NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 During 2014, the Company changed its
name to Plastic2Oil, Inc. (“P2O”). 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 are secondarily from the
sale of fuel products.
We
do not have sufficient cash to operate our business which has forced us to suspend our operations until such time as we receive
a capital infusion or cash advances on the sale of our processors.
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 16).
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 17).
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 $ 4,523,762, and $6,792,799,
for the years ended December 31, 2015, and 2014, respectively, and has a working capital deficit of $383,292 and an accumulated
deficit of $72,244,097, at December 31, 2015. 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., Plastic2Oil 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 16).
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, accounts receivable exposures and valuation of options and warrants.
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, 2015 and 2014, the Company had $100,322 and $100,222, 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 as
of December 31, 2015 and 2014 was $22,994 and $23,182, 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
-30 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 16).
During
the year ended December 31, 2015 and 2014, the Company recorded impairment losses on property, plant and equipment of $593,060
and $927,163, 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. As of the date of the creation of the asset retirement obligation in the amount
of $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 in the consolidated statements of operations. Increases
in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligations
in the consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation. As
of December 31, 2015 and December 31, 2014, the carrying value of the asset retirement obligations were $41,000 and $31,215, respectively.
These costs include disposal of plastic and other non-hazardous waste, site closing labor and testing and sampling of the site
upon closure.
Environmental
Contingencies
The
Company records environmental liabilities at their undiscounted amounts on 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 utility services deposit and 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 $1,484,438
and $1,483,987 as of December 31, 2015 and 2014, respectively.
Leases
The
Company has entered into various leases for buildings and equipment. At the inception of a lease, the Company evaluates whether
it is operating or capital in nature. Operating leases are recorded as expense in the appropriate periods of the lease. Capital
leases are classified as property, plant and equipment and the related depreciation is recorded on the assets. Also, the debt
related to the capital lease is included in the Company’s short- and long-term debt obligations, in accordance with the
lease agreement (Note 7).
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 $147 and $18,639 for the years ended December 31, 2015 and 2014, 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 $1,868 and $2,245 for the years ended December 31, 2015
and 2014, respectively. These expenses are included in selling, general and administrative expenses – other, 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, 2015 and 2014, the Company expensed $1,653 and $20,999, 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 immaterial to the financial statements as a whole. Foreign exchange gain of $7,320 and losses
of $2,330 are included as general and administrative expenses in the consolidated statements of operations for the years ended
December 31, 2015 and 2014, 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, 2015 and
2014. 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, 2015 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, 2015, potential dilutive common stock equivalents consisted 14,350,000 shares underlying
common stock warrants and 1,628,000 shares underlying stock options, which were not included in the calculation of the diluted
loss per share. For the year ended December 31, 2014, potential dilutive common stock equivalents 14,100,000 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.
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.
During
the years ended December 31, 2015 and 2014, 100.0%, and 89% of total net revenues were generated from a single, and two customers
respectively. As of December 31, 2015 and 2014, one and two customers, respectively, accounted for 100.0% of accounts receivable.
Fair
Value of Financial Instruments
The
carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, leases, promissory notes,
long-term debt and mortgage payable approximate fair value because of the short-term nature of these items
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 was not significant.
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.
In
November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. This update requires an entity to
classify deferred tax liabilities and assets as noncurrent within a classified statement of financial position. ASU 2015-17 is
effective for annual and interim reporting periods beginning after December 15, 2016. This update may be applied either prospectively
to all deferred tax liabilities and assets or retrospectively to all periods presented. Early application is permitted as of the
beginning of the interim or annual reporting period. The impact on our Financial Statements of adopting ASU 2014-09 is being assessed
by management.
In
April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), as part
of the initiative to reduce complexity in accounting standards. The update requires that debt issuance costs related to a recognized
debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent
with debt discounts. ASU 2015-03 is effective for annual periods beginning after December 15, 2015 and for interim periods within
those fiscal years. The impact on our Financial Statements of adopting ASU 2014-09 is being assessed by management.
In
July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires
that an entity measure inventory at the lower of cost and net realizable value. This ASU does not apply to inventory measured
using last-in, first-out. ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016, including interim
periods within that reporting period. The Company does not expect the new standard to have a significant impact on its consolidated
financial position, results of operations or cash flows.
In
August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which
defers the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual
reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. 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
3 - INVENTORIES
Inventories
consist of the following at December 31,:
|
|
December 31, 2015
|
|
|
December 31,2014
|
|
Raw materials
|
|
$
|
410,089
|
|
|
$
|
410,540
|
|
Finished goods
|
|
|
2,039
|
|
|
|
2,039
|
|
Obsolescence reserve
|
|
|
(412,128
|
)
|
|
|
(326,526
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
-
|
|
|
$
|
86,053
|
|
NOTE
4 - PROPERTY, PLANT AND EQUIPMENT
Property,
Plant and Equipment consist of the following at December 31,:
December 31, 2015
|
|
Cost
|
|
|
Accumulated Depreciation
|
|
|
Net Book Value
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
216,854
|
|
|
$
|
(23,096
|
)
|
|
$
|
193,757
|
|
Machinery and office equipment
|
|
|
4,190,838
|
|
|
|
(2,463,172
|
)
|
|
|
1,727,666
|
|
Furniture and fixtures
|
|
|
16,368
|
|
|
|
(16,068
|
)
|
|
|
300
|
|
Land
|
|
|
273,118
|
|
|
|
-
|
|
|
|
273,118
|
|
Asset retirement obligation
|
|
|
36,594
|
|
|
|
(5,549
|
)
|
|
|
31,045
|
|
Office and industrial buildings
|
|
|
1,433,523
|
|
|
|
(249,001
|
)
|
|
|
1,184,522
|
|
Equipment under capital lease
|
|
|
73,757
|
|
|
|
(45,412
|
)
|
|
|
28,344
|
|
Construction in process
|
|
|
197,322
|
|
|
|
-
|
|
|
|
197,322
|
|
Spares
|
|
|
174,316
|
|
|
|
(34,863
|
)
|
|
|
139,453
|
|
Total
|
|
$
|
6,612,688
|
|
|
$
|
(2,837,162
|
)
|
|
$
|
3,775,527
|
|
December
31, 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
|
|
At
December 31, 2015 and 2014, machinery and equipment with a cost of $73,757 and $108,317, and accumulated amortization of $45,412
and $48,041, respectively, were under capital lease. During the years ended December 31, 2015 and 2014, the Company recognized
$10,636, and $15,447, respectively, of depreciation expense related to these assets under capital lease.
As
of December 31, 2015 and 2014, the Company recorded impairment losses on property, plant and equipment of $593,060 and $927,163
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 charge in 2015 relates specifically to construction in process
parts and spare parts used in Processor #3 and #2 respectively. 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.
NOTE
5 - INCOME TAXES
The
following table summarizes the activities for the year ended December 31,:
|
|
2015
|
|
|
2014
|
|
Statutory tax rate:
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
34
|
%
|
|
|
34
|
%
|
Foreign
|
|
|
26.5
|
%
|
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
Loss from operations before recovery of income taxes:
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
(4,312,121
|
)
|
|
$
|
(6,327,215
|
)
|
Foreign
|
|
|
(12,189
|
)
|
|
|
(474,304
|
)
|
|
|
|
(4,324,310
|
)
|
|
$
|
(6,801,519
|
)
|
|
|
|
|
|
|
|
|
|
Expected income tax recovery
|
|
|
(1,449,550
|
)
|
|
$
|
(2,385,209
|
)
|
|
|
|
|
|
|
|
|
|
Permanent differences
|
|
|
10,557
|
|
|
|
8,417
|
|
Tax rate changes and other adjustments
|
|
|
(345,834
|
)
|
|
|
(363,546
|
)
|
Increase in valuation allowance
|
|
|
1,784,827
|
|
|
|
2,740,338
|
|
|
|
|
|
|
|
|
|
|
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, 2015 and 2014 are as follows:
|
|
2015
|
|
|
2014
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
Non-capital losses
|
|
$
|
17,908,732
|
|
|
$
|
16,315,501
|
|
Reserve – Contingency
|
|
|
171,410
|
|
|
|
237,944
|
|
Property, plant and equipment
|
|
|
335,475
|
|
|
|
282,503
|
|
Accounts receivable
|
|
|
237,944
|
|
|
|
191,172
|
|
Accrued expenses
|
|
|
514
|
|
|
|
514
|
|
Fees and Payroll in Stocks and Options
|
|
|
319,528
|
|
|
|
318,325
|
|
Impairment Reserve
|
|
|
455,190
|
|
|
|
385,116
|
|
Other
|
|
|
2,032
|
|
|
|
-
|
|
|
|
|
19,430,825
|
|
|
|
17,731,075
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(408,602
|
)
|
|
|
(493,679
|
)
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
(19,022,223
|
)
|
|
|
(17,237,396
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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
|
|
|
|
2035
|
|
|
1,717,918
|
|
|
|
|
|
$
|
44,784,970
|
|
|
|
|
|
|
|
|
Foreign
|
|
2030
|
|
$
|
1,224,680
|
|
|
|
2031
|
|
|
1,818,894
|
|
|
|
2032
|
|
|
1,284,807
|
|
|
|
2033
|
|
|
607,349
|
|
|
|
2034
|
|
|
670,890
|
|
|
|
2035
|
|
|
66,909
|
|
|
|
|
|
$
|
5,673,529
|
|
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, 2015 and 2014, the
Company calculated its estimated annualized effective tax rate at 0% and 0%, respectively, for both the United States and Canada.
The Company had no income tax expense on its $4,098,856 and $6,792,799 losses from continuing operations and $199,452 and $8,720
gain and loss, respectively, from discontinued operations for the years ended December 31, 2015 and 2014, 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, 2015 and 2014, the Company had
no uncertain tax positions.
The
Company does not anticipate any significant changes to the total amounts of unrecognized tax benefits in the next twelve months.
The years ended December 31, 2009 through December 31, 2015 are open tax years.
NOTE
6 - RELATED PARTY NOTES PAYABLE
Related
Party notes payable consists of the following at December 31,:
|
|
2015
|
|
|
2014
|
|
Unsecured Demand Promissory Note (provided by a related party) bearing interest of
4% per annum.
|
|
$
|
1,593,291
|
|
|
$
|
8,850
|
|
|
|
|
|
|
|
|
|
|
Secured Promissory Notes (provided by a related party -$1,000,000 in November 19, 2014) bearing
interest of 12% per annum compounded annually, 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,and payable upon maturity in 2019 and secured by a security
interest in substantially all of the assets of the Company and its subsidiaries.
|
|
|
1,100,961
|
|
|
|
959,736
|
|
|
|
|
|
|
|
|
|
|
Secured Promissory Notes (provided by a related party - $1,000,000 in
August 29, 2013 and $2,000,000 in September 31, 2014) bearing interest of 12% per annum compounded annually, together with
a five-year warrant to purchase up to three million shares of the Company’s common stock at an exercise price of $0.54
per share and payable upon maturity in 2018 and secured by a security interest in substantially all of the assets of the Company
and its subsidiaries.
|
|
|
3,392,980
|
|
|
|
2,794,220
|
|
Total
|
|
|
6,087,232
|
|
|
|
3,762,806
|
|
Less: current portion
|
|
|
1,593,291
|
|
|
|
8,850
|
|
Secured promissory notes – related party
|
|
$
|
4,493,941
|
|
|
$
|
3,753,956
|
|
|
|
2015
|
|
|
2014
|
|
Continuity of Secured Promissory Notes – Related Party
|
|
|
|
|
|
|
|
|
Face value of November 19, 2014 secured note payable
|
|
$
|
1,000,000
|
|
|
$
|
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
|
|
|
|
4,000,000
|
|
Discount on November 19, 2014 secured notes payable ( 1,000,000 warrants)
|
|
|
(58,082
|
)
|
|
|
(58,082
|
)
|
Discount on August 29, 2013 secured note payable (1,000,000 warrants)
|
|
|
(310,200
|
)
|
|
|
(310,200
|
)
|
Discount on September 30, 2013 secured note payable (2,000,000 warrants)
|
|
|
(600,400
|
)
|
|
|
(600,400
|
)
|
Accretion of discount on secured notes payable ($4,000,000 secured note payable)
|
|
|
431,007
|
|
|
|
234,413
|
|
Interest on secured notes payable($4,000,000 secured note payable)
|
|
|
1,031,616
|
|
|
|
488,225
|
|
Carrying value of Secured Promissory Notes
|
|
$
|
4,493,941
|
|
|
$
|
3,753,956
|
|
The
following annual payments of principal and interest are required over the next five years in respect to these related party notes
payable:
Years Ending December 31,
|
|
Annual Payments
|
|
2016
|
|
$
|
1,593,291
|
|
2017
|
|
|
-
|
|
2018
|
|
|
3,392,980
|
|
2019
|
|
|
1,100,961
|
|
2020
|
|
|
-
|
|
Total
|
|
$
|
6,087,232
|
|
NOTE
7 - MORTGAGES PAYABLE AND CAPITAL LEASES
The
Mortgages Payable and Capital Leases consists of the following at December 31,:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Mortgage in the amount of $280,000 Canadian dollars, bears simple interest at 7%
per annum, secured by the land and building, and mature on June 15, 2015. Principal and interest are due, in their entirety,
at maturity. In consideration for 10,000 shares, the maturity was extended from June 15, 2015 to December 15, 2015 and subsquently
to June 15, 2016 by the Mortgage holder.
|
|
$
|
201,880
|
|
|
$
|
240,819
|
|
|
|
|
|
|
|
|
|
|
Equipment capital lease bears interest at 5.0% per annum, secured by the equipment and mature
in April 2015, repayable in monthly installments of approximately $360.
|
|
|
-
|
|
|
|
1,424
|
|
|
|
|
|
|
|
|
|
|
Equipment capital lease, bears interest at 5.85% per annum, secured by the equipment and mature
in November 2015, repayable in monthly installments of approximately $516.
|
|
|
1,032
|
|
|
|
5,514
|
|
|
|
|
|
|
|
|
|
|
Equipment capital lease bears interest at 3.9% per annum, secured by the equipment and matures
on May 10, 2016, Principal and interest are due, in their entirety, at maturity. The maturity was extended from May 10, 2015
to May 10, 2016 by the Lessor.
|
|
|
19,761
|
|
|
|
19,006
|
|
|
|
|
|
|
|
|
|
|
Mortgage in the amount of $110,000, bears no interest, secured by the
land and building, and matures in November 2016.
|
|
|
40,000
|
|
|
|
105,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
262,673
|
|
|
|
371,763
|
|
Less: current portion
|
|
|
-
|
|
|
|
45,000
|
|
Mortgages payable and capital leases
|
|
$
|
262,673
|
|
|
$
|
326,763
|
|
The
following annual payments of principal are required over the next two years in respect of these mortgages and capital leases:
Years Ending December 31,
|
|
Annual Payments
|
|
2016
|
|
$
|
262,673
|
|
2017
|
|
|
-
|
|
Total repayments
|
|
$
|
262,673
|
|
NOTE
8 – COMMITMENTS AND CONTINGENCIES
Commitments
Plastic2Oil
Marine, Inc., one of the Company’s subsidiaries, which currently not operating, entered into a consulting service contract
in 2010 with a company owned by the Company’s chief executive officer. 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, 2015, there
were no currently installed marine vessel processors pursuant to the contract.
As
of December 31, 2015, the Company has committed to purchase certain pieces of key machinery from vendors related to the future
expansion of its operations. In addition to the payments made to these vendors classified as deposits on the accompanying consolidated
balance sheet.. The Company will be required to pay approximately $495,000 upon the delivery of these assets which is expected
occur with the delivery of processor #4 and processor #5.
The
Company leased premises in Thorold, Ontario, Canada which was previously used in the operation Plastic2Oil (Canada), Inc. doing
business as Regional Recycling of Niagara (“RRON”). During the third quarter of 2013, the Company determined that
it would shut down the operations of RRON (Note 16). 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. The total expense included in loss
from discontinued operations in the consolidated statements of operations is $188,343 for the year ended December 31, 2015 (Note
16). The property was vacated on November 10, 2015. On January 15, 2016, the Company entered into a Surrender of Lease agreement
which terminated its lease, dated December 1, 2010, between Avondale Store Limited Properties and JBI, (Canada) Inc. relating
to the Company’s premises located at 1786 Allanport Road, Thorold, Canada. The effective date of the termination was October
31, 2015. The premises was the site of the Company’s Regional Recycling Center, which was part of a business line that was
discontinued by the Company in 2013. The Company anticipates the termination will save approximately $1,161,360 in lease payments
over the original life of the lease which had a term ending on December 1, 2030. The Company will remain liable for unpaid rent
of approximately $49,180, covering the period from May 2016 to October 2016.
Contingencies
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 renewed their motion to dismiss. On September 22, 2015, the Court issued its Order denying that motion without prejudice
and ordering the parties to conduct limited discovery regarding the issue of whether plaintiff Grampp is an adequate shareholder
representative. The Court further ordered that upon completion of that discovery, the parties were to report to the Court by December
10, 2015, whether they had reached an agreement to resolve the case, and if not, whether either party believed it had a basis
for filing a meritorious motion for summary judgment regarding whether plaintiff Grampp is an adequate shareholder representative.
On October 30, 2015, the plaintiff filed an unopposed motion to dismiss the case, and on November 16, 2015, the court granted
that motion and ordered that the case be dismissed with prejudice. Thus, the matter is concluded.
On
August 14, 2013, John Bordynuik, Inc., a Company not affiliated with Mr. John Bordynuik, former 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. On December 7, 2015, the parties filed with the Court a stipulation
to dismiss the case, and on or about December 8, 2015, the Court ordered the matter dismissed with prejudice.
As
of December 31, 2015, 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 audited consolidated
financial statements of the Company.
NOTE
9 – STOCKHOLDERS’ EQUITY (DEFICIENCY)
(a)
Common Stock and Additional Paid in Capital
2015
On
February 18, 2015, the Company issued 250,000 shares of restricted common stock in satisfaction of unpaid fees owed to two vendors.
This liability was previously valued at $30,003 and the settlement price per share was $0.08, which is based on the trading price
of our common stock on the settlement date.
On
March 6, 2014 the Company entered into a Subscription Agreement with one investor 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. These shares were issued on January 21, 2015.
On
January 21, 2015, the Company issued 750,000 shares of restricted common stock pursuant to a February 19, 2014 consulting extension
agreement to the respective Consulting firms. The settlement price per share was $0.07, which is based on the trading price of
our common stock on February 19, 2014.
On
April 7, 2015, the Company issued 1,000,000 shares of restricted common stock pursuant to a February 19, 2014 consulting extension
agreement to the respective Consulting firms. In conjunction with this transaction, the Company retired 250,000 shares of restricted
common stock issued in 2014 pursuant to the February 19, 2014 consulting agreement The settlement price per share was $0.21, which
is based on the trading price of our common stock on February 19, 2014.
On
April 17, 2015, The Company issued 250,000 of restricted common stock pursuant to a March 6, 2015, Subscription Agreement with
one investor 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.
On
August 13, 2015, pursuant to the Final Judgment of the Class Action Lawsuit, the Company issued 3 million shares of its stock
to the Class through a Settlement Fund. This liability was previously valued at $0.08 per share or $240,000, which is based on
the trading price of our common stock on the settlement date.
On
August 13, 2015, pursuant to the Final Judgment of the Class Action Lawsuit, the Company issued 3 million shares of its stock
to the Class through a Settlement Fund. This liability was previously valued at $0.08 per share or $240,000, which is based on
the trading price of our common stock on the settlement date.
On
October 1, 2015, the Company issued 510,000 shares of restricted common stock in satisfaction of unpaid fees owed to three consultants.
This liability was previously valued at $75,000 and the settlement price per share was $0.07, which is based on the trading price
of our common stock on the settlement date.
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.
Warrants
The
following table summarizes the activities for the year ended December 31, 2014 and 2015:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
Warrants
|
|
|
Average
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
Price
|
|
|
Remaining
Term
|
|
OUTSTANDING, DECEMBER 31,
2013
|
|
|
3,143,500
|
|
|
$
|
0.61
|
|
|
|
3.8
|
|
Issued
|
|
|
11,500,000
|
|
|
|
0.19
|
|
|
|
2.8
|
|
Expired
|
|
|
(143,500
|
)
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(400,000
|
)
|
|
|
0.10
|
|
|
|
-
|
|
OUTSTANDING, December 31, 2014
|
|
|
14,100,000
|
|
|
$
|
0.61
|
|
|
|
2.8
|
|
Issued
|
|
|
250,000
|
|
|
|
0.15
|
|
|
|
2.2
|
|
OUTSTANDING,
December 31, 2015
|
|
|
14,350,000
|
|
|
$
|
0.19
|
|
|
|
1.8
|
|
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.
On
March 6, 2014 the Company entered into a Subscription Agreement with one investor 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. These shares were issued on January 21, 2015.
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 . 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
11,500,000 warrants issued in December 2014 totaled a fair value of $950,650. The Company determined this valuation through
use of a binomial pricing model. The assumptions in valuing these Warrants consisted of:
●
|
Volatility
– between 185.54,% and 234.98%, based on the Company’s historical stock price
|
|
|
●
|
Risk
Free Rate – between 0.02% and0.05% 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 150,000 shares of restricted common stock pursuant to the exercise of warrants to purchase
150,000 shares of common stock. The exercise price of the warrants was $0.10 and the Company received $15,000.
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
.
On
March 6, 2014 the Company entered into a Subscription Agreement with one investor 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. These shares were issued on January 21, 2015.
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 granted during the year ended December 31, 2014 was determined on the date of grant
using the Black-Scholes option pricing model using the following assumptions:
|
|
2015
|
|
Expected life (in years)
|
|
|
7.00
|
|
Risk-free interest rate
|
|
|
0.02
|
%
|
Expected volatility
|
|
|
193.57
|
|
Expected dividend yield
|
|
|
0
|
%
|
Stock
Options
There
were no options granted during the year ended December 31, 2015. For years ended December 31, 2015 and 2014, the Company recorded
stock-based compensation expense, net of estimated forfeitures, (included in selling, general and administrative expense) of $959
and $44,310, respectively, related to stock options. As of December 31, 2015, 1,628,000 options are vested (1,040,000 at $1.50
per share, 538,000 at $0.38 per share, and 50,000 at $.005 per share.
For
year ended December 31, 2014, 650,000 options at an exercise price of $1.50 were cancelled and 902,666 options at $0.38 expired.
For year ended December and 3,210,000 options at an exercise price of $1.50 and 465,334 options at $0.38 expired and were cancelled.
A
summary of stock option activity for the years ended December 31, 2015 and 2014 is as follows:
|
|
Outstanding
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
|
Stock
Options
|
|
|
Exercise
Price
|
|
|
Intrinsic
Value (1)
|
|
Balance as of December
31, 2013
|
|
|
6,806,000
|
|
|
$
|
1.21
|
|
|
$
|
-
|
|
Cancelled
|
|
|
(650,000
|
)
|
|
|
1.50
|
|
|
|
-
|
|
Granted
|
|
|
50,000
|
|
|
|
0.05
|
|
|
|
2,000.00
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(902,666
|
)
|
|
|
0.38
|
|
|
|
-
|
|
Balance as of December 31, 2014
|
|
|
5,303,334
|
|
|
$
|
1.30
|
|
|
$
|
-
|
|
Expired
|
|
|
(3,675,334
|
)
|
|
|
0.74
|
|
|
|
-
|
|
Balance as of
December 31, 2015
|
|
|
1,628,000
|
|
|
$
|
1.09
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards
available for grant, net of restricted stock (811,576) at December 31, 2015
|
|
|
7,560,424
|
|
|
|
|
|
|
|
|
|
(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.”
|
Restricted
Stock
The
fair value of the restricted stock is expensed ratably over the vesting period. During the years ended December 31, 2015 and 2014,
the Company recorded stock-based compensation expense related to restricted stock of approximately $0 and $33,983, respectively.
During the years ended December 31, 2015 634,626 shares of restricted stock vested and the expenses related to the 634,626 restricted
shares were accrued at December 31, 2014.
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 $3,541, and $3,602 for
the years ended December 31, 2015, and 2014 respectively.
NOTE
12 – RELATED PARTY TRANSACTIONS AND BALANCES
From
June 2014 to December 31, 2015, Mr. Heddle, the Company’s Chief Executive Officer, made several personal loans to the company
to provide working capital. As of December 31, 2015, the current aggregate outstanding balance including accrued interest at 4%
per annum was $1,593,291. (See Note 7).
At
December 31, 2015 and 2014, the company’s accounts payable and accrued expenses included a $132,218 and $75,218, respectively,
outstanding balance due 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 in 2014 by Heddle Marine
on behalf of the 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 Canadian facilities including
2015 cleanup costs incurred in order to terminate the lease with Avondale properties on the discontinued (RRON) Operation.
In
November 19, 2014, the Companyentered into a Subscription Agreement with Heddle Marine Services, , 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.
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 the Company’s Chief Executive Officer. 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, 2015, there were no currently installed marine vessel processors pursuant to 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:
Years
Ended December 31, 2015
|
|
Data
Recovery & Migration
|
|
|
P2O
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
16,728
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,728
|
|
Cost of Sales
|
|
$
|
6,435
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,435
|
|
Total Operating Expenses
|
|
$
|
-
|
|
|
$
|
1,653,335
|
|
|
$
|
1,669,295
|
|
|
$
|
3,322,630
|
|
(Loss) from Operations
|
|
$
|
10,293
|
|
|
$
|
(1,653,335
|
)
|
|
$
|
(1,669,295
|
)
|
|
$
|
(3,312,337
|
)
|
Other Income (Expenses)
|
|
$
|
-
|
|
|
$
|
(644,412
|
)
|
|
$
|
(567,013
|
)
|
|
$
|
(1,211,425
|
)
|
Net(Loss) from Continuing Operations
|
|
$
|
10,293
|
|
|
$
|
(2,297,747
|
)
|
|
$
|
(2,236,308
|
)
|
|
$
|
(4,523,762
|
)
|
Net(Loss) from Discontinued Operations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
199,452
|
|
|
$
|
199,452
|
|
Net Loss
|
|
$
|
10,293
|
|
|
$
|
(2,297,747
|
)
|
|
|
(2,036,856
|
)
|
|
$
|
(4,324,310
|
)
|
Total Assets
|
|
$
|
3,345
|
|
|
$
|
6,849,700
|
|
|
$
|
(1,468,076)
|
(1)
|
|
$
|
5,384,969
|
|
Accounts Receivable
|
|
$
|
3,345
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,345
|
|
Inventories
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(1)
Included Inter-company Receivable and Payables elimination
Years Ended December
31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data
Recovery & Migration
|
|
|
P2O
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
12,906
|
|
|
$
|
49,111
|
|
|
$
|
-
|
|
|
$
|
5
9,017
|
|
Net Loss
|
|
$
|
7,700
|
|
|
$
|
(4,660,520
|
)
|
|
|
(2,148,699
|
)
|
|
$
|
(6,801,519
|
)
|
Total Assets
|
|
$
|
-
|
|
|
$
|
8,173,366
|
|
|
$
|
(1,184,278
|
)(1)
|
|
$
|
6,989,088
|
|
Inventories
|
|
$
|
-
|
|
|
$
|
86,053
|
|
|
$
|
-
|
|
|
$
|
86,053
|
|
(1)
Included Inter-company Receivable and Payables elimination
All
sales from the Data Business were recorded in the United States for the year ended December 31, 2015. For the year ended December
31, 2014, P2O sales in the United States and Canada were $6,355 and $42,756, respectively.
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.
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, 2015, total long-lived assets of $3,010,831 and $258,056 were located in the United States
and Canada, respectively. As of December 31, 2014, total long-lived assets of $6,515,577 and $668,432, were located in the
United States and Canada, respectively. The mortgage payable of $202, 000 and the equipment capital lease maturing on
June 15, 2016, both disclosed in Note 8, relate to assets held in Canada. The mortgage payable of $40, 000 on December 31, 2015
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, 2015 and 2014, 100.0%, and 89% of total net revenues were generated from a single, and two customers
respectively. As of December 31, 2015 and 2014, one and two customers, respectively, accounted for 100.0% of accounts receivable.
During
the years ended December 31, 2015 and 2014 five and four suppliers, respectively, accounted for 30.9% and 38.0% 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 14 years (Note 17).
|
The
property was vacated on November 10, 2015 and the lease was terminated on January 15, 2016 effective October 31 with no penalty
for early termination. This resulted in adjusting the short-term and long-term obligations set up in 2013 to zero, which resulted
in a $195,044 income. The results of operations from Regional Recycling of Niagara for the years ended December 31, 2015 and 2014
have been classified as discontinued operations and are as follows:
Condensed
Statements of Operations
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Revenue
|
|
$
|
4,408
|
|
|
$
|
-
|
|
Cost of sales
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
4,408
|
|
|
|
-
|
|
Operating expenses
|
|
|
188,343
|
|
|
|
128,059
|
|
Other income
|
|
|
(383,387
|
)
|
|
|
|
|
Gain (loss) before income taxes
|
|
|
(199,452
|
)
|
|
|
128,059
|
|
Future income
tax recovery
|
|
|
-
|
|
|
|
-
|
|
Gain (Loss) from
discontinued operations, net of tax
|
|
$
|
(199,452
|
)
|
|
$
|
128,059
|
|
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, 2015, 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, 2015
and 2014 are as follows:
Condensed
Statements of Operations of Pak-It
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Sales
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of sales
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
Operating income (expenses)
|
|
|
-
|
|
|
|
500,000
|
|
Impairment loss
|
|
|
-
|
|
|
|
-
|
|
Other income(expense)
|
|
|
-
|
|
|
|
(10,433
|
)
|
Loss before income taxes
|
|
|
-
|
|
|
|
489,567
|
|
Future income
tax recovery
|
|
|
-
|
|
|
|
-
|
|
Income from discontinued
operations, net of tax
|
|
$
|
-
|
|
|
$
|
(489,567
|
)
|
Closure
of Javaco
During
the second quarter of 2012, the Company determined that the operations of Javaco no longer coincided with the strategy of the
Company and that it would close down Javaco’s operations. In July 2012, the Company shut down the Javaco operations, including
the termination of the five employees of Javaco, the liquidation of the inventory and fixed assets and the termination of the
lease for the building. The results of operations from Javaco for the years ended December 31, 2015, and 2014 have been classified
as discontinued operations. As of December 31, 2015 and 2014, there were no remaining assets held for sale related to Javaco.
NOTE
16 – SUBSEQUENT EVENTS
On
February 11, 2016, Plastic2Oil, Inc., a Nevada corporation (the “Company”), issued a promissory note in favor of Richard
Heddle, the Company’s President, Chief Executive Officer and Chairman of the Company’s board of directors, to memorialize
various advances, not to exceed $200,000 in total, which are expected to be made by Mr. Heddle to the Company from February 11,
2016 until March 31, 2016. The promissory note bears interest at the rate of 12% per annum. All principal and interest on the
promissory note is due and payable in full by the Company on demand. The repayment of promissory note will be secured by assets
of the Company. It is anticipated that the proceeds of these advances will be used for working capital purposes.
On
January 15, 2016, the Company entered into a Surrender of Lease agreement which terminated its lease, dated December 1, 2010,
between Avondale Store Limited Properties and JBI, (Canada) Inc. relating to the Company’s premises located at 1786 Allanport
Road, Thorold, Canada. The effective date of the termination was October 31, 2015. The premises was the site of the Company’s
Regional Recycling Center, which was part of a business line that was discontinued by the Company in 2013. The Company anticipates
the termination will save approximately $1,161,360 in lease payments over the original life of the lease which had a term ending
on December 1, 2030. The Company will remain liable for unpaid rent of approximately $49,180, covering the period from May 2016
to October 2016
As
previously reported, the Company Plastic2Oil, Inc. (the “Company”) 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.
As of January 27, 2016, such agreements expired and were not renewed by the parties.