as “confidential” (collectively, “Confidential Information”).
Confidential Information does not include information that, at the time of disclosure and as established by documentary evidence:
(i)
is or becomes generally available to and known by the public other than as a result of, directly or indirectly, any breach of
this Section 8 by the Receiving Party or any of its Representatives;
(ii)
is or becomes available to the Receiving Party on a non-confidential basis from a third-party source, provided that such
third party is not and was not prohibited from disclosing such Confidential Information;
(iii)
was known by or in the possession of the Receiving Party or its Representatives prior to being disclosed by or on behalf of
the Disclosing Party;
(iv)
was or is independently developed by the Receiving Party without reference to or use of, in whole or in part, any of the
Disclosing Party’s Confidential Information; or
(v)
is required to be disclosed pursuant to Applicable Law.
8.2.
Protection of Confidential Information. The Receiving Party shall, for during the Term and extending five years from any
expiration or termination of this Agreement:
(i)
protect and safeguard the confidentiality of the Disclosing Party’s Confidential Information with at least the same
degree of care as the Receiving Party would protect its own Confidential Information, but in no event with less than a
commercially reasonable degree of care;
(ii)
not use the Disclosing Party’s Confidential Information, or permit it to be accessed or used, for any purpose other
than to exercise its rights or perform its obligations under this Agreement; and
(iii)
not disclose any such Confidential Information to any Person, except to the Receiving Party’s Representatives who need
to know the Confidential Information to assist the Receiving Party, or act on its behalf, to exercise its rights or perform
its obligations under this Agreement.
Notwithstanding the foregoing,
any Confidential Information that constitutes a trade secret shall not be subject to such five (5) year term, but shall continue
to be subject to the obligations of confidentiality and non-use set forth in this Agreement for as long as such Confidential Information
remains a trade secret under New York law (including New York’s version of the Uniform Trade Secrets Act if and when adopted).
8.3.
The Receiving Party shall be responsible for any breach of this Section 8 caused by any of its Representatives. On the
expiration or earlier termination of this Agreement, the Receiving Party and its Representatives shall, pursuant to Section
9.3, promptly return all Confidential Information and copies thereof, or destroy and certify such destruction of all
Confidential Information and copies thereof, that it has received under this Agreement.
9.1.
P2O’s Right to Terminate. P2O may terminate this Agreement upon written notice to Licensee:
9.1.1.
If Licensee fails to pay any amount due under this Agreement on the due date for payment and remains in default not less than
thirty (30) days after P2O’s written notice to make such payment, including the payment of interest in accordance with
Section 3.3;
9.1.2.
if Licensee materially breaches any material provision of this Agreement (other than through a failure to pay any amounts due
under this Agreement), and either the breach cannot be cured or, if the breach can be cured, it is not cured by Licensee
within thirty days after Licensee’s receipt of written notice of such breach;
9.1.3.
if Licensee (i) files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes
subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, (ii)
makes or seeks to make a general assignment for the benefit of its creditors, or (iii) applies for or has appointed a
receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or
sell any material portion of its property or business;
9.1.4.
if P2O terminates any other agreement between P2O and Licensee, due to Licensee’s breach or non-performance thereof in
accordance with and as provided under such agreement; or
9.1.5.
as provided under and in accordance with Section 13.3 hereof.
9.2.
Licensee’s Right to Terminate. Licensee may terminate this Agreement upon written notice to P2O:
9.2.1.
if P2O materially breaches any material provision of this Agreement and either the breach cannot be cured or, if the breach
can be cured, it is not cured by P2O within thirty days after P2O’s receipt of written notice of such
breach;
9.2.2.
if P2O (i) files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes subject,
voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency Law, (ii) makes or
seeks to make a general assignment for the benefit of its creditors, or (iii) applies for or has appointed a receiver,
trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any
material portion of its property or business;
9.2.3.
if Licensee terminates any other agreement between P2O and Licensee, due to P2O’s breach or non-performance thereof in
accordance with and as provided under such agreement; or
9.2.4.
as provided under and in accordance with Section 13.3 hereof.
9.3.
Effect of Termination.
9.3.1.
Upon any expiration or termination of this Agreement, the License will immediately terminate.
9.3.2.
[Intentionally omitted.]
9.3.3.
Upon the expiration or earlier termination of this Agreement, Licensee shall promptly:
(i)
remove all references to P2O in Licensee’s letterheads, advertising literature and places of business, and shall not
thereafter use any similar or deceptive name or trademark intending to give the impression that there is any relationship
between Licensee and P2O;
(ii)
immediately cease using any and all Licensed Technology, trademarks, logos and copyrighted materials related to the Licensed
Technology;
(iii)
return to P2O or destroy all documents and tangible materials (and any copies) containing, reflecting, incorporating or based
on P2O’s Confidential Information;
(iv)
permanently erase all of P2O’s Confidential Information from its computer systems; and
(v)
certify in writing to P2O that it has complied with the requirements of this clause.
9.3.4.
Upon the expiration or earlier termination of this Agreement, P2O shall promptly:
(i)
remove all references to Licensee in P2O’s letterheads, advertising literature and places of business, and shall not
thereafter use any similar or deceptive name or trademark intending to give the impression that there is any relationship
between P2O and Licensee;
(ii)
return to Licensee or destroy all documents and tangible materials (and any copies) containing, reflecting, incorporating or
based on Licensee’s Confidential Information;
(iv)
permanently erase all of Licensee’s Confidential Information from its computer systems; and
(v)
certify in writing to Licensee that it has complied with the requirements of this clause.
9.4.
Survival. The rights and obligations of the parties set forth in Section 1 (Definitions), Section 2.2 (License Restrictions),
Section 3 (License Fee), Section 5 (Warranties and Representations, Section 8 (Confidentiality), Section 9.3 (Effect of Termination),
Section 11 (Indemnification), Section 12 (Notices) and Section 13 (Miscellaneous Provisions), and any right, obligation or required
performance of the parties in this Agreement which, by its express terms or nature and context is intended to survive termination
or expiration of this Agreement, shall survive any such termination or expiration.
| 10. | Limitations of Liability. |
10.1.
Exclusion of Consequential and Other Indirect Damages. EXCEPT FOR ANY MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS,
INCLUDING WITHOUT LIMITATION BREACHES OF SECTION 2.2 (LICENSE RESTRICTIONS), ANY FRAUDULENT WARRANTY OR REPRESENTATION HEREUNDER,
AND BREACHES OF SECTION 8 (CONFIDENTIALITY), TO THE FULLEST EXTENT PERMITTED BY LAW, NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY OR ANY OTHER PERSON FOR ANY INJURY TO OR LOSS OF GOODWILL, REPUTATION, BUSINESS, PRODUCTION, REVENUES, PROFITS, ANTICIPATED
PROFITS, CONTRACTS OR OPPORTUNITIES (REGARDLESS OF HOW THESE ARE CLASSIFIED AS DAMAGES), OR FOR ANY CONSEQUENTIAL, INCIDENTAL,
INDIRECT, EXEMPLARY, SPECIAL, PUNITIVE OR ENHANCED DAMAGES WHETHER ARISING OUT OF BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE),
STRICT LIABILITY, PRODUCT LIABILITY OR OTHERWISE (INCLUDING THE ENTRY INTO, PERFORMANCE OR BREACH OF THIS AGREEMENT), REGARDLESS
OF WHETHER SUCH LOSS OR DAMAGE WAS FORESEEABLE OR THE PARTY AGAINST WHOM SUCH LIABILITY IS CLAIMED HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH LOSS OR DAMAGE, AND NOTWITHSTANDING THE FAILURE OF ANY AGREED OR OTHER REMEDY OF ITS ESSENTIAL PURPOSE.
10.2.
Maximum Liability for Damages. EXCEPT FOR OBLIGATIONS TO MAKE PAYMENT UNDER THIS AGREEMENT, LIABILITY FOR INDEMNIFICATION,
LIABILITY FOR BREACH OF CONFIDENTIALITY, OR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS, INCLUDING
WITHOUT LIMITATION BREACH OF THE LICENSE RESTRICTIONS, IN NO EVENT SHALL EACH PARTY’S AGGREGATE LIABILITY ARISING OUT OF
OR RELATED TO THIS CONTRACT, WHETHER ARISING OUT OF OR RELATED TO BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE,
EXCEED THE TOTAL OF (i) THE AMOUNTS PAID OR TO BE PAID FOR PROCESSING EQUIPMENT FOR WHICH A PURCHASE ORDER HAS BEEN DELIVERED
AND ACCEPTED BUT NOT YET FILLED AT THE TIME OF THE EVENT GIVING RISE TO THE CLAIM PLUS (ii) AN AMOUNT EQUAL TO ONE-HALF (1/2)
THE AMOUNT DETERMINED PURSUANT TO PRECEDING CLAUSE (i).
10.3.
ASSUMPTION OF RISK. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, CUSTOMER ASSUMES ALL RISK AND LIABILITY FOR THE RESULTS
OBTAINED BY THE USE OF ANY GOODS IN THE PRACTICE OF ANY PROCESS, WHETHER IN TERMS OF OPERATING COSTS, GENERAL EFFECTIVENESS, SUCCESS
OR FAILURE, AND REGARDLESS OF ANY ORAL OR WRITTEN STATEMENTS MADE BY P2O, BY WAY OF TECHNICAL ADVICE OR OTHERWISE, RELATED TO
THE USE OF THE GOODS.
| 11. | INDEMNIFICATION; INSURANCE |
11.1.
Licensee Indemnification. Subject to the terms and conditions of this Agreement, Licensee (as “Indemnifying Party”)
shall indemnify, defend and hold harmless P2O and its officers, directors, employees, agents, Affiliates, successors and permitted
assigns (collectively, “Indemnified Party”) against any and all losses, damages, liabilities, deficiencies,
claims, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including reasonable
attorneys’ fees, fees and the costs of enforcing any right to indemnification under this Agreement and the reasonable cost
of pursuing any insurance providers, incurred by Indemnified Party (collectively, “Losses”), arising out or
resulting from any Claim of a third party alleging:
| (a) | any
grossly negligent or more culpable act or omission of Indemnifying Party or its Personnel
(including any willful misconduct) in connection with the performance of its obligations
under this Agreement; or |
| | | |
| | (b) | any
bodily injury, death of any Person or damage to real or tangible personal property caused
by the willful or grossly negligent acts or omissions of Indemnifying Party or its Personnel;
or |
| | | |
| | (c) | any
failure by Indemnifying Party or its Personnel to comply with any applicable laws. |
11.2.
Insurance. During the Term, Licensee shall, at its own expense, maintain and carry in full force and effect, commercial
general liability with coverage in an amount of no less than $1,000,000 single occurrence and in the aggregate, with financially
sound and reputable insurers, and upon P2O’s reasonable request, shall provide P2O with a certificate of insurance evidencing
the insurance coverage specified in this Section 11.2. Licensee shall provide P2O with thirty (30) days’ advance written
notice in the event of a cancellation or material change in such insurance policy.
12.1.
All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be
deemed to have been given in accordance with this Section:
| P2O’s
Address: |
|
Plastic2Oil,
Inc. |
| |
|
20
Iroquois Street |
| |
|
Niagara
Falls, NY 14303 |
| |
|
Attn.:
Richard W. Heddle, President & CEO |
| |
|
|
| With
a copy sent to: |
|
Hodgson
Russ LLP |
| |
|
The
Guaranty Building |
| |
|
140
Pearl Street, Suite 100 |
| |
|
Buffalo,
NY 14202 |
| |
|
Attn.:
Alfonzo I. Cutaia, Esq. |
| |
|
|
| Licensee’s
Address: |
|
EcoNavigation,
LLC |
| |
|
1600
Moseley Road, Suite 200 |
| |
|
Victor,
NY 14564 |
| |
|
Attn.:
Mark D. Ragus, President |
| |
|
|
| With
a copy sent to: |
|
Lane
Law PLLC |
| |
|
1400
Crossroads Building |
| |
|
2
State Street |
| |
|
Rochester,
NY 14614 |
| |
|
Attn.:
Gregory W. Lane, Esq. |
Notices
sent in accordance with this Section 12 shall be deemed effectively given: (a) when received, if delivered by hand (with written
confirmation of receipt); (b) when received, if sent by a nationally recognized overnight courier (receipt requested); (c) on
the date sent by facsimile (with confirmation of transmission), if sent during normal business hours of the recipient, and on
the next business day if sent after normal business hours of the recipient; or (d) on the fifth day after the date mailed, by
certified or registered mail, return receipt requested, postage prepaid.
12.2.
Notice will be given to such other representatives or at such other addresses as a party may furnish to the other party
entitled to notice pursuant to the foregoing. If notice is given pursuant to Section 9 of a permitted successor or assign of
a party, then notice will thereafter be given as set forth above also to such successor or assign of such party.
13.1.
Pilot Program Contingency. Licensee’s obligations under this Agreement shall be and hereby are contingent upon the
institution, completion by that date which is one hundred twenty (120) days after the Effective Date (which date may be extended
for an additional thirty (30) days at Licensee’s option upon prior written notice to P2O), and Licensee’s acceptance,
in its sole discretion, of the results of, of a pilot test program (the “Pilot Program”), whereby Licensee
shall utilize, on terms mutually agreeable to P2O and Licensee, P2O’s facility (the “Test Facility”)
at 20 Iroquois Street, Niagara Falls, New York (the “Pilot Program Contingency”) to ascertain Licensee’s
willingness to go forward with the transactions contemplated herein, and, if so ascertained, to establish Minimum Performance
Levels for the Initial Order and using the relevant feedstock. Immediately upon the execution and delivery of this Agreement by
the parties hereto, the parties shall in good faith diligently negotiate the terms of an agreement for use of the Test Facility
for the Pilot Program.
13.2.
Financing Contingency. Licensee’s obligations under this Agreement shall be and hereby are contingent upon Licensee
obtaining funding for (i) the Pilot Program on terms acceptable to Licensee in its sole discretion, on or before that date which
is thirty (30) calendar days after the Effective Date, and (ii) the Initial Order and working capital in amounts and upon terms
acceptable to Licensee in Licensee’s sole discretion, on or before that date which is sixty (60) days after Licensee’s
written notice of removal or satisfaction of the Pilot Test Contingency.
13.3.
Right to Terminate. In the event any of the Contingencies hereunder shall not be satisfied or waived in writing on or before
the date specified herein for the satisfaction of the same, either party hereto may terminate this Agreement upon five (5) calendar
days’ notice to the other; provided, however, that any such termination notice delivered by P2O shall be null and void if
Licensee, upon receipt of P2O’s termination notice, delivers written notice to P2O prior to the expiration of the five-day
period of P2O’s notice removing the Contingency or Contingencies upon which P2O’s notice of termination was based.
| 14. | Miscellaneous
Provisions. |
14.1.
Further Assurances. The parties hereto shall: (i) furnish upon request to each other further information, (ii) execute
and deliver to each other documents, and (iii) do other acts and things, all as the other party may reasonably request for the
purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.
14.2.
Jurisdiction; Service of Process. All actions or proceedings relating to this Agreement (whether to enforce a right or
obligation or obtain a remedy or otherwise) will be brought solely in the state or federal courts located in or for Monroe County,
New York. Each party hereby unconditionally and irrevocably consents to the jurisdiction of those courts and waives its rights
to bring any action or Proceeding against the other party except in those courts. Process in any action or Proceeding referred
to in the preceding sentence may be served on any party anywhere in the world. Each party irrevocably waives any right to a jury
trial with respect to any matter arising out of or in connection with this Agreement. If any party seeks to enforce its rights
under this Agreement, the parties will request the court to try the claims between the parties hereto without submitting the matter
to the jury.
14.3.
Waiver. Neither the failure nor any delay by any party hereto in exercising any right, power or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of the right, power or privilege, and no single or partial
exercise of any right, power or privilege will preclude any other or further exercise of the right, power or privilege or the
exercise of any other right, power or privilege. To the extent permitted by Applicable Law: (i) no claim or right arising out
of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver
or renunciation of the claim or right unless in writing signed by the other party; (ii) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one party will be
deemed to be a waiver of any obligation of that party or of the right of the party giving the notice or demand to take further
action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.
14.4.
Entire Agreement and Modification. This Agreement: (i) supersedes all prior agreements between the parties with respect
to their subject matter and (ii) together with all Schedules, Exhibits, and any other documents incorporated herein by reference,
constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter.
This Agreement may not be amended except by a written agreement executed by the parties hereto.
14.5.
Assignments and Successors. Except as expressly provided in this Agreement, neither party may assign any of its rights
under this Agreement without the prior consent of the other party. Subject to the preceding sentence, this Agreement will apply
to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of the parties.
14.6.
No Third Party Rights. Nothing expressed or referred to in this Agreement will be construed to give any person or entity
other than the parties hereto any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision
of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties
hereto and their successors and assigns.
14.7.
Severability. If any provision of this Agreement not essential to accomplishing the purposes of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force
and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
14.8.
Time is of the Essence; Computation of Time. Time is of the essence of each and every provision of this Agreement. If the
last day for the exercise of any privilege or the discharge of any duty under this Agreement falls on a day that is not a Business
Day, then the party having such privilege or duty will have until 5:00 p.m. (its local time) on the next succeeding Business Day
to exercise its privilege or to discharge its duty.
14.9.
Expenses. Except for the provisions of Section 4.2, and subject to the provisions of Section 3 hereof, the parties hereto
will bear their own expenses incurred in connection with the negotiation, drafting, implementation and performance of this Agreement.
14.10.
Governing Law. This Agreement, including issues arising out of or related to this Agreement, shall be governed by the laws
of the State of New York.
14.11.
Compliance with the Law. Licensee shall comply with all applicable laws, regulations and ordinances. Licensee shall maintain
in effect all the licenses, permissions, authorizations, consents and permits that it needs to carry out its obligations under
this Agreement and uses contemplated under this Agreement.
14.12.
Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original
copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.
14.13.
Equitable Relief. Each party acknowledges that a breach by the other party of this Agreement may cause the non-breaching
party irreparable harm, for which an award of damages would not be adequate compensation and, in the event of such a breach or
threatened breach, the non-breaching party shall be entitled to seek equitable relief, including in the form of a restraining
order, orders for preliminary or permanent injunction, specific performance and any other relief that may be available from any
court. These remedies shall not be deemed to be exclusive but shall be in addition to all other remedies available under this
Agreement at law or in equity, subject to any express exclusions or limitations in this Agreement to the contrary.
[No
further text this page; signature page follows.]
[Signature Page to
Technology License and Referral Agreement]
IN
WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the Effective Date.
| |
PLASTIC2OIL,
INC., a Nevada corporation |
| |
|
|
| |
By: |
/s/
Richard W. Heddle |
| |
|
Richard
W. Heddle |
| |
|
President
& CEO |
| |
ECONAVIGATION,
LLC, a New York limited liability company |
| |
|
|
| |
By: |
/s/
Mark D. Ragus |
| |
|
Mark
D. Ragus |
| |
|
President |
Attachment
1
Description
of Current Technology Equipment:
Equipment
within scope of P2O Processor:
P2O
supplies the proprietary processing equipment to convert waste plastic and waste oil into fuel. The equipment includes in feed
system and assembly, kilns, residue removal and distillation towers. The Licensee is responsible for the balance of plant support
equipment, piping, installation, site, permits, resources, and fuel storage.
I. Plastic2Oil Processor
| 1. | In feed systemand assembly: |
a.
Slides gates and isolation spool
b.
Nitrogen valves and connection
c.
Waste oil connection
d.
Floating spool head
e.
Hydraulic Pack and Valve Assembly
| 2. | Rotary Kilns and associated
modules: |
a.
Rotary Kiln 21’ (premelt)
b.
Rotary Kiln 21’ (reactor)
c.
Rotary Kiln 10’ (carbon extraction unit)
d.
Product transfer mechanisms
e.
Proprietary burner assemblies
f.
Rotary seals & expansion joints
a.
Blower
a. Five fuel towers
b.
One residue removal tower
c.
Cyclone system
| 5. | Off-gas Management skid |
a.
Compressor skid
Licensee
is responsible for all interconnections and piping between modules (kilns and distillation towers, as well as all utilities and
water service).
*Due
to the proprietary nature of the process, the above list, and the equipment supplied by P2O comprising a Processor, does not include
all components necessary to be operational. The facility, interconnecting piping, utilities, etc. are all necessary components
in order to use the Processor and run the process. Plastic2Oil, Inc. is not responsible for any third party installation or engineering
work.
Exhibit
10.23
CATALYST
SUPPLY AGREEMENT
THIS
CATALYST SUPPLY AGREEMENT (“Catalyst Agreement”) is made as of January 2, 2015 (the “Effective
Date”) by and between PLASTIC2OIL, INC., a Nevada corporation with an address of 20 Iroquois Street, Niagara Falls,
NY 14303 (“Supplier”), and ECONAVIGATION, LLC, a New York limited liability company with an address of 1600
Moseley Road, Suite 200, Victor, NY 14564 (“Customer”).
WHEREAS,
Supplier and Customer desire that Supplier be Customer’s source for Supplier’s proprietary catalyst used in Customer’s
deployment and utilization of technology licensed by Supplier to Customer pursuant to the terms of the Technology License and
Referral Agreement dated as of the Effective Date (the “Technology Licensing Agreement”); and
WHEREAS,
Supplier agrees to supply and Customer desires to obtain from Supplier the Goods (defined below) in accordance with the terms
and conditions of this Catalyst Agreement.
NOW,
THEREFORE, in consideration of the mutual covenants contained herein and for such other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1.
INCORPORATION BY REFERENCE.
This
Catalyst Agreement is governed by the terms and conditions set out in the Technology License Agreement, and all such terms and
conditions set out in the Technology Licensing Agreement are hereby incorporated by reference herein.
2.
ITEMS FURNISHED.
2.1. Purchase
and Sale. Subject to the terms and conditions of this Catalyst Agreement, Supplier agrees to sell, and Customer agrees
to buy, exclusively from Supplier for a period commencing with the Effective Date and running for so long as the Technology
License Agreement shall be effective (the “Term”), all Customer’s requirements of catalyst (the
“Goods”) to be used only by the Customer and solely for processing plastic feedstocks using, when
reasonably necessary, used oil, into fuel utilizing Processing Equipment (as defined in the Technology Licensing Agreement)
purchased from Supplier pursuant to the Equipment Supply Contract (defined below) in connection with Customer’s use of
the Licensed Technology (as defined in the Technology License Agreement). As used herein, “Equipment Supply
Contract” means that certain Equipment Supply Contract dated the Effective Date between Supplier and
Customer.
2.2. Quantity
and Ordering Procedure. The quantity of catalyst to be provided at any time during the term of this Catalyst Agreement
shall be determined in accordance with the following procedure:
(a)
No later than thirty days prior to the first day of each calendar quarter during the Term, Customer shall deliver to Supplier
a Forecast (as defined below) for the calendar quarter beginning with the first day of such calendar quarter. Forecasts are
for informational purposes only and do not create any binding obligations on behalf of either party; provided, however, that
Supplier shall not be required to manufacture and sell to Customer any quantity of Goods that is unreasonably
disproportionate to any Forecast for the period covered by such Forecast. “Forecast” means, with respect
to any calendar quarter, a good faith projection or estimate of Customer’s requirements for Goods during each month
during the period, which approximates, as nearly as possible, based on information available at the time to Customer, the
quantity of Goods that Customer may order for each such month.
(b)
From time-to-time during the Term, Customer will provide Supplier with a purchase order for a quantity of Goods (an
“Order”). P2O may accept any Purchase Order by confirming the order in writing.
(c)
Customer will maintain in inventory a quantity of Goods sufficient to fulfill Customer’s reasonably-anticipated needs
for 90 days.
3.
PRICE AND PAYMENT.
3.1. Price. The
price of the Goods to be delivered pursuant to an Order shall be computed at $0.50 per pound of catalyst (the
“Base Price”), subject to adjustment as follows. Commencing with April 1, 2016 and continuing on the
anniversary of such date throughout the Term, Supplier will notify Customer of the percentage change, if any, in the Consumer
Price Index for “All Cities, All Urban Consumers” as published by the Bureau of Labor Statistics of the U.S.
Department of Labor (the “Index”) as published for the month of December in the preceding calendar year
from the Index published for December 2014. Such percentage change in the Index shall be applied to the Base Price for the
Goods under this Catalyst Agreement and shall be in effect for the Goods from such April 1st date to March 31st of the
following calendar year.
3.2. Payment. The
Goods ordered pursuant to an Order shall be invoiced at the time of delivery of the Goods described in the Order and
the Quote related thereto. Payment for any invoice shall be due within thirty (30) calendar days of the invoice.
3.3. Late
Payment. If any invoice is not paid when due, interest will be added to and payable on all overdue amounts at 1.5% per
month, or the maximum percentage allowed within applicable laws, whichever is less. Customer shall pay all costs of
collection, including without limitation reasonable attorney fees.
3.4. Taxes. Customer
agrees to pay all taxes of every description, federal, state and municipal, that arise as a result of this sale, excluding
income taxes and franchise taxes.
4.
PRODUCT STANDARDS. The Goods shall comply with the Supplier’s current specifications which may be improved by mutual
consent of the parties.
5.
DELIVERY.
5.1. Timing.
Time is of the essence in the performance of this Catalyst Agreement. All sales of the Goods under this Catalyst Agreement
shall be delivered FCA (Incoterms 2010) at Supplier’s facility located at 20 Iroquois Street, Niagara Falls, New York
14303, or such facility acceptable to Customer in Customer’s reasonable discretion (the “FCA
Facility”) on or before that date which is thirty (30) calendar days after P2O’s acknowledgement of the
Purchase Order for the same.
5.2. Title/Risk
of Loss. Title to the Goods and the risk of loss thereto shall be transferred from Supplier to Customer upon
delivery.
6.
WARRANTIES.
6.1.
Supplier warrants that the Goods shall be free of substantive defects in material and workmanship.
6.2.
EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS CATALYST AGREEMENT, (A) NEITHER SUPPLIER NOR ANY
PERSON ON SUPPLIER’S BEHALF HAS MADE OR MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER, EITHER ORAL
OR WRITTEN, INCLUDING ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, WHETHER ARISING BY LAW, COURSE OF
DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE OR OTHERWISE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED, AND (B) CUSTOMER
ACKNOWLEDGES THAT IT HAS NOT RELIED UPON ANY REPRESENTATION OR WARRANTY MADE BY SUPPLIER, OR ANY OTHER PERSON ON
SUPPLIER’S BEHALF, EXCEPT AS SPECIFICALLY PROVIDED IN THIS SECTION 6.
6.3.
Subject to Section 6.1 above, with respect to any such Goods, Supplier shall provide to Customer a replacement for the
defective Goods (or the defective portion thereof, as applicable). THE REMEDIES SET FORTH IN THIS SECTION 6.3 SHALL BE THE
CUSTOMER’S SOLE AND EXCLUSIVE REMEDY AND SUPPLIER’S ENTIRE LIABILITY FOR ANY BREACH OF THE LIMITED WARRANTY SET
FORTH IN SECTION 6.1.
7.
LIMITATIONS OF LIABILITY
7.1. NO
LIABILITY FOR CONSEQUENTIAL OR INDIRECT DAMAGES. EXCEPT FOR OBLIGATIONS TO MAKE PAYMENT UNDER THIS CONTRACT, LIABILITY
FOR BREACH OF CONFIDENTIALITY, OR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS, INCLUDING
ANY BREACH OF SECTION 10.1 BELOW, IN NO EVENT SHALL EITHER PARTY OR THEIR REPRESENTATIVES BE LIABLE FOR CONSEQUENTIAL,
INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, PUNITIVE OR ENHANCED DAMAGES, LOST PROFITS OR REVENUES OR DIMINUTION IN VALUE,
ARISING OUT OF OR RELATING TO ANY BREACH OF THIS CONTRACT, REGARDLESS OF (A) WHETHER SUCH DAMAGES WERE FORESEEABLE, (B)
WHETHER OR NOT THE OTHER PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND (C) THE LEGAL OR EQUITABLE THEORY
(CONTRACT, TORT OR OTHERWISE) UPON WHICH THE CLAIM IS BASED, AND NOTWITHSTANDING THE FAILURE OF ANY AGREED OR OTHER REMEDY OF
ITS ESSENTIAL PURPOSE.
7.2. MAXIMUM
LIABILITY FOR DAMAGES. EXCEPT FOR OBLIGATIONS TO MAKE PAYMENT UNDER THIS CONTRACT, LIABILITY FOR INDEMNIFICATION,
LIABILITY FOR BREACH OF CONFIDENTIALITY, OR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS,
IN NO EVENT SHALL EACH PARTY’S AGGREGATE LIABILITY ARISING OUT OF OR RELATED TO THIS CONTRACT, WHETHER ARISING OUT OF
OR RELATED TO BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EXCEED THE TOTAL OF THE AMOUNTS PAID AND AMOUNTS
ACCRUED BUT NOT YET PAID TO SUPPLIER PURSUANT TO THIS CONTRACT IN THE ONE (1) YEAR PERIOD PRECEDING THE EVENT GIVING RISE TO
THE CLAIM.
7.3. ASSUMPTION
OF RISK. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, CUSTOMER ASSUMES ALL RISK AND LIABILITY FOR THE RESULTS
OBTAINED BY THE USE OF ANY GOODS IN THE PRACTICE OF ANY PROCESS, WHETHER IN TERMS OF OPERATING COSTS, GENERAL EFFECTIVENESS,
SUCCESS OR FAILURE, AND REGARDLESS OF ANY ORAL OR WRITTEN STATEMENTS MADE BY SUPPLIER, BY WAY OF TECHNICAL ADVICE OR
OTHERWISE, RELATED TO THE USE OF THE GOODS.
8.
INDEMNIFICATION; INSURANCE
8.1. Customer
Indemnification. Subject to the terms and conditions of this Catalyst Agreement, Customer (as “Indemnifying
Party”) shall indemnify, defend and hold harmless Supplier and its officers, directors, employees, agents,
Affiliates, successors and permitted assigns (collectively, “Indemnified Party”) against any and all
losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines,
costs, or expenses of whatever kind, including reasonable attorneys’ fees, fees and the costs of enforcing any right to
indemnification under this Catalyst Agreement and the cost of pursuing any insurance providers, incurred by Indemnified Party
(collectively, “Losses”), arising out or resulting from any Claim of a third party alleging:
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(a) |
any
grossly negligent or more culpable act or omission of Indemnifying Party or its Personnel (including any willful misconduct)
in connection with the performance of its obligations under this Catalyst Agreement; or |
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(b) |
any
bodily injury, death of any Person or damage to real or tangible personal property caused by the willful or grossly negligent
acts or omissions of Indemnifying Party or its Personnel; or |
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(c) |
any
failure by Indemnifying Party or its Personnel to comply with any applicable laws. |
8.2. Insurance. During
the Term, Customer shall, at its own expense, maintain and carry in full force and effect, commercial general
liability (including product liability) with limits of at least $1,000,000 per single occurrence and in the aggregate, with
financially sound and reputable insurers, and upon Supplier’s reasonable request, shall provide Supplier with a
certificate of insurance evidencing the insurance coverage specified in this Section. Customer shall provide Supplier with
thirty days’ advance written notice in the event of a cancellation or material change in such insurance
policy.
9.
TERMINATION
9.1. Supplier’s
Right to Terminate. Supplier may terminate this Catalyst Agreement upon written notice to Customer:
9.1.1.
If Customer fails to pay any amount due under this Catalyst Agreement on the due date for payment and remains in default not
less than thirty (30) calendar days after Licensor’s written notice to make such payment, including the payment of
interest in accordance with Section 3.3;
9.1.2.
if Customer materially breaches any material provision of this Catalyst Agreement (other than through a failure to pay any
amounts due under this Catalyst Agreement), and either the breach cannot be cured or, if the breach can be cured, it is not
cured by Customer within thirty (30) calendar days after Customer’s receipt of written notice of such
breach;
9.1.3.
if Customer (i) files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes
subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, (ii)
makes or seeks to make a general assignment for the benefit of its creditors, or (iii) applies for or has appointed a
receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or
sell any material portion of its property or business;
9.1.4.
if Supplier terminates any other agreement between Supplier and Customer, due to Customer’s breach or non-performance
thereof in accordance with and as provided under such agreement; or
9.1.5.
pursuant to and in accordance with Section 23.3 hereof.
9.2. Customer’s
Right to Terminate. Customer may terminate this Catalyst Agreement upon written notice to Supplier:
9.2.1.
if Supplier materially breaches any material provision of this Catalyst Agreement and either the breach cannot be cured or,
if the breach can be cured, it is not cured by Supplier within thirty (30) calendar days after Supplier’s receipt of
written notice of such breach;
9.2.2.
if Supplier (i) files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes
subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, (ii)
makes or seeks to make a general assignment for the benefit of its creditors, or (iii) applies for or has appointed a
receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or
sell any material portion of its property or business.
9.2.3.
if Customer terminates any other agreement between Supplier and Customer, due to Supplier’s breach or non-performance
thereof in accordance with and as provided under such agreement; or
9.2.4.
pursuant to and in accordance with Section 23.3 hereof.
9.3. Effect
of Termination.
9.3.1.
Upon the expiration or earlier termination of this Catalyst Agreement for reasons other than a default of Supplier hereunder,
all indebtedness of Customer to Supplier under this Catalyst Agreement of any kind, shall become immediately due and payable
to Supplier, without further notice to Customer.
9.3.2.
[Intentionally Omitted]
9.3.3.
Upon the expiration or earlier termination of this Catalyst Agreement, Customer shall promptly:
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(i) |
remove
all references to Supplier in Customer’s letterheads, advertising literature and places of business, and shall not thereafter
use any similar or deceptive name or trademark intending to give the impression that there is any relationship between Customer
and Supplier; |
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(ii) |
immediately
cease using any and all Licensed Technology, trademarks, logos and copyrighted materials related to the Licensed Technology; |
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(iii) |
return
to Supplier or destroy all documents and tangible materials (and any copies) containing, reflecting, incorporating or based
on Supplier’s Confidential Information; |
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(iv) |
permanently
erase all of Supplier’s Confidential Information from its computer systems; and |
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(v) |
certify
in writing to Supplier that it has complied with the requirements of this clause. |
9.4. Survival.
The rights and obligations of the parties set forth in any provision of this Catalyst Agreement which, by its express terms
or nature and context is intended to survive termination or expiration of this Catalyst Agreement, shall survive any such
termination or expiration.
10.
INTELLECTUAL PROPERTY.
10.1. Trade
Secrets. Notwithstanding anything to the contrary herein, all patents and other intellectual property rights in relation
to Goods supplied by Supplier are and shall remain the sole and exclusive property of Supplier. Customer by purchasing the
Goods acknowledges and agrees that the Goods embodies and/or utilizes Supplier’s valuable intellectual property,
know-how and trade secrets, including, without limitation, confidential, proprietary information associated with the formula
of the Goods (collectively, the “Trade Secret Information”). Customer hereby agrees, represents and
warrants that it will not, nor will it aid, assist or permit any other person to: (i) tamper with the Goods, (ii) attempt to
reverse engineer or derive the formula the Goods, or (iii) otherwise discover and/or utilize any of the Trade Secret
Information. Customer further agrees, represents and warrants that it will not disclose, nor will it aid, assist or permit
any other person to disclose, any information which it may learn or discover about the materials and methods of
manufacturing, or the make-up of the Goods, including specifically the formula of the Goods. Customer furthermore agrees that
Customer shall be liable to Supplier, for any and all actual and potential, direct and indirect, incidental and consequential
damages, including, without limitation, lost profits, arising from or related to any violation of these provisions, as well
as any and all equitable relief as a court may impose, to remedy any such violation. In addition, Customer agrees and binds
itself to make no claim by means of possession to any right, title or interest either by means of patent application,
trademark, trade secret or other proprietary right with regard to results derived from, or based upon, the Goods. Nothing in
this Catalyst Agreement shall be construed as granting to Customer any license or grant of intellectual property rights,
other than a right to use the Goods in accordance with the provisions of Section 2.1.
10.2. Ownership. Customer
acknowledges and agrees that Supplier (or its licensors) will retain all intellectual property rights used to
create, embodied in, used in and otherwise relating to the Goods and Customer shall not acquire any ownership interest in any
of Supplier’s intellectual property rights under this Catalyst Agreement;
10.3. Prohibited
Acts. Customer shall not: (a) take any action that may interfere with any of Supplier’s rights in or to
Supplier’s Intellectual Property Rights, including Supplier’s ownership or exercise thereof; (b) challenge any
right, title or interest of Supplier in or to Supplier’s Intellectual Property Rights; (c) make any claim or take any
action adverse to Supplier’s ownership of Supplier’s Intellectual Property Rights; (d) register or apply for
registrations, anywhere in the world, for Supplier’s trademarks or any other trademark that is similar to
Supplier’s trademarks or that incorporates Supplier’s Trademarks; (e) use any mark, anywhere, that is confusingly
similar to Supplier’s trademarks; or (f) engage in any action that tends to disparage, dilute the value of, or reflect
negatively on the products purchased under this Catalyst Agreement (including Goods) or any Supplier trademark.
11.
CONFIDENTIALITY.
11.1. Scope
of Confidential Information. From time to time during the Term, either party (as the “Disclosing
Party”) may disclose or make available to the other Party (as the “Receiving Party”) information
about its business affairs, goods and services, confidential information and materials comprising or relating to intellectual
property rights, including without limitation, trade secrets, third-party confidential information, and other sensitive or
proprietary information, as well as the terms of this Catalyst Agreement, whether orally or in written, electronic or other
form or media, and whether or not marked, designated or otherwise identified as “confidential” (collectively,
“Confidential Information”). Confidential Information does not include information that, at the time of
disclosure and as established by documentary evidence:
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(i) |
is
or becomes generally available to and known by the public other than as a result of, directly or indirectly, any breach of
this Section 11 by the Receiving Party or any of its Representatives; |
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(ii) |
is
or becomes available to the Receiving Party on a non-confidential basis from a third-party source, provided that such third
party is not and was not prohibited from disclosing such Confidential Information; |
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(iii) |
was
known by or in the possession of the Receiving Party or its Representatives prior to being disclosed by or on behalf of the
Disclosing Party; |
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(iv) |
was
or is independently developed by the Receiving Party without reference to or use of, in whole or in part, any of the Disclosing
Party’s Confidential Information; or |
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is
required to be disclosed pursuant to applicable law. |
11.2. Protection
of Confidential Information. The Receiving Party shall, for during the Term and extending five years from any expiration
or termination of the Catalyst Agreement:
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protect
and safeguard the confidentiality of the Disclosing Party’s Confidential Information with at least the same degree of
care as the Receiving Party would protect its own Confidential Information, but in no event with less than a commercially
reasonable degree of care; |
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(ii) |
not
use the Disclosing Party’s Confidential Information, or permit it to be accessed or used, for any purpose other than
to exercise its rights or perform its obligations under this Catalyst Agreement; and |
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not
disclose any such Confidential Information to any Person, except to the Receiving Party’s Representatives who need to
know the Confidential Information to assist the Receiving Party, or act on its behalf, to exercise its rights or perform its
obligations under this Catalyst Agreement. |
Notwithstanding
the foregoing, any Confidential Information that constitutes a trade secret shall not be subject to such five (5) year term, but
shall continue to be subject to the obligations of confidentiality and non-use set forth in this Catalyst Agreement for as long
as such Confidential Information remains a trade secret under New York law (including New York’s version of the Uniform
Trade Secrets Act if and when adopted).
11.3.
The Receiving Party shall be responsible for any breach of this Section 11 caused by any of its Representatives. On the
expiration or earlier termination of this Catalyst Agreement, the Receiving Party and its Representatives shall, pursuant to
Section 9.3, promptly return all Confidential Information and copies thereof, or destroy and certify such destruction of all
Confidential Information and copies thereof that it has received under this Catalyst Agreement.
12.
FORCE MAJEURE.
12.1.
If performance of this Catalyst Agreement or any obligation under this Catalyst Agreement is prevented, restricted or
interfered with by causes beyond either party’s reasonable control (“Force Majeure”), and if the
party unable to carry out its obligations gives the other party prompt written notice of such event, then the obligations of
the party invoking this provision shall be suspended to the extent necessary by such event. The term Force Majeure shall
include, without limitation, acts of God, fire, explosion, vandalism, storm or other similar occurrence, orders or acts of
military or civil authority, or by national emergencies, insurrections, riots or wars.
12.2.
The excused party shall use reasonable efforts under the circumstances to avoid or remove such causes of non-performance and
shall proceed to perform with reasonable dispatch whenever such causes are removed or ceased. An act or omission shall be
deemed within the reasonable control of a party if committed, omitted or caused by such party or its employees, officers,
agents or affiliates.
13.
NOTICES.
13.1.
All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be
deemed to have been given in accordance with this Section:
| Supplier’s
Address: |
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Plastic2Oil,
Inc. |
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20
Iroquois Street |
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Niagara
Falls, NY 14303 |
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Attn.:
Richard Heddle, President & CEO |
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a copy sent to: |
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Hodgson
Russ LLP |
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The
Guaranty Building |
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140
Pearl Street, Suite 100 |
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Buffalo,
NY 14202 |
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Attn.:
Alfonzo I. Cutaia, Esq. |
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| Customer’s
Address: |
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EcoNavigation,
LLC |
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1600
Moseley Road, Suite 200 |
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Victor,
NY 14564 |
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Attn.:
Mark D. Ragus, President |
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a copy sent to: |
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Lane
Law PLLC |
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1400
Crossroads Building |
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2
State Street |
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Rochester,
NY 14614 |
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Attn.:
Gregory W. Lane, Esq. |
Notices
sent in accordance with Section 13.1 shall be deemed effectively given: (a) when received, if delivered by hand (with written
confirmation of receipt); (b) when received, if sent by a nationally recognized overnight courier (receipt requested); (c) on
the date sent by facsimile (with confirmation of transmission), if sent during normal business hours of the recipient, and on
the next business day if sent after normal business hours of the recipient; or (d) on the fifth day after the date mailed, by
certified or registered mail, return receipt requested, postage prepaid.
13.2.
Notice will be given to such other representatives or at such other addresses as a party may furnish to the other party
entitled to notice pursuant to the foregoing. If notice is given of a permitted successor or assign of a party, then notice
will thereafter be given as set forth above also to such successor or assign of such party.
14.
ENTIRE AGREEMENT. This Catalyst Agreement, including any terms and conditions incorporated by reference, contains the entire
agreement of the parties regarding the subject matter of this Catalyst Agreement and there are no other promises or
conditions in any other agreement whether oral or written. This Catalyst Agreement supersedes any prior written or oral
agreements between the parties.
15.
AMENDMENT. This Catalyst Agreement may be modified or amended if the amendment is made in writing and signed by both
parties.
16.
SURVIVAL. Any right, obligation or required performance of the parties in this Catalyst Agreement which, by its express terms
or nature and context is intended to survive termination or expiration of this Catalyst Agreement, shall survive any such
termination or expiration.
17.
SEVERABILITY. If any provision of this Catalyst Agreement shall be held to be invalid or unenforceable for any reason, the
remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Catalyst
Agreement is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such
provision shall be deemed to be written, construed and enforced as so limited.
18.
WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any provision of this Catalyst Agreement shall not be
construed as a waiver or limitation of that party’s right to subsequently enforce and compel strict compliance with
every provision of this Catalyst Agreement.
19.
GOVERNING LAW. This Catalyst Agreement, including all exhibits, schedules, attachments and appendices attached hereto and
thereto are governed by, and construed in accordance with, the Laws of the State of New York, United States of America,
without regard to the conflict of laws provisions thereof. The parties agree that the United Nations Convention on Contracts
for the International Sale of Goods does not apply to this Catalyst Agreement.
20.
CATALYST SUPPLY FAILURE. Anything herein to the contrary notwithstanding, in the event that Supplier, after receiving an
Order from Customer, and provided such Order is for a quantity of Goods included in the then-current Forecast pursuant to
Section 2.2(a) above, is unable to satisfy the Order in the total of the time provided hereunder plus the 90-day supplier
inventory under Section 2.2(c), Customer may access the formula and other information placed in escrow as provided in Section
2.9 of the Technology License Agreement, shall not be responsible for paying for the unfulfilled Order, shall be
automatically entitled to a license of the technology necessary to produce the Goods as provided in the Technology License
Agreement, and may have replacement Goods supplied by a third party or create the Goods itself. Customer shall not be
obligated to order or purchase any Goods under this Catalyst Agreement for so long as Supplier is unable to supply Goods for
Customer.
21.
COMPLIANCE WITH THE LAW. Customer shall comply with all applicable laws, regulations and ordinances. Customer shall maintain
in effect all the licenses, permissions, authorizations, consents and permits that it needs to carry out its obligations
under this Catalyst Agreement and uses contemplated under this Catalyst Agreement. Customer shall comply with all export and
import laws of all countries involved in the sale of the Goods under this Contract or any resale of the Goods by
Customer.
22.
ASSIGNMENT
22.1
Customer shall have the right to assign all its right, title and interest in this Catalyst Agreement to a third party in
which Customer has a direct or indirect economic interest (a “Permitted Assignee”) provided Customer is
not in material default hereunder or a cure or grace period applicable to an event of default shall not have expired and the
Permitted Assignee executes an instrument expressly assuming all such right, title interest and the obligations to be
performed in connection with this Catalyst Agreement.
22.2
Upon or in connection with any assignment permitted under this Section 22, upon Customer’s request, Supplier agrees to
execute an estoppel certificate regarding the status of this Catalyst Agreement and to immediately deliver the same to
Customer.
22.3
Each Permitted Assignee shall agree to be bound by all of the obligations, terms and conditions that obligate, bind or affect
Customer under this Catalyst Agreement. Notwithstanding anything to the contrary in this Agreement, no assignment shall
relieve the Customer of any of its obligations and liabilities for any breach of confidentiality or for any infringement or
misappropriation of intellectual property rights, including any breach of Section 10.1 above; and Customer shall be and
remain responsible for the performance by a Permitted Assignee of all of such Permitted Assignee’s obligations with
respect to confidentiality provided herein.
23.
CONTINGENCIES
23.1. Pilot
Program Contingency. Customer’s obligations under this Catalyst Agreement shall be and hereby are contingent upon
the institution, completion by that date which is one hundred twenty (120) days after the Effective Date (which date may be
extended for an additional thirty (30) days at Customer’s option upon prior written notice to Supplier), and
Customer’s acceptance, in its sole discretion, of the results of, of a pilot test program (a “Pilot
Program”) whereby Customer shall utilize, on terms mutually agreeable to Supplier and Customer, Supplier’s
facility (the “Test Facility”) at 20 Iroquois Street, Niagara Falls, New York (the “Pilot Program
Contingency”) to ascertain Customer’s willingness to go forward with the transactions contemplated herein,
and, if so ascertained, to establish Minimum Performance Levels for the Initial Order and using the relevant feedstock.
Immediately upon the execution and delivery of this Catalyst Agreement by the parties hereto, the parties shall in good faith
diligently negotiate the terms of an agreement for use of the Test Facility for the Pilot Program.
23.2. Financing
Contingency. Customer’s obligations under this Catalyst Agreement shall be and hereby are contingent upon Customer
obtaining funding for (i) the Pilot Program on terms acceptable to Customer in its sole discretion, on or before that date
which is thirty (30) calendar days after the Effective Date, and (ii) the Initial Order (as defined in the Equipment Supply
Contract) and working capital in amounts and upon terms acceptable to Customer in Customer’s sole discretion, on or
before that date which is sixty (60) days after Customer’s written notice of removal or satisfaction of the Pilot
Program Contingency (the “Financing Contingency”; the Pilot Program Contingency and the Financing
Contingency are herein collectively referred to as the “Contingencies”).
23.3. Right
to Terminate. In the event any of the Contingencies hereunder shall not be satisfied or waived in writing on or before
the date specified herein for the satisfaction of the same, either party hereto may terminate this Catalyst Agreement upon
five (5) calendar days’ notice to the other; provided, however, that any such termination notice delivered by Supplier
shall be null and void if Customer, upon receipt of Supplier’s termination notice, delivers written notice to Supplier
prior to the expiration of the five-day period of Supplier’s notice removing the Contingency or Contingencies upon
which Supplier’s notice of termination was based.
[No
further text this page; signature page follows.]
[Signature
Page to Catalyst Supply Agreement]
IN
WITNESS WHEREOF, the parties hereto have executed and delivered this Catalyst Agreement as of the Effective Date.
| |
PLASTIC2OIL, INC., a Nevada corporation |
| |
|
|
| |
By: |
/s/ Richard
W. Heddle |
| |
|
Richard W. Heddle |
| |
|
President &
CEO |
| |
ECONAVIGATION,
LLC, a New York limited liability company |
| |
|
|
| |
By: |
/s/ Mark D.
Ragus |
| |
|
Mark D. Ragus |
| |
|
President |
Exhibit
10.24
MONITORING,
MAINTENANCE, REPAIR AND UPGRADE AGREEMENT
THIS
MONITORING, MAINTENANCE, REPAIR AND UPGRADE AGREEMENT (“Agreement”) dated January 2, 2015 (the “Effective
Date”) by and between PLASTIC2OIL, INC., a Nevada corporation having an address of 20 Iroquois Street, Niagara Falls,
New York 14303 (hereinafter referred to as “P2O”), and ECONAVIGATION, LLC, a New York limited liability company
with an address of 1600 Moseley Road, Suite 200, Victor, NY 14564 (hereinafter referred to as “Customer”);
W
I T N E S S E T H :
WHEREAS,
P2O is a technology company engaged in, among other things, (i) the development of equipment, a catalyst and the know-how for
their utilization to process waste feedstocks consisting of plastic and using, when reasonably necessary, used oil, into diesel
fuel and naphtha, among other byproducts, and (ii) the sale of such equipment and catalyst and the licensing of such technology;
WHEREAS,
Customer is engaged in the business of processing feedstocks consisting of plastic and using, when reasonably necessary, used
oil, for the purposes of, among other things, creating fuel;
WHEREAS,
pursuant to a certain Technology License and Referral Agreement of even date herewith between P2O and Customer (the “Technology
License Agreement”), Customer licenses from P2O certain technology associated with the processing of plastic feedstocks
and the production of diesel fuel and naphtha from such process;
WHEREAS,
Customer and P2O have entered into a certain Equipment Supply Contract of even date herewith (the “Equipment Supply Contract”)
pursuant to which P2O will sell to Customer processers manufactured by P2O for Customer’s deployment and utilization of
the licensed technology, which processors are described in Attachment 1 to the Technology License Agreement (each hereafter, a
“Processor”);
WHEREAS,
pursuant to the Equipment Supply Contract, P2O may be entitled to additional payments for the purchase prices of certain Processors
based on the Processors’ productivity and as more specifically provided in the Equipment Supply Contract;
WHEREAS,
Customer will be locating and operating two (2) or more Processors at one or more facilities to be established by Customer for
the processing of plastic feedstocks; and
WHEREAS,
in support of P2O’s covenant, warranty and representation that each Processor shall be capable of performing at the Minimum
Performance Levels established for such Processor pursuant to and in accordance with the terms of the Equipment Supply Contract,
and to increase P2O’s opportunity to increase the sale prices of certain Processors sold pursuant to and in accordance with
the terms of the Equipment Supply Contract, Customer desires to purchase, and P2O agrees provide, services to monitor, maintain,
repair and upgrade Processors in accordance with the terms of this Agreement.
NOW,
THEREFORE, in consideration of One Dollar in hand paid, the covenants herein expressed, and such other good and valuable consideration
the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
As
used herein, the following terms shall have the following meanings:
1.1.
“Affiliate” of a Person means: (i) a director, officer, partner, member, P2O, executor or trustee of a
Person and (ii) any Person directly or indirectly controlling, controlled by, or under common control with, that Person,
provided, however, no party to this Agreement will be considered an affiliate of any other party solely by reason of it being
a party to this Agreement.
1.2.
“Agreement” has the meaning given in the opening paragraph.
1.3.
“Applicable Law” means each applicable provision of any constitution, statute, law, ordinance, code, rule,
regulation, decision, order, decree, judgment, award, injunction, verdict subpoena, release, license or other legally binding
pronouncement of any Governmental Body.
1.4.
“Business” shall mean the processing of plastic feed stocks and used oil using Processors supplied
pursuant to the Equipment Supply Contract, catalyst supplied pursuant to the Catalyst Supply Agreement, and utilizing the
Licensed Technology under the Technology License Agreement.
1.5.
“Business Day” means any day other than Saturday, Sunday or any public or legal holiday, whether federal
or state, in the place in which a duty or obligation is to be performed.
1.6.
“Catalyst Supply Agreement” shall mean that certain Catalyst Supply Agreement of even date with the
Effective Date between P2O and Customer.
1.7.
“Certificate of Functionality” or “COF” shall have the meaning set forth in the
Equipment Supply Contract.
1.8.
“Commencement Date” shall be the date upon which a Certificate of Functionality is issued for a
Processor.
1.9.
“Effective Date” shall have the meaning set forth in the opening paragraph.
1.10.
“Encumbrance” shall mean any charge, claim, condition, equitable interest, lien, option, pledge, security
interest, right of refusal or restriction of any kind, including any restriction on use, voting, transfer, receipt of income
or exercise of any other attribute of ownership.
1.11.
“Equipment Supply Contract” shall have the meaning set forth in the recitals hereto.
1.12.
“Force Majeure” shall mean an event or circumstance which is beyond the
control and without the fault or negligence of the party affected and which by the exercise of reasonable diligence the party
affected was unable to prevent provided that event or circumstance is limited to the following: (i) riot, war, invasion, act of
foreign enemies, hostilities (whether war be declared or not), acts of terrorism, civil war, rebellion, revolution, insurrection
of military or usurped power, or requisition or compulsory acquisition by any governmental or non-governmental entity, army or
combatant; (ii) ionizing radiation or contamination, radioactivity from any nuclear fuel or from any nuclear waste from the combustion
of nuclear fuel, radioactive toxic explosive or other hazardous properties of any explosive assembly or nuclear component; (iii)
pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds; (iv) earthquakes, flood, fire
or other physical natural disaster, but excluding weather conditions regardless of severity; and (v) strikes at a national level
or industrial disputes by labor not employed by the affected party, its contractors, subcontractors or its suppliers and which
affect an essential portion of the obligation(s) to be performed but excluding any industrial dispute which is specific to the
performance of the obligation(s) or this Agreement.
1.13.
“Governmental Authorization” means any consent, license, permit or other authorization issued, granted,
given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Applicable
Law.
1.14.
“Governmental Body” means any governmental or quasi-governmental body exercising, or entitled to exercise,
any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power.
1.15.
“Hazardous Substances” means any deleterious, hazardous, corrosive or toxic substances or materials,
contaminants, special wastes, wastes or any other substances, the storage, disposal, discharge, treatment, remediation or
release into the environment of which is prohibited, controlled or regulated.
1.16.
“Knowledge” means, with respect to an individual, “Knowledge” of a particular fact or
other matter if:
| (i) | that
individual is actually aware of that fact or other matter; or |
| | | |
| | (ii) | a
reasonably prudent individual would have conducted a reasonably comprehensive investigation
of that fact or other matter and, in the course of doing so, could be expected to become
aware of that fact or other matter. |
1.17.
“Knowledge” means, with respect to a Person (other than an individual), “Knowledge” of
a particular fact or other matter if any individual who is serving as a director, officer, partner, member, agent or trustee
of such Person (or in any similar capacity) has, at the time with respect to which the term is used,
“Knowledge” of such fact or other matter by which an individual would have such
“Knowledge.”
1.18.
“Licensed Technology” shall have the meaning as set forth under the Technology License
Agreement.
1.19.
“Minimum Production Levels” shall have the meaning set forth in Schedule “B” of the Equipment
Supply Contract.
1.20.
“Normal Business Hours” are from Monday to Friday, 8AM to 5PM, excluding all statutory holidays in the
State of New York and the state where the services under this Agreement are being performed.
1.21.
“Order” means any award, decision, injunction, judgment, ruling or verdict entered, issued, made or
rendered by any Governmental Body or by any arbitrator.
1.22.
“P2O’s Technology Business” shall mean “Licensor’s Technology Business”
as set forth and defined in the Technology License Agreement.
1.23.
“Permitted Assignee” shall have the same meaning as set forth therefor under the Technology License
Agreement.
1.24.
“Proceeding” shall have the same meaning as set forth therefor under the Technology License
Agreement.
1.25.
“Processing Facility” shall have the meaning set forth therefor under the Technology License
Agreement
1.26.
“Person” means any person or entity of every kind and is to be construed as broadly as
possible.
1.27.
“Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether
civil, criminal, administrative, investigative or informal) commenced by or before, or otherwise involving, any Governmental
Body or arbitrator.
1.28.
“Processor” shall have the meaning set forth in the recitals hereto.
1.29.
“Stabilized Operation” shall have the meaning ascribed to such term in Schedule “A” of the
Equipment Supply Contract.
1.30.
“Technology” shall have the meaning set forth in the Technology License Agreement.
1.31.
“Technology License Agreement” shall have the meaning set forth in the recitals hereto.
1.32.
“Term” shall have the meaning set forth in Section 2 hereof.
This
Agreement shall have a term (the “Term”) running from and including the Commencement Date and expiring at the
end of the last day of the twentieth (20th) year of Stabilized Operation of the last Processor purchased by Customer
pursuant to the Equipment Supply Contract.
| 3. | Services.
During the Term, P2O shall provide the following services to Customer (the “Services”): |
3.1.
Monitoring. P2O shall coordinate with the manager of the operations of each Processing Facility for the Term. P2O shall
Monitor (as hereinafter defined) each Processor, storing and keeping secure the resulting data therefrom and making such data
reasonably accessible to Customer upon Customer’s request for access to the same.
3.1.1.
“Monitoring” shall include P2O periodically (approximately once per week) connecting to the server
computer that controls each P2O Processor at the Customer’s Facility and download all database information (which
includes sensor information, states of valves, temperatures, pressures, flows, feed and fuel). The data will be used to
produce a monthly report to provide performance information to the Buyer. The report may be used to provide information to
better operate the Processor, identify excess component wear, and other useful information. P2O will not collect data for,
and will not produce reports related to, environmental, employee monitoring, or any other purpose other than the specific
monitoring to produce performance reports as described herein.
3.1.2.
Other Use of Information. Customer acknowledges that any reports, including any data contained in the reports, or other
data (collectively, “Information”) provided pursuant to this Section 3.1 are produced solely to indicate the
performance of the corresponding Processor(s) for operational purposes. Any other use of the Information shall be at the sole
risk of Customer. Customer agrees to defend, indemnify, and hold harmless P2O from and against any and all Losses arising from
Customer’s use of Information, other than as herein described.
3.2.
Technical Support. Upon the request of Customer, provide technical assistance and consultation related to the operation
and maintenance of the Processors. P2O will repair, replace, or otherwise service a Processor, or portion thereof, as necessary,
to facilitate a Processor’s performance in accordance with Section 9.1.2 of the Equipment Supply Contract.
3.3.
Scheduling; Access. P2O and Customer will cooperate to schedule any onsite visits requested by Customer as part of the
Services. Customer is responsible for providing access to the Facility and Processor(s) with suitable accompaniment by a Customer
representative and during Normal Business Hours. Customer will provide P2O with a minimum of two weeks’ notice for any desired
Service requiring travel, however P2O will not be liable for any delays or inability to accommodate desired dates or timing. Customer
is responsible for ensuring P2O is free to start, stop isolate, disconnect or otherwise affect the Processor(s) in the course
of Service activities, as arranged with the Customer representative.
4.1.
P2O shall perform the obligations set forth in Section 3.1 above for no fee. P2O shall perform the obligations set forth in Section
3.2 above at parts, labor, and expense rates as follows: (i) the cost of parts used for routine maintenance and repairs and that
are not necessary to enable P2O to comply with and make true (but only to sustain) its obligations and warranties under section
2 (Product Standards) and Section 7.1.1 (Warranties) of the Equipment Supply Contract, which costs are set forth in the price
list attached hereto and made a part hereof as Schedule A; (ii) the labor costs for P2O’s technicians and other personnel
in accordance with the rates set forth in Schedule B attached hereto and made a part hereof; and (iii) the reasonable costs
of reasonably necessary travel and lodging by the individuals described in the preceding subparagraph (ii).
4.2.
The prices and labor rates set forth in Schedule A and Schedule B shall be subject to adjustment as follows. Commencing
with April 1, 2016 and continuing on the anniversary of such date throughout the Term, P2O shall notify Customer of the percentage
change, if any, in the Consumer Price Index for “All Cities, All Urban Consumers” as published by the Bureau of Labor
Statistics of the U.S. Department of Labor (the “Index”) as published for the month of December in the preceding
calendar year from the Index published for December 2014 (using the December 2014 Index as the base). Such percentage change in
the Index shall be applied to the prices and rates in Schedule A and Schedule B to calculate the prices and rates
for equipment and labor purchased or employed from such April 1st date to March 31st of the following calendar
year.
4.3.
Customer will pay or cause to be paid the full price for the Service plus applicable taxes. P2O will invoice Customer for the
services in advance of services being performed. Payment is due 30 days from date of invoice, unless otherwise stated.
Customer will be charged the lesser of (i) 1.5% per month interest (18% per annum) or (ii) the highest rate permitted by law
on all overdue accounts. These terms are subject to credit approval; otherwise, terms are cash with order or C.O.D. Time is
of the essence with respect to Customer’s obligations under this Section.
4.4.
P2O understands and agrees that at all times any of its or its agents’ or contractors’ personnel engaged in
connection with the performance of P2O’s obligations under this Agreement are at a Facility that they shall coordinate
with Customer’s then-present manager for each Facility.
4.5.
P2O shall cause there to be in place for all individuals engaged in performing P2O’s duties under this Agreement at a
Processing Facility adequate coverage for workmen’s compensation.
4.6.
P2O shall have the responsibility for complying with the reasonable rules and regulations of each Facility at which its
obligations are to be performed hereunder and, for the specific work performed by P2O, with the requirements of any statute,
ordinance, law or regulation of any governmental body or of any public authority or official thereof having jurisdiction;
provided, however, that P20 shall notify Customer promptly or forward to Customer promptly any complaints, warnings, notices
or summonses received by it related to such matters. For clarity, nothing in this Section 4.6 will obligate P2O with regard
to compliance with Applicable Law except for P2O’s own compliance related to the specific Service provided by
P2O.
5.1.
Customer shall comply with all Applicable Laws. Customer shall maintain in effect all the licenses, permissions,
authorizations, consents and permits that it needs to carry out its obligations under this Contract. Customer shall comply
with all export and import laws of all countries involved in any sale of parts under this Agreement. Customer acknowledges
that P2O is not responsible for identifying or remediating any unsafe conditions at Processing Facilities not caused by
defective or faulty Processors.
5.2.
It is the responsibility of Customer to maintain a safe worksite at each Processing Facility. No conditions or circumstances
will be present at a Processing Facility where the onsite Services are performed that are subject to special precautions or
equipment required by any laws or regulations for the performance of the Services. P2O’s technician or other personnel,
in its reasonable determination, may identify and refuse to perform Services under unsafe conditions and, without limiting
any other term of this Agreement, P2O has no liability to Customer relating to the non-completion of the Services as a result
of P2O’s technician or other personnel refusing to perform Services under such unsafe conditions.
5.3.
Customer will provide any and all computer and networking resources at each Processing Facility sufficient to enable
P2O’s monitoring of the Processors, and shall provide P2O with reasonable access to the computer and networking
resources.
| 6. | Further
Covenants, Warranties and Representations. |
6.1.
P2O covenants, represents and warrants to Customer as follows:
6.1.1.
Organization and Good Standing. P2O is a corporation duly organized, validly existing, and in good standing under the laws of
its jurisdiction of incorporation, with full corporate power and authority (i) to conduct its business as it is now being
conducted and (ii) to perform all its obligations under this Agreement. P2O is or will be duly qualified to do business as a
foreign corporation and in good standing under the laws of each state or other jurisdiction in which a Facility where P2O
shall be required to perform its obligations hereunder will be located.
6.1.2.
Authority; No Conflict.
6.1.2.1. This Agreement constitutes the legal, valid and binding obligation of P2O, enforceable against P2O in accordance with its terms. P2O has the absolute and unrestricted right, power, authority and capacity to execute and deliver this Agreement and to perform its obligations under this Agreement.
6.1.2.2. Neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions contemplated by this Agreement will, directly or indirectly (with or without notice or lapse of time):
| (i) | contravene,
conflict with, or result in a violation of any provision of the organizational documents
of P2O or any resolution adopted by the board of directors or stockholders of P2O; |
| | | |
| | (ii) | contravene,
conflict with, or result in a violation of, or give any Governmental Body or other Person
the right to challenge any of the transactions contemplated by this Agreement or to exercise
any remedy or obtain any relief under any Applicable Law or any Order to which P2O may
be subject; |
| | | |
| | (iii) | contravene,
conflict with, or result in a violation of any of the terms or requirements of, or give
any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify,
any Governmental Authorization that is held by P2O and that otherwise relates to P2O’s
Technology Business or the ownership or use of any of the Technology; |
| | | |
| | (iv) | contravene,
conflict with, or result in a violation or breach of any provision of, or give any Person
the right to declare a default or exercise a remedy under, or to accelerate the maturity
or performance of, or to cancel, terminate or modify, any contract under which P2O has
or may acquire any rights, under which P2O has or may become subject to any obligations
or liability, or by which P2O or any of the assets owned or used by it is or may become
bound; or |
| | | |
| | (v) | result in the imposition or creation
of any Encumbrance upon or with respect to any of the Technology. |
6.1.3.
Consents and Notices. P2O is not required to give any notice to or obtain any approval, consent, ratification, waiver or
other authorization of any Person (including Governmental Authorization) in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the transactions contemplated by this Agreement.
6.1.4.
Legal Proceedings. There is no Proceeding that has been commenced against P2O that relates to or may affect P2O’s
performance of its duties and obligations under this Agreement or that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement. To the
Knowledge of P2O, no such Proceeding has been threatened and no event has occurred or circumstance exists that may give rise
to or serve as a basis for the commencement of any such Proceeding.
The
above warranties are in lieu of all other warranties expressed or implied. No representative or other person is authorized or
permitted to make any warranty or assume for P2O any liability not strictly in accordance with the foregoing. Other than the foregoing
warranties, P2O makes no representation or warranty of any kind, expressed or implied, whether as to merchantability, fitness
for a particular purpose or any other matter.
| 6.2. | Customer represents and warrants
to P2O as follows: |
6.2.1.
Customer is a limited liability company duly formed, validly existing, and in good standing under the laws of its
jurisdiction of formation, with full power and authority to conduct the Business and perform the rights, duties and
obligations of this Agreement. Customer shall be duly qualified to do business as a foreign limited liability company and
shall be in good standing under the laws of each state or other jurisdiction where a Facility at which P2O shall be
performing its obligations hereunder shall be located.
6.2.2.
Authority; No Conflict. This Agreement constitutes the legal, valid and binding obligation of Customer, enforceable against
Customer in accordance with its terms. Customer has the absolute and unrestricted right, power, authority and capacity to
execute and deliver this Agreement and to perform its obligations under this Agreement. Neither the execution and delivery of
this Agreement nor the consummation or performance of any of the transactions contemplated by this Agreement will, directly
or indirectly (with or without notice or lapse of time):
| (i) | contravene,
conflict with, or result in a violation of any provision of the organizational documents
of Customer or any resolution adopted by the management committee of Customer; |
| | | |
| (ii) | contravene,
conflict with, or result in a violation of, or give any Governmental Body or other Person
the right to challenge any of the transactions contemplated by this Agreement or to exercise
any remedy or obtain any relief under any Applicable Law or any Order to which Customer
may be subject; |
| | | |
| (iii) | contravene,
conflict with, or result in a violation of any of the terms or requirements of, or give
any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify,
any Governmental Authorization that is held by Customer and that otherwise relates to
the Business; or |
| | | |
| (iv) | contravene,
conflict with, or result in a violation or breach of any provision of, or give any Person
the right to declare a default or exercise a remedy under, or to accelerate the maturity
or performance of, or to cancel, terminate or modify, any contract under which Customer
has or may acquire any rights, under which Customer has or may become subject to any
obligations or liability, or by which Customer or any of the assets owned or used by
it is or may become bound. |
| 7. | Limitations
of Liability. |
7.1.
NO LIABILITY FOR CONSEQUENTIAL OR INDIRECT DAMAGES. EXCEPT FOR OBLIGATIONS TO MAKE PAYMENT UNDER THIS AGREEMENT, LIABILITY
FOR BREACH OF CONFIDENTIALITY, OR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS, IN NO EVENT
SHALL EITHER PARTY OR THEIR REPRESENTATIVES BE LIABLE FOR CONSEQUENTIAL, INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, PUNITIVE OR
ENHANCED DAMAGES, LOST PROFITS OR REVENUES OR DIMINUTION IN VALUE, ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING FOR
ANY SERVICES OR EQUIPMENT PROVIDED HEREUNDER, REGARDLESS OF (A) WHETHER SUCH DAMAGES WERE FORESEEABLE, (B) WHETHER OR NOT THE
OTHER PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND (C) THE LEGAL OR EQUITABLE THEORY (CONTRACT, TORT OR OTHERWISE)
UPON WHICH THE CLAIM IS BASED, AND NOTWITHSTANDING THE FAILURE OF ANY AGREED OR OTHER REMEDY OF ITS ESSENTIAL PURPOSE.
7.2.
MAXIMUM LIABILITY FOR DAMAGES. EXCEPT FOR OBLIGATIONS TO MAKE PAYMENT UNDER THIS AGREEMENT, LIABILITY FOR INDEMNIFICATION,
LIABILITY FOR BREACH OF CONFIDENTIALITY, OR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS, IN
NO EVENT SHALL EACH PARTY’S AGGREGATE LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING FOR ANY SERVICES
OR EQUIPMENT PROVIDED HEREUNDER, WHETHER ARISING OUT OF OR RELATED TO BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE,
EXCEED THE TOTAL OF (i) THE AMOUNTS PAID OR TO BE PAID FOR PROCESSING EQUIPMENT FOR WHICH A PURCHASE ORDER HAS BEEN DELIVERED
AND ACCEPTED BUT NOT YET FILLED PLUS (ii) AN AMOUNT EQUAL TO ONE-HALF (1/2) THE AMOUNT DETERMINED PURSUANT TO PRECEDING CLAUSE
(i).
7.3.
ASSUMPTION OF RISK. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, CUSTOMER ASSUMES ALL RISK AND LIABILITY FOR THE RESULTS
OBTAINED BY THE USE OF ANY GOODS IN THE PRACTICE OF ANY PROCESS, WHETHER IN TERMS OF OPERATING COSTS, GENERAL EFFECTIVENESS, SUCCESS
OR FAILURE, AND REGARDLESS OF ANY ORAL OR WRITTEN STATEMENTS MADE BY P2O, BY WAY OF TECHNICAL ADVICE OR OTHERWISE, RELATED TO
THE USE OF THE GOODS.
| 8. | Indemnification;
Insurance. |
8.1.
P2O Indemnification. P2O shall indemnify and hold Customer harmless for all loss, harm or injury suffered by Customer as a
result of the gross negligence or intentional misconduct or illegal acts of an individual engaged in the performance of any
of P2O’s obligations under this Agreement.
8.2.
P2O shall maintain in place contractual and general liability insurance covering its obligations hereunder in amounts of at
least $1,000,000 per single occurrence and in the aggregate, with one or more insurance companies acceptable to Customer in
Customer’s reasonable discretion. P2O shall furnish to Customer certificates evidencing the existence of the insurance
required by this Section 8.2. Unless Customer shall provide such certificate(s) within 30 days from the Effective Date,
Customer may, but shall not be obligated to, place said insurance and charge the cost thereof to the account of P2O,
deducting, and/or upon notice to P2O, offsetting such amounts against the License Fee to be paid pursuant to the Technology
License Agreement. All such insurance policies shall provide that Customer shall receive 30 days’ written notice prior
to cancellation of the policy.
8.3.
Customer Indemnification. Customer will indemnify and hold P2O harmless from and against any and all claims and costs of
whatever nature, including but not limited to, attorneys’ fees, damages for bodily injury and property damage, fines,
penalties, cleanup costs, and costs associated with delay or work stoppage, that in any way results from or arises under the
breach of its obligations, gross negligence, or willful misconduct.
8.4.
Customer is responsible for maintaining its own liability and property insurance (for each Processing Facility) at
commercially reasonable levels.
9.1.
Customer shall have the right to assign all its right, title and interest in this Agreement to a third party in which
Customer has a direct or indirect economic interest (a “Permitted Assignee”) provided Customer is not in
material default hereunder or a cure or grace period applicable to an event of default shall not have expired and the
Permitted Assignee executes an instrument expressly assuming all such right, title interest and the obligations to be
performed in connection with this Agreement.
9.2.
Upon or in connection with any assignment permitted under this Section 9, upon Customer’s request, P2O agrees to
execute an estoppel certificate regarding the status of this Agreement and to immediately deliver the same to
Customer.
9.3.
Each Permitted Assignee shall agree to be bound by all of the obligations, terms and conditions that obligate, bind or affect
Customer under this Catalyst Agreement. Notwithstanding anything to the contrary in this Agreement, no assignment shall
relieve the Customer of any of its obligations and liabilities for any breach of confidentiality herein or for any
infringement or misappropriation of intellectual property rights herein; and Customer shall be and remain responsible for the
performance by a Permitted Assignee of all of such Permitted Assignee’s obligations with respect to confidentiality
provided herein.
10.1.
Scope of Confidential Information. From time to time during the Term, either party (as the “Disclosing
Party”) may disclose or make available to the other Party (as the “Receiving Party”) information
about its business affairs, goods and services, confidential information and materials comprising or relating to intellectual
property rights, including without limitation, trade secrets, third-party confidential information, the Licensed Technology,
and other sensitive or proprietary information, as well as the terms of this Agreement, whether orally or in written,
electronic or other form or media, and whether or not marked, designated or otherwise identified as
“confidential” (collectively, “Confidential Information”). Confidential Information does not
include information that, at the time of disclosure and as established by documentary evidence:
| (i) | is
or becomes generally available to and known by the public other than as a result of,
directly or indirectly, any breach of this Section 10 by the Receiving Party or any of
its Representatives; |
| | | |
| (ii) | is
or becomes available to the Receiving Party on a non-confidential basis from a third-party
source, provided that such third party is not and was not prohibited from disclosing
such Confidential Information; |
| | | |
| (iii) | was
known by or in the possession of the Receiving Party or its Representatives prior to
being disclosed by or on behalf of the Disclosing Party; |
| | | |
| (iv) | was
or is independently developed by the Receiving Party without reference to or use of,
in whole or in part, any of the Disclosing Party’s Confidential Information; or |
| | | |
| (v) | is
required to be disclosed pursuant to Applicable Law. |
10.2.
Protection of Confidential Information. The Receiving Party shall, for during the Term and extending five years from any
expiration or termination of the Agreement:
| (i) | protect
and safeguard the confidentiality of the Disclosing Party’s Confidential Information
with at least the same degree of care as the Receiving Party would protect its own Confidential
Information, but in no event with less than a commercially reasonable degree of care; |
| | | |
| (ii) | not
use the Disclosing Party’s Confidential Information, or permit it to be accessed
or used, for any purpose other than to exercise its rights or perform its obligations
under this Agreement; and |
| (iii) | not
disclose any such Confidential Information to any Person, except to the Receiving Party’s
Representatives who need to know the Confidential Information to assist the Receiving
Party, or act on its behalf, to exercise its rights or perform its obligations under
this Agreement. |
Notwithstanding
the foregoing, any Confidential Information that constitutes a trade secret shall not be subject to such five (5) year term, but
shall continue to be subject to the obligations of confidentiality and non-use set forth in this Agreement for as long as such
Confidential Information remains a trade secret under New York law (including New York’s version of the Uniform Trade Secrets
Act if and when adopted).
10.3.
The Receiving Party shall be responsible for any breach of this Section 10 caused by any of its Representatives. On the
expiration or earlier termination of this Agreement, the Receiving Party and its Representatives shall, pursuant to Section
12.3, promptly return all Confidential Information and copies thereof, or destroy and certify such destruction of all
Confidential Information and copies thereof, that it has received under this Agreement.
11.1.
All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be
deemed to have been given in accordance with this Section:
| P2O’s
Address: |
|
Plastic2Oil,
Inc. |
| |
|
20
Iroquois Street |
| |
|
Niagara
Falls, NY 14303 |
| |
|
Attn.:
Richard W. Heddle, President & CEO |
| |
|
|
| With
a copy sent to: |
|
Hodgson
Russ LLP |
| |
|
The
Guaranty Building |
| |
|
140
Pearl Street, Suite 100 |
| |
|
Buffalo,
NY 14202 |
| |
|
Attn.:
Alfonzo I. Cutaia, Esq. |
| |
|
|
| Customer’s
Address: |
|
EcoNavigation,
LLC |
| |
|
1600
Moseley Road, Suite 200 |
| |
|
Victor,
NY 14564 |
| |
|
Attn.:
Mark D. Ragus, President |
| |
|
|
| With
a copy sent to: |
|
Lane
Law PLLC |
| |
|
1400
Crossroads Building |
| |
|
2
State Street |
| |
|
Rochester,
NY 14614 |
| |
|
Attn.:
Gregory W. Lane, Esq. |
Notices
sent in accordance with this Section 11.1 shall be deemed effectively given: (a) when received, if delivered by hand (with written
confirmation of receipt); (b) when received, if sent by a nationally recognized overnight courier (receipt requested); (c) on
the date sent by facsimile (with confirmation of transmission), if sent during normal business hours of the recipient, and on
the next business day if sent after normal business hours of the recipient; or (d) on the fifth day after the date mailed, by
certified or registered mail, return receipt requested, postage prepaid.
11.2.
Notice will be given to such other representatives or at such other addresses as a party may furnish to the other party
entitled to notice pursuant to the foregoing. If notice is given pursuant to Section 22 of a permitted successor or assign of
a party, then notice will thereafter be given as set forth above also to such successor or assign of such party.
12.1.
P2O’s Right to Terminate. P2O may terminate this Agreement upon written notice to Customer:
12.1.1.
If Customer fails to pay any amount due under this Agreement on the due date for payment and remains in default not less than
five (5) calendar days after Licensor’s written notice to make such payment, including the payment of interest in
accordance with Section 4.3;
12.1.2.
if Customer materially breaches any material provision of this Agreement (other than through a failure to pay any amounts due
under this Agreement), and either the breach cannot be cured or, if the breach can be cured, it is not cured by Customer
within thirty (30) calendar days after Customer’s receipt of written notice of such breach;
12.1.3.
if Customer (i) files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes
subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, (ii)
makes or seeks to make a general assignment for the benefit of its creditors, or (iii) applies for or has appointed a
receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or
sell any material portion of its property or business;
12.1.4.
if P2O terminates any other agreement between P2O and Customer, due to Customer’s breach or non-performance thereof
pursuant to and in accordance with the terms thereof; or
12.1.5.
as provided in Section 14.3 hereof.
12.2.
Customer’s Right to Terminate. Customer may terminate this Agreement upon written notice to P2O:
12.2.1.
if P2O materially breaches any material provision of this Agreement and either the breach cannot be cured or, if the breach
can be cured, it is not cured by P2O within thirty (30) calendar days after P2O’s receipt of written notice of such
breach;
12.2.2.
if P2O (i) files or has filed against it, a petition for voluntary or involuntary bankruptcy or otherwise becomes subject,
voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency Law, (ii) makes or
seeks to make a general assignment for the benefit of its creditors, or (iii) applies for or has appointed a receiver,
trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any
material portion of its property or business;
12.2.3.
if Customer terminates any other agreement between P2O and Customer, due to P2O’s breach or non-performance thereof
pursuant to and in accordance with the terms thereof; or
12.2.4.
as provided in Section 14.3 hereof.
12.3.
Effect of Termination.
12.3.1.
Upon the expiration or earlier termination of this Agreement, all indebtedness of Customer to P2O under this Agreement of any
kind, shall become immediately due and payable to P2O, without further notice to Customer.
12.3.2.
[Intentionally Omitted]
12.3.3.
Upon the expiration or earlier termination of this Agreement, Customer shall promptly:
| |
(i) |
remove
all references to P2O in Customer’s letterheads, advertising literature and places of business, and shall not thereafter
use any similar or deceptive name or trademark intending to give the impression that there is any relationship between Customer
and P2O; |
| |
|
|
| |
(ii) |
immediately
cease using any and all Licensed Technology, trademarks, logos and copyrighted materials related to the Licensed Technology; |
| |
|
|
| |
(iii) |
return
to P2O or destroy all documents and tangible materials (and any copies) containing, reflecting, incorporating or based on
P2O’s Confidential Information; |
| |
|
|
| |
(iv) |
permanently
erase all of P2O’s Confidential Information from its computer systems; and |
| |
|
|
| |
(v) |
certify
in writing to P2O that it has complied with the requirements of this clause. |
12.4.
Survival. The rights and obligations of the parties set forth in Section 1 (Definitions), Section 6 (Warranties), Section 7
(Limitations of Liability), Section 8 (Indemnification), Section 10 (Confidentiality), Section 12.3 (Effect of Termination),
and Section 11 (Notices), and any right, obligation or required performance of the parties in this Agreement which, by its
express terms or nature and context is intended to survive termination or expiration of this Agreement, shall survive any
such termination or expiration.
| 13. | Miscellaneous
Provisions. |
13.1.
Further Assurances. The parties hereto shall (i) furnish upon request to each other further information, (ii) execute and
deliver to each other documents, and (iii) do other acts and things, all as the other party may reasonably request for the
purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.
13.2.
Jurisdiction; Service of Process. All actions or proceedings relating to this Agreement (whether to enforce a right or
obligation or obtain a remedy or otherwise) will be brought solely in the state or federal courts located in or for Monroe
County, New York. Each party hereby unconditionally and irrevocably consents to the jurisdiction of those courts and waives
its rights to bring any action or Proceeding against the other party except in those courts. Process in any action or
Proceeding referred to in the preceding sentence may be served on any party anywhere in the world. Each party irrevocably
waives any right to a jury trial with respect to any matter arising out of or in connection with this Agreement. If any party
seeks to enforce its rights under this Agreement, the parties will request the court to try the claims between the parties
hereto without submitting the matter to the jury.
13.3.
Waiver. Neither the failure nor any delay by any party hereto in exercising any right, power or privilege under this
Agreement or the documents referred to in this Agreement will operate as a waiver of the right, power or privilege, and no
single or partial exercise of any right, power or privilege will preclude any other or further exercise of the right, power
or privilege or the exercise of any other right, power or privilege. To the extent permitted by Applicable Law: (i) no claim
or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in
whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (ii) no
waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (iii) no
notice to or demand on one party will be deemed to be a waiver of any obligation of that party or of the right of the party
giving the notice or demand to take further action without notice or demand as provided in this Agreement or the documents
referred to in this Agreement.
13.4.
Force Majeure. If performance of this Agreement or any obligation under this Agreement is prevented, restricted or interfered
with by causes beyond either party’s reasonable control (“Force Majeure”), and if the party unable
to carry out its obligations gives the other party prompt written notice of such event, then the obligations of the party
invoking this provision shall be suspended to the extent necessary by such event. The term Force Majeure shall include,
without limitation, acts of God, fire, explosion, vandalism, storm or other similar occurrence, orders or acts of military or
civil authority, or by national emergencies, insurrections, riots or wars. The excused party shall use reasonable efforts
under the circumstances to avoid or remove such causes of non-performance and shall proceed to perform with reasonable
dispatch whenever such causes are removed or ceased. An act or omission shall be deemed within the reasonable control of a
party if committed, omitted or caused by such party or its employees, officers, agents or affiliates.
13.5.
Entire Agreement and Modification. This Agreement (i) supersedes all prior agreements between the parties with respect to
their subject matter and (ii) constitutes a complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the
parties hereto.
13.6.
Assignments and Successors. Except as expressly provided in this Agreement, neither party may assign any of its rights under
this Agreement without the prior consent of the other party. Subject to the preceding sentence, this Agreement will apply to,
be binding in all respects upon and inure to the benefit of the successors and permitted assigns of the parties.
13.7.
No Third Party Rights. Nothing expressed or referred to in this Agreement will be construed to give any person or entity
other than the parties hereto any legal or equitable right, remedy or claim under or with respect to this Agreement or any
provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit
of the parties hereto and their successors and assigns.
13.8.
Severability. If any provision of this Agreement not essential to accomplishing its purposes is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
13.9.
Time is of the Essence; Computation of Time. Time is of the essence of each and every provision of this Agreement. If the
last day for the exercise of any privilege or the discharge of any duty under this Agreement falls on a day that is not a
Business Day, then the party having such privilege or duty will have until 5:00 p.m. (its local time) on the next succeeding
Business Day to exercise its privilege or to discharge its duty.
13.10.
Expenses. The parties hereto will bear their own expenses incurred in connection with the negotiation, drafting,
implementation and performance of this Agreement.
13.11.
Governing Law. This Agreement, including all exhibits, schedules, attachments and appendices attached hereto and thereto are
governed by, and construed in accordance with, the Laws of the State of New York, United States of America, without regard to
the conflict of laws provisions thereof.
13.12.
Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy
of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.
13.13.
Contingencies.
13.13.1
Pilot Program Contingency. Customer’s obligations under this Agreement shall be and hereby are contingent upon the
institution, completion by that date which is one hundred twenty (120) days after the Effective Date (which date may be extended
for an additional thirty (30) days at Customer’s option upon prior written notice to P2O), and Customer’s acceptance,
in its sole discretion, of the results of, of a pilot test program (the “Pilot Program”), whereby Customer
shall utilize, on terms mutually agreeable to P2O and Customer, P2O’s facility (the “Test Facility”)
at 20 Iroquois Street, Niagara Falls, New York (the “Pilot Program Contingency”) to ascertain Customer’s
willingness to go forward with the transactions contemplated herein, and, if so ascertained, to establish Minimum Performance
Levels for the Initial Order and using the relevant feedstock. Immediately upon the execution and delivery of this Agreement by
the parties hereto, the parties shall in good faith diligently negotiate the terms of an agreement for use of the Test Facility
for the Pilot Program.
13.13.2 Financing
Contingency. Customer’s obligations under this Agreement shall be and hereby are contingent upon Customer
obtaining funding for (i) the Pilot Program on terms acceptable to Customer in its sole discretion, on or before that date
which is thirty (30) calendar days after the Effective Date, and (ii) the Initial Order and working capital in amounts and
upon terms acceptable to Customer in Customer’s sole discretion, on or before that date which is sixty (60) days after
Customer’s written notice of removal or satisfaction of the Pilot Program Contingency.
13.13.3 Right
to Terminate. In the event any of the Contingencies hereunder shall not be satisfied or waived in writing on or before
the date specified herein for the satisfaction of the same, either party hereto may terminate this Agreement upon five (5)
calendar days’ notice to the other; provided, however, that any such termination notice delivered by P2O shall be null
and void if Customer, upon receipt of P2O’s termination notice, delivers written notice to P2O prior to the expiration
of the five-day period of P2O’s notice removing the Contingency or Contingencies upon which P2O’s notice of
termination was based.
[SIGNATURE
BLOCK ON NEXT PAGE]
[Signature
Page to Monitoring, Maintenance, Repair and Upgrade Agreement]
IN
WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the Effective Date.
| PLASTIC2OIL, INC., a Nevada corporation |
|
| |
|
|
| By: |
/s/
Richard W. Heddle |
|
| |
Richard
W. Heddle |
|
| |
President
& CEO |
|
| |
|
|
| ECONAVIGATION, LLC, a New York limited liability company |
|
| |
|
|
| By: |
/s/
Mark D. Ragus |
|
| |
Mark
D. Ragus |
|
| |
President |
|
SCHEDULE
A
Price
List for Parts and Equipment
| PRODUCT
NUMBER | |
DESCRIPTION | |
RETAIL
PRICE/UNIT | |
| INF1002 | |
Infeed Slide Gate | |
$ | 24,000.00 | |
| INF1003 | |
Infeed Slide Gate Packing | |
$ | 11,250.00 | |
| INF1004 | |
Infeed Hydraulic Pack | |
$ | 18,000.00 | |
| INF1005 | |
Infeed Hydraulic Cylinder | |
$ | 6,750.00 | |
| INF1006 | |
Infeed Screw | |
$ | 3,000.00 | |
| INF1007 | |
Infeed Screw Drive ( motor & gear reduction) | |
$ | 7,500.00 | |
| | |
| |
| | |
| PRE1508 | |
Premelt-Thermocouple Furnace | |
$ | 2,100.00 | |
| PRE1509 | |
Premelt-Thermocouple Kiln | |
$ | 375.00 | |
| PRE1510 | |
Premelt-Kiln Drum | |
$ | 90,000.00 | |
| PRE1511 | |
Premelt-Kiln Drive | |
$ | 4,875.00 | |
| | |
| |
| | |
| REA2008 | |
Reactor Thermocouple Furnace | |
$ | 2,100.00 | |
| REA2009 | |
Reactor Thermocouple Kiln | |
$ | 375.00 | |
| REA2010 | |
Reactor Kiln Drum | |
$ | 90,000.00 | |
| REA2011 | |
Reactor Kiln Drive | |
$ | 4,875.00 | |
| | |
| |
| | |
| RES 2508 | |
Residue Thermocouple Furnace | |
$ | 2,100.00 | |
| RES 2509 | |
Residue Thermocouple Kiln | |
$ | 375.00 | |
| RES 2510 | |
Residue Kiln Drum | |
$ | 90,000.00 | |
| RES 2511 | |
Residue Kiln Drive | |
$ | 4,875.00 | |
| RES 2506 | |
Residue Screw | |
$ | 3,000.00 | |
| RES 2507 | |
Residue Screw Drive | |
$ | 7,500.00 | |
| | |
| |
| | |
| TOW 3115 | |
Tower 1 Pump | |
$ | 27,000.00 | |
| TOW 3116 | |
Tower 1 Autovalves | |
$ | 1,950.00 | |
| TOW 3117 | |
Tower 1 Basket Strainer | |
$ | 3,300.00 | |
| TOW 3118 | |
Tower 1 Nozzle Assembly | |
$ | 2,700.00 | |
| TOW 3119 | |
Tower 1 Level Sensor | |
$ | 2,250.00 | |
| | |
| |
| | |
| TOW 3215 | |
Tower 2 Pump | |
$ | 24,000.00 | |
| TOW 3216 | |
Tower 2 Autovalves | |
$ | 1,950.00 | |
| TOW 3217 | |
Tower 2 Basket Strainer | |
$ | 3,300.00 | |
| TOW 3218 | |
Tower 2 Nozzle Assembly | |
$ | 2,700.00 | |
| TOW 3219 | |
Tower 2 Level Sensor | |
$ | 2,250.00 | |
| | |
| |
| | |
| TOW 3315 | |
Tower 3 Pump | |
$ | 24,000.00 | |
| TOW 3316 | |
Tower 3 Autovalves | |
$ | 1,950.00 | |
| TOW 3317 | |
Tower 3 Basket Strainer | |
$ | 3,300.00 | |
| TOW 3318 | |
Tower 3 Nozzle Assembly | |
$ | 2,700.00 | |
| TOW 3319 | |
Tower 3 Level Sensor | |
$ | 2,250.00 | |
| | |
| |
| | |
| TOW 3415 | |
Tower 4 Pump | |
$ | 24,000.00 | |
| TOW 3416 | |
Tower 4 Autovalves | |
$ | 1,950.00 | |
| TOW 3417 | |
Tower 4 Basket Strainer | |
$ | 3,300.00 | |
| TOW 3418 | |
Tower 4 Nozzle Assembly | |
$ | 2,700.00 | |
| TOW 3419 | |
Tower 4 Level Sensor | |
$ | 2,250.00 | |
| | |
| |
| | |
| TOW 3515 | |
Tower 5 Pump | |
$ | 24,000.00 | |
| TOW 3516 | |
Tower 5 Autovalves | |
$ | 1,950.00 | |
| TOW 3517 | |
Tower 5 Basket Strainer | |
$ | 3,300.00 | |
| TOW 3518 | |
Tower 5 Nozzle Assembly | |
$ | 2,700.00 | |
| TOW 3519 | |
Tower 5 Level Sensor | |
$ | 2,250.00 | |
| | |
| |
| | |
| | |
| |
| | |
| COM4025 | |
Gas Compressor | |
$ | 28,500.00 | |
| | |
| |
| | |
| CON5035 | |
Controls Honeywell HC900 (full configuration) | |
$ | 6,000.00 | |
| CON5036 | |
Controls Pressure Sensor | |
$ | 3,300.00 | |
| CON5037 | |
Controls Thermocouple | |
$ | 450.00 | |
| | |
| |
| | |
| SAF 5545 | |
Safety Burst Disc | |
$ | 6,000.00 | |
| SAF 5546 | |
Safety Burst Disc Sensor | |
$ | 1,800.00 | |
| | |
| |
| | |
| SEA6065 | |
Seal (1) | |
$ | 22,500.00 | |
| SEA6066 | |
Seal (Packingset) | |
$ | 3,000.00 | |
| | |
| |
| | |
| STA6571 | |
Stack Blower | |
$ | 12,000.00 | |
SCHEDULE
B
Labor
Rates
| Performed by | |
Working/Travel
Regular | | |
Working/Travel
Overtime (A) | | |
Working/Travel
Overtime (B) | |
| Specialized Welder | |
$ | 110.00 | | |
$ | 165.00 | | |
$ | 220.00 | |
| Specialized Mechanic | |
$ | 110.00 | | |
$ | 165.00 | | |
$ | 220.00 | |
| Specialized Pipe Fitter | |
$ | 110.00 | | |
$ | 165.00 | | |
$ | 220.00 | |
| Chemist | |
$ | 175.00 | | |
$ | 262.50 | | |
$ | 350.00 | |
| Engineer | |
$ | 225.00 | | |
$ | 337.50 | | |
$ | 500.00 | |
| R&D/Technology | |
$ | 275.00 | | |
$ | 412.50 | | |
$ | 550.00 | |
DAILY
CHARGES
| |
● |
Service
work reporting time will be invoiced as per position and identified rates in above table, 2 hours for jobs three (3) days
or less, 4 hours for seven (7) days or less, and 8 hours for all jobs above seven (7) days. |
| |
|
|
| |
● |
The
above rates apply for an 8 hour working day on weekdays (Monday-Friday). After 8 hour regular working time Overtime “A”
will be charged for the next four (4) consecutive working hours, any additional hours worked after twelve (12) consecutive
will be at Overtime “B” rate for weekdays (Monday-Friday). |
| |
|
|
| |
● |
Overtime
“A” will be charged for the first eight (8) consecutive working hours on Saturday, after eight (8) consecutive
hours Overtime “B” will be charged for all additional working hours for Saturday. |
| |
|
|
| |
● |
Overtime
“B” will be charged for all hours worked on Sunday. |
| |
|
|
| |
● |
Overtime
“A” will be charged for the first eight (8) consecutive working hours for public holidays, Overtime “B”
will be charged for all hours worked after the first eight (8) consecutive working hours on public holidays. |
| |
|
|
| |
● |
All
travel time hours will be at applicable rates involved. Overtime rates will apply where applicable. |
| |
|
|
| |
● |
An
8 hour per day charge at Normal Working Time rates will be charged for stand-by time Monday thru Friday. |
| |
|
|
| |
● |
A
10 hour charge at Normal Working Time rates will be charged for stand-by time for Saturday and Sunday. |
| |
|
|
| |
● |
Factory
service personnel are subject to country of origin service rates. |
OTHER
CHARGES
| |
● |
Mileage
$0.56/mile |
| |
|
|
| |
● |
Daily
allowance $100.00/day |
| |
|
|
| |
● |
Daily
allowance for isolated areas $110.00/day |
| |
|
|
| |
● |
Expenses
Cost plus 10% |
| |
|
|
| |
● |
Subcontractors
Cost plus 15% |
| |
|
|
| |
● |
All
special tools will be charged at applicable charge out rates, quotes will be provided per occurrence or upon request |
| |
|
|
| |
● |
All
rates are in US dollars. |
| |
|
|
| |
● |
Factory
service personnel are subject to country of origin for expenses and daily allowances. |
| |
|
|
| |
● |
Environmental
Fees and workshop consumables will be charged at 1.5%. The maximum value of invoice will reflect the percentage charged. |
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
hereby consent to the incorporation by reference in this Annual Report on Form 10-K of Plastic2Oil, Inc. (formerly JBI, Inc.)
for the year ended December 31, 2014 of our report dated June 3, 2014, relating to the consolidated financial statements and consolidated
financial statement schedules for the year ended December 31, 2013 listed in the accompanying index.
| Signed: |
|
| |
|
| /S/ “MNP
LLP” |
|
| |
|
| Mississauga,
Ontario |
|
| |
|
| March
31, 2015 |
|
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in Registration Statement No. 333-184458 on Form S-8 of our report dated March 31, 2015,
relating to the consolidated financial statements of Plastic2Oil, Inc. and its subsidiaries (the “Company”), and the
effectiveness of the Company’s internal control over financial reporting, appearing in the Annual Report on Form 10-K of
the Company and its subsidiaries as at December 31, 2014.
| /s/
D. Brooks |
|
| D. Brooks and
Associates CPAs, P.A. |
|
| 8918 Marlamoor
Lane |
|
| West Palm Beach,
FL 33412 |
|
| March 31, 2015 |
|
Exhibit
31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 302 OF
THE
SARBANES-OXLEY ACT OF 2002
I,
Richard Heddle, certify that:
| 1. |
I
have reviewed this Annual Report on Form 10-K of Plastic2Oil, Inc.: |
| |
|
| 2. |
Based
on my knowledge, this 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 report; |
| |
|
| 3. |
Based
on my knowledge, the financial statements, and other financial information included in this 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
present in this Annual Report; |
| |
|
| 4. |
The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-a-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 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 Annual Report
based on such evaluation; and |
| |
|
|
| |
d) |
Disclosed
in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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 the 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 involved management or other employees who have a significant role in the
registrant’s internal control over financial reporting. |
| Date:
March 31, 2015 |
By: |
/s/
Richard Heddle |
| |
|
Richard
Heddle |
| |
|
President and Chief
Executive Officer |
Exhibit
31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 302 OF
THE
SARBANES-OXLEY ACT OF 2002
I, Rahoul
S. Banerjea, certify that:
| 1. |
I
have reviewed this Annual Report on Form 10-K of Plastic2Oil, Inc.: |
| |
|
| 2. |
Based
on my knowledge, this 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 report; |
| |
|
| 3. |
Based
on my knowledge, the financial statements, and other financial information included in this 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
present in this Annual Report; |
| |
|
| 4. |
The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13-a-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 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 Annual Report
based on such evaluation; and |
| |
|
|
| |
d) |
Disclosed
in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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 the 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 involved management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
| Date:
March 31, 2015 |
By: |
/s/
Rahoul S. Banerjea |
| |
|
Rahoul
S. Banerjea |
| |
|
Chief
Financial Officer |
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the accompanying Annual Report on Form 10-K of Plastic2Oil Inc. for the year ended December 31, 2014, I, Richard
Heddle, Chief Executive Officer of Plastic2Oil, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
| 1. |
Such
Annual Report on Form 10-K for the year ended December 31, 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 Annual Report on Form 10-K for the year ended December 31, 2014, fairly presents, in all
material respects, the financial condition and results of operations of Plastic2Oil, Inc. |
| Date:
March 31, 2015 |
By: |
/s/
Rick Heddle |
| |
|
Rick
Heddle |
| |
|
President
and Chief Executive Officer |
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the accompanying Annual Report on Form 10-K of Plastic2Oil, Inc. for the year ended December 31, 2014, I, Rahoul
S. Banerjea, Chief Financial Officer of Plastic2Oil Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
| 1. |
Such
Annual Report on Form 10-K for the year ended December 31, 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 Annual Report on Form 10-K for the year ended December 31, 2014, fairly presents, in all
material respects, the financial condition and results of operations of Plastic2Oil, Inc. |
| Date:
March 31, 2015 |
By: |
/s/
Rahoul S. Banerjea |
| |
|
Rahoul
S. Banerjea |
| |
|
Chief
Financial Officer |
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