UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

 

September 30, 2019

 

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)

 

(716)-278-0015

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such 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 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 [X]   Smaller reporting company [X]
Emerging growth company [  ]    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of December 16, 2019, there were 124,756,158 shares of the Registrant’s common stock, $0.001 par value, outstanding.

 

 

 

   
 

 

PLASTIC2OIL, INC.

 

Table of Contents

 

PART I Financial Information 4
     
ITEM 1. Financial Statements 4
     
  Condensed Consolidated Balance Sheets – September 30, 2019 and December 31, 2018 (Unaudited) 4
     
  Condensed Consolidated Statements of Operations – Three and nine months Ended September 30, 2019 and 2018 (Unaudited) 5
     
  Condensed Consolidated Statements of Comprehensive Loss – Three and nine months Ended September 30, 2019 and 2018 (Unaudited) 6
     
  Condensed Consolidated Statements of Stockholder’s Deficit – Nine months ended September 30, 2019 and 2018 7
     
  Condensed Consolidated Statements of Cash Flows – Nine months Ended September 30, 2019 and 2018 (Unaudited) 9
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 10
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Rick 27
     
ITEM 4. Controls and Procedures 27
     
PART II Other Information 27
     
ITEM 1. Legal Proceedings 28
     
ITEM 1A. Risk Factors 28
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
     
ITEM 3. Defaults Upon Senior Securities 28
     
ITEM 4. Mine Safety Disclosures 28
     
ITEM 5. Other Information 28
     
ITEM 6. Exhibits 28
     
SIGNATURES 29

 

  2  
 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q (“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.

 

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 would 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.

 

  3  
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

    As of
September 30, 2019
    As of
December 31, 2018
 
             
ASSETS                
CURRENT ASSETS:                
Cash   $ 1,033     $ 47,808  
Prepaid expenses and other current assets     15,583       11,575  
TOTAL CURRENT ASSETS     16,616       59,383  
                 
Property, plant and equipment, net     516,595       537,190  
Property held for sale (Note 5)     180,237       180,237  
Deposits     18,800       18,800  
                 
TOTAL ASSETS   $ 732,248     $ 795,610  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
CURRENT LIABILITIES:                
Accounts payable   $ 1,880,908     $ 1,846,669  
Accrued expenses     1,711,928       1,688,224  
Accrued officer salary     1,380,000       1,200,000  
Secured promissory notes and interest – related parties, current portion     11,022,843       9,924,418  
Capital leases     22,868       22,210  
TOTAL CURRENT LIABILITIES     16,018,547       14,681,521  
                 
LONG-TERM LIABILITIES:                
Asset retirement obligations     69,424       67,897  
Secured promissory notes and accrued interest– related parties     692,227       632,533  
Secured promissory notes and accrued interest     142,093       130,274  
TOTAL LONG-TERM LIABILITIES     903,744       830,704  
                 
TOTAL LIABILITIES     16,922,291       15,512,225  
                 
STOCKHOLDERS’ DEFICIT:                
Common stock, par $0.001; 250,000,000 authorized, 124,756,158 shares issued and outstanding     124,756       124,756  
Additional paid in capital     67,199,658       67,199,658  
Accumulated other comprehensive income     87,259       154,599  
Accumulated deficit     (83,601,716 )     (82,195,628 )
TOTAL STOCKHOLDERS’ DEFICIT     (16,190,043 )     (14,716,615 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 732,248     $ 795,610  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

  4  
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   

For the Three Months Ended

September 30,

   

For the Nine Months Ended

September 30,

 
    2019     2018     2019     2018  
                         
OPERATING EXPENSES                                
                                 
Professional Fees   $ 18,309     $ 27,834     $ 87,324     $ 83,118  
Compensation     104,370       104,446       318,221       359,231  
General and administrative expenses     35,016       51,304       117,433       181,252  
                                 
Depreciation of property, plant and equipment and accretion of long-term liability     7,373       87,663       22,120       275,231  
TOTAL OPERATING EXPENSES     165,068       271,247       545,098       898,832  
                                 
LOSS FROM OPERATIONS     (165,068 )     (271,247 )     (545,098 )     (898,832 )
                                 
OTHER (INCOME) EXPENSES                                
                                 
Interest expense, net     292,049       254,390       861,503       736,578  
Other income , net     -       -       (513 )     (10,514 )

TOTAL OTHER (INCOME) EXPENSES, NET

    292,049       254,390       860,989       726,064  
                                 
(LOSS) BEFORE INCOME TAXES     (457,117 )     (525,637 )     (1,406,087 )     (1,624,896 )
                                 
Provision for Income taxes     -       -       -       -  
                                 
NET LOSS   $ (457,117 )   $ (525,637 )   $ (1,406,087 )   $ (1,624,896 )
Basic and diluted loss per share   $ (0.00 )   $ (0.00 )   $ (0.01 )   $ (0.01 )
                                 
Weighted average number of shares outstanding     124,756,158       124,756,158       124,756,158       124,756,158  

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

  5  
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

   

For the Three Months Ended

September 30,

   

For the Nine Months Ended

September 30,

 
    2019     2018     2019     2018  
                         
NET LOSS   $ (457,117 )   $ (525,638 )   $ (1,406,087 )   $ (1,624,896 )
                                 
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX                                
Foreign currency items     27,886       (45,612 )     87,259       35,500  
COMPREHENSIVE LOSS   $ (429,231 )   $ (571,250 )   $ (1,318,828 )   $ (1,589,396 )

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

  6  
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Nine Months Ended September 30, 2018

(Unaudited)

 

   

Common Stock

$0.001 Par Value

    Additional Paid     Accumulated     Other Comprehensive     Total Stockholders’  
    Shares     Amount     in Capital     Deficit     Income (Loss)     Deficit  
                                     
BALANCES - DECEMBER 31, 2017     124,756,158     $ 124,756     $ 67,176,992     $ (79,418,137 )   $ (28,445 )   $ (12,144,834 )
                                                 
To book Stock Compensation expense related to granting of stock options at $0.05     -       -       10,668       -       -       10,668  
                                                 
Foreign currency adjustment     -       -       -       -       58,066       58,066  
                                                 
Net loss     -       -       -       (580,917 )     -       (580,917 )
Balances March 31, 2018     124,756,158     $ 124,756     $ 67,187,660     $ (79,999,054 )   $ 29,621     $ (12,657,017 )
To book Stock Compensation expense related to granting of stock options at $0.05     -       -       3,999       -       -       3,999  
                                                 
Foreign currency adjustment     -       -       -       -       51,541       51,541  
                                                 
Net loss     -       -       -       (518,342 )     -       (518,342 )
Balances June 30, 2018     124,756,158     $ 124,756     $ 67,191,659     $ (80,517,396 )   $ 81,162     $ (13,119,819 )
                                                 
To book Stock Compensation expense related to granting of stock options at $0.05     -       -       3,999       -       -       3,999  
Foreign currency adjustment     -       -       -       -       (45,612 )     (45,612 )
Net Loss     -       -       -       (525,637 )     -       (525,637 )
BALANCES September 30, 2018     124,756,158     $ 124,756     $ 67,195,658     $ (81,043,033 )   $ 35,550     $ (13,687,069 )

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

  7  
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Nine Months Ended September 30, 2019

(Unaudited)

 

   

Common Stock

$0.001 Par Value

    Additional Paid     Accumulated     Other Comprehensive     Total Stockholders’  
    Shares     Amount     in Capital     Deficit     Income (Loss)     Deficit  
                                     
BALANCES - DECEMBER 31, 2018     124,756,158     $ 124,756     $ 67,199,658     $ (82,195,628 )   $ 154,599     $ (14,716,615 )
                                                 
Foreign currency adjustment     -       -       -       -       (46,897 )     (46,897 )
                                                 
Net Loss     -       -       -       (472,347 )     -       (472,347 )
Balances March 31, 2019     124,756,158     $ 124,756       67,199,658       (82,667,975 )     107,702       (15,235,859 )
                                                 
Foreign currency adjustment     -       -       -       -       (48,329 )     (48,329 )
                                                 
Net loss     -       -       -       (476,624 )     -       (476,624 )
BALANCES June 30, 2019     124,756,158     $ 124,756       67,199,658       (83,144,599 )     59,373       (15,760,812 )
Foreign currency adjustment     -       -       -       -       27,886       27,886  
                                                 
Net loss     -       -       -       (457,117 )     -       (457,117 )
BALANCES September 30, 2019     124,756,158     $ 124,756     $ 67,199,658     $ (83,601,716 )   $ 87,259     $ (16,190,043 )

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

  8  
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30,

(Unaudited)

 

    2019     2018  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
NET LOSS     (1,406,087 )     (1,624,896 )
Reconciliation of loss to net cash used in operations:                
Depreciation of property plant and equipment     22,120       131,501  
Accretion of long-term liability     -       143,732  
Accrued interest expense     829,427       715,933  
Amortization of debt discount     10,766       -  
Stock or options issued for services     -       18,666  
Working capital changes:                
Prepaid expenses and other current assets     (4,007 )     (17,910 )
Accounts payable     28,271       (15,313 )
Accrued expenses and accrued office salary     203,704       216,889  
NET CASH USED IN OPERATING ACTIVITIES     (315,806 )     (431,398 )
                 
CASH FLOW FROM INVESTMENT ACTIVITIES:                
Release of restricted cash     -       100,524  
NET CASH PROVIDED BY INVESTING ACTIVITIES     -       100,524  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Cash proceeds from secured promissory notes – related parties     272,534       252,930  
NET CASH PROVIDED BY FINANCING ACTIVITIES     272,534       252,930  
                 
Foreign currency exchange effect on cash     (3,503 )     -  
NET DECREASE IN CASH     (46,775 )     (77,944 )
                 
CASH AT BEGINNING OF PERIOD     47,808       172,286  
                 
CASH AT END OF PERIOD   $ 1,033     $ 94,342  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash paid for income taxes   $ -     $ -  
Cash paid for interest   $ 48     $ 16  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

  9  
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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. 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. 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 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, has two processors at its Niagara Falls, NY facility (the “Niagara Falls Facility”). Both processors are currently idle, and have been, since December 2013. Our P2O business has begun the transition from research and development to a commercial manufacturing and production business. In the short term, we plan to grow mainly by attempting to re-initiate production by processing fuel, selling processors with a royalty arrangement, licensing technology, and or searching out other revenue generating activities related to the use of our proprietary technology. Longer term, we plan to search out other opportunistic options to fully utilize all of the underlying assets of the Company.

 

Going Concern

 

Currently, we do not have sufficient cash to operate our business, which has forced us to suspend our operations until we receive a capital infusion or cash advances on the sale of our processors. We are currently attempting to raise capital through the sale of assets and or through other means including the use of debt and or equity and equity equivalents that will allow us to re start the production of fuel and provide working capital for the Company.

 

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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 net losses from continuing operations of $1,406,087, and $1,624,896, for the nine months ended September 30, 2019, and 2018, respectively. At September 30, 2019, the Company had a net working capital deficit of $16,001,931, and an accumulated deficit of $83,601,716. 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 and loans from related parties. For the years ended December 31, 2018 and 2017, the Company’s auditors included a going concern opinion in its report on the Company’s audited financial statements for such periods.

 

The Company will continue to require substantial funds to continue the expansion of its P2O business to achieve commercial productions, and to resume 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.

 

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue in existence.

 

  10  
 

 

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES

 

Basis of Consolidation

 

The condensed 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.. The following companies are inactive- Plastic2Oil Marine Inc., Javaco, and Pak-it. All intercompany transactions and balances have been eliminated in consolidation. Amounts in the consolidated financial statements are expressed in US dollars.

 

Interim Disclosure

 

In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, which are considered necessary for a fair presentation of the results for the periods presented. These condensed consolidated financial statements are presented in considerably less detail than complete financial statements that are intended to present financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. For this reason, they should be read in conjunction with the entity’s most recent complete financial statements included in its annual report for the year ended December 31, 2018 on Form 10-K filed with the Securities and Exchange Commission (the SEC) on June 4, 2019 that include all the disclosures required by generally accepted accounting principles.

 

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, accrued liabilities, 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. The Company held no cash equivalents at September 30, 2019 or December 31, 2018.

 

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 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   15 -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.

 

  11  
 

 

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.

 

During the nine months ended September 30, 2019 and 2018, the Company did not record any impairment losses on property, plant and equipment.

 

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 $58,363, 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 in the condensed consolidated balance sheets and is depreciated over the asset’s estimated useful life and is included in depreciation and accretion expense in the condensed consolidated statements of operations. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligations in the condensed consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation. As of September 30, 2019 and December 31, 2018, the carrying value of the asset retirement obligations was $69,424 and $67,897, respectively. These costs include disposal of plastic and other non-hazardous waste, site closing labor, testing, and sampling of the site upon closure.

 

Environmental Contingencies

 

The Company records environmental liabilities at their undiscounted amounts on its balance sheets as other current or long-term liabilities when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. These costs may be discounted to reflect the time value of money if the timing of the cash payments is fixed or reliably determinable and extends beyond a current period. Estimates of our liabilities are based on currently available facts, existing technology and presently enacted laws and regulations, taking into consideration the likely effects of other societal and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediating contaminated sites, other companies’ clean-up experience and data released by the Environmental Protection Agency (EPA) or other organizations. The company 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, the company records and reports an asset separately from the associated liability on our balance sheets. No amounts for recovery have been accrued to date.

 

  12  
 

 

Foreign Currency Translation

 

The condensed 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. There were no material foreign exchange gains or losses that are included in the condensed consolidated statements of operations for the nine months ended September 30, 2019 and 2018, 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.

 

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. To date, the Company has not been assessed, nor paid, any interest or penalties.

 

  13  
 

 

Stock-Based Compensation

 

Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation,” which requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. Additionally, the Company has elected to recognize forfeitures as they occur as prescribed by ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting.

 

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company adopted ASU No. 2018-07 during the three-month period ended September 30, 2019 when it issued options to nonemployees (see Note 10).

 

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 three and nine months ended September 30, 2019, potential dilutive common stock equivalents consisted 1,600,000 shares underlying common stock warrants and 3,720,000 shares underlying stock options, which were not included in the calculation of the diluted loss per share because their effect was anti-dilutive. For the three and nine months ended September 30, 2018, potential dilutive common stock equivalents consisted 4,600,000 shares underlying common stock warrants and 6,580,000 shares underlying stock options, which were not included in the calculation of the diluted loss per share because their effect was anti-dilutive.

 

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.

 

Fair Value of Financial Instruments

 

The carrying amounts of cash, accounts payable, accrued expenses, capital leases, and promissory notes, approximate fair value because of the short-term nature of these items, or prevailing interest rates.

 

Reclassification

 

Certain reclassifications have been made in the prior period’s consolidated financial statements to conform to the current period’s presentation. Such reclassifications had no effect on stockholders’ deficit or net loss.

 

Recently Issued Accounting Pronouncements

 

Management does not believe that there are any recently issued, but not yet effective accounting pronouncements, if adopted, that would have a material effect on the accompanying consolidated financial statements.

 

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, Plant and Equipment consist of the following at:

 

As of September 30, 2019   Cost     Accumulated Depreciation     Net Book
Value
 
                   
Machinery and office equipment   $ 47,137     $ (47,060 )   $ 78  
Furniture and fixtures     14,166       (14,166 )     -  
Land     109,203       -       109,203  
Asset retirement obligation     58,363       (14,521 )     43,842  
Office and industrial buildings     542,449       (178,977 )     363,472  
Equipment under capital lease     53,257       (53,257 )     -  
Total   $ 824,575     $ (307,981 )   $ 516,595  

 

  14  
 

 

As of December 31, 2018   Cost     Accumulated Depreciation     Net Book
Value
 
                   
Machinery and office equipment   $ 47,137     $ (47,057 )   $ 80  
Furniture and fixtures     14,166       (14,166 )     -  
Land     109,203       -       109,203  
Asset retirement obligation     58,363       (12,497 )     45,866  
Office and industrial buildings     542,449       (160,408 )     382,481  
Equipment under capital lease     53,257       (53,257 )     -  
Total   $ 824,575     $ (287,385 )   $ 537,190  

 

For the nine months ended September 30, 2019 and 2018, the Company recognized $22,120 and $275,231, and for the three months ended September 30, 2019 and 2018, $7,373 and $87,663, respectively, of depreciation expense. At September 30, 2019 and 2018, machinery and equipment with a cost of $53,257 and accumulated amortization of $53,257 and $53,257, respectively, were under capital lease.

 

During the year ended December 31, 2018, we recorded an impairment loss on property, plant and equipment of $635,770 in accordance with ASC 360-10-50-2 due to the carrying amount exceeding the estimated long-lived assets fair value. This impairment loss was primarily attributable to the write down of equipment and office and industrial buildings. Management’s assessment was triggered by the minimal operations of the business. Management estimated the undiscounted cash flows that may be generated from the long-lived assets by estimating their fair value less estimated costs.

 

NOTE 4 - PROPERTY HELD FOR SALE

 

The Company has offered for sale its land and building of its blending site located in Thorold, Ontario. Canada. The Company no longer requires the land or building as part of its plans to, either assemble and or manufacture, or license its technology. The land and building are currently listed for sale and the Company anticipates a sale in less than twelve (12) months. Accordingly, these assets have been reclassified from property, plant and equipment to property held for sale. The Company has determined the fair value of its property held for sale exceeds its carrying value and no valuation allowance is necessary. The net book value of the land and building of $180,237 has been presented in the accompanying balance sheet as property held for sale at September 30, 2019 and December 31, 2018.

 

NOTE 5 – SECURED PROMISSORY NOTES - RELATED PARTIES

 

Related Party Secured Promissory Notes, including accrued interest, consists of the following at periods ended:

 

    As of
September 30, 2019
    As of
December 31, 2018
 
Secured Demand Promissory Note - $1,664,000 Canadian dollars in 2015 and $505,000 Canadian dollars in 2016, bearing interest of 4% to 12% per annum, respectively, with the company CEO.   $ 2,056,605     $ 1,907,636  
                 
Secured Demand Promissory Note - $358,850 in February and March of 2015 and $150,000 in February of 2016, bearing interest of 4% to 12% per annum, respectively, with company CEO     660,432       628,382  
                 
Secured Demand Promissory Note - $100,000 Canadian dollars in February 16, 2018 bearing interest of 4% per annum, payable on demand and secured by the blending site property located at 1776 Allanport, Road, Thorold, Ontario CA with a company Director     80,531       75,892  
                 
Secured Demand Promissory Note - $125,000, July 11, 2018 bearing interest of 4% per annum, payable on demand and secured by the blending site property located at 1776 Allanport Road, Thorold, Ontario CA with a company Director     130,553       126,711  
                 
Secured Demand Promissory Note - $125,000 in July 31, 2018 bearing interest of 4% per annum, payable on demand and secured by the blending site property located at 1776 Allanport Road, Thorold, Ontario CA. with a company Director.     130,583       126,740  
                 
Secured Demand Promissory Note - $20,000 Canadian dollars in February of 2019 bearing interest of 4% per annum, payable on demand and secured by the blending site property located at 1776 Allanport Road, Thorold, Ontario CA. with a Company Director     15,491       -  
                 
Secured Demand Promissory Note - $170,000 Canadian dollars in first, second and third quarters of 2019 bearing interest of 4% per annum, payable on demand and secured by the blending site property located at 1776 Allanport Road, Thorold, Ontario CA. with the Company’s CEO     130,386       -  
                 
Secured Promissory Notes with the company’s CEO ($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. The Secured Promissory Note became past due on November 19, 2019. The Company is currently is discussion with the company’s CEO on extending the Secured Promissory Notes.     1,743,784       1,595,798  
                 
Secured Promissory Notes with the company’s CEO - $1,000,000 in August 29, 2013 and $2,000,000 in September 30, 2014) bearing interest of 12% per annum compounded annually, payable upon maturity in 2018 and extended in July of 2019 until December 31, 2020. In consideration for the extension, the Company issued 3,000,000 options with an exercise price of $.02. Loan is secured by a security interest in substantially all of the assets of the Company and its subsidiaries.     5,941,206       5,463,259  
                 
Secured Promissory Note -$100,000 in August 24, 2016 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 2021 and secured by a security interest in substantially all of the assets of the Company and its subsidiaries with a company Director.     141,451       129,685  
                 
Secured Demand Promissory Note - $170,000 Canadian dollars in the first, second and third quarters of 2019, bearing interest of 4% per annum, payable on demand and secured by the blending site property located at 1776 -Allanport, Road, Thorold, Ontario CA. with a Company Director     130,567       -  
                 
Secured Promissory Note -$400,000 in October 18, 2016 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 2021 and secured by a security interest in substantially all of the assets of the Company and its subsidiaries with a company Director.     553,481       502,848  
                 
Total     11,715,070       10,556,951  
                 
Less: Current Portion Short Term Secured Promissory Notes – related parties   $ 11,022,843     $ 9,924,418  
                 
Long Term Secured promissory notes – related parties   $ 692,227     $ 632,533  

 

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Continuity of Secured Promissory Notes – Related Party  

As of
September 30, 2019

    As of
December 31, 2018
 
Face value of secured promissory notes   $ 7,268,664     $ 6,996,441  
Accrued interest on secured promissory notes payable     4,456,273       3,581,343  
Less: Unamortized debt discount     (9,867 )     (20,833 )
Carrying value of Secured Promissory Notes – Related parties   $ 11,715,070     $ 10,556,951  

 

The following annual payments of principal and interest are required over the next three years in respect to these short term and long term secured promissory notes with related parties:

 

Years Ending December 31,   Annual Payments  
       
2019   $ 5,081,637  
2020     5,941,206  
2021     692,227  
Total   $ 11,715,070  

 

NOTE 6 – SECURED PROMISSORY NOTE

 

Secured promissory note consists of the following at periods ended:

 

   

As of
September 30, 2019

    As of
December 31, 2018
 
             
Secured Promissory Note -$100,000 in August 10, 2016 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 2021 and secured by a security interest in substantially all of the assets of the Company and its subsidiaries.   $ 142,093     $ 130,274  
                 
Total     142,093       130,274  
Less: current portion     -       -  
Secured promissory note   $ 142,093     $ 130,724  

 

  16  
 

 

Continuity of Secured Promissory Note  

As of
September 30, 2019

    As of
December 31, 2018
 
Face value of August 10, 2016 secured promissory note   $ 100,000     $ 100,000  
Total face value of secured promissory note     100,000       100,000  
Discount on August 10, 2016 secured promissory note (100,000 warrants)     (2,000 )     (2,000 )
Accretion of discount on secured promissory note ($100,000 )     1,234       933  
Interest on secured promissory note     42,859       31,341  
Carrying value of Secured Promissory Note   $ 142,093     $ 130,274  

 

The following annual payments of principal and interest are required in respect to these secured notes payable:

 

Years Ending December 31,   Annual Payments  
2019     -  
2020     -  
2021     142,093  
Total   $ 142,093  

 

NOTE 7 - CAPITAL LEASE

 

The Capital Lease consists of the following at periods ending:

 

   

As of
September 30, 2019

  As of
December 31, 2018
 
Equipment capital lease bears interest at 3.9% per annum, secured by the equipment and matured on May 10, 2016, Principal and interest were due, in their entirety, at maturity. The maturity was extended to May 10, 2016 by the Lessor. The capital lease is in default.   $ 22,868 (1) $ 22,210 (1)
               
Total     22,868     22,210  
Less: current portion     22,868     22,210  
Capital leases   $ -   $ -  

 

(1) Includes accrued interest.

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

Commitments

 

Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating and presently is inactive, 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. As of September 30, 2019 and December 31, 2018, there were no currently installed marine vessel processors pursuant to the contract.

 

Contingencies.

 

As of September 30, 2019, the Company is involved in litigation and 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 unaudited condensed consolidated financial statements of the Company.

 

NOTE 9 - WARRANTS

 

The following table summarizes the activities for the period.

 

Warrants

 

The following table summarizes the activities for the quarter ended September 30, 2019 and year ended December 31, 2018:

 

   

Warrants

Number

 

Weighted

Average

Exercise Price

 

Weighted

Average

Remaining Term

 
OUTSTANDING, December 31, 2018     1,600,000   $ 0.12     1.09  
                     

OUTSTANDING, September 30, 2019

    1,600,000   $ 0.12     1.09  

 

There were no warrants issued or expired during the three or nine months ended September 30, 2019.

 

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NOTE 10 – STOCK-BASED COMPENSATION PLANS AND AWARDS

 

Employee Incentive Plan

 

The Company’s stock incentive plan is administered by the Board of Directors that authorizes the grant or award of incentive stock options, non-qualified stock options (NQSO), restricted stock awards (RSA), stock appreciation rights, dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the exercise of stock options. Any shares associated with options forfeited are added back to the number of shares that underlie stock options to be granted under the stock incentive plan. The Company made available 10,000,000 common shares that were registered, approved, and filed on November 17, 2012 for issuance under the plan. The Company has issued non-qualified stock option awards as described below.

 

The Company estimates the fair value of nonqualified stock awards using a Black-Scholes Option Pricing model (“Black-Scholes model”). The fair value of each stock award is estimated on the date of grant using the Black-Scholes model, which requires an assumption of dividend yield, risk free interest rates, volatility, forfeiture rates and expected option life. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatilities are based on the historical volatility of our common stock over the expected option term. The expected term of options granted is based on a review of historical employee termination rates and option exercises.

 

There were 3,500,000 options granted during the three and nine months ended September 30, 2019. Options were granted to employees, a consultant of the Company, the Company’s CEO, and two Directors. As of September 30, 2019, 3,720,000 options were outstanding, of which 220,000 are fully vested and 3,500,000 are not vested. There are 6,280,000 options available for grant as of September 30, 2019.

 

The stock awards were valued using a Black-Scholes model on the date of grant and the follow assumptions: expected term of 5 years, a risk free rate of 2.82%, volatility of 355.41%, and no assumed dividend yield.

 

A summary of stock option activity as of September 30, 2019 and 2018, and changes during the nine month periods ended September 30, 2019 and 2018 are set forth below:

 

   

Outstanding

Stock
Options

   

Weighted-
Average

Exercise
Price

   

Aggregate

Intrinsic
Value (1)

 
Balance as of December 31, 2018     220,000     $ .41     $                  
Options Granted     3,500,000       .02     $  
Balance as of September 30, 2019     3,720,000     $ 0.04     $  
Exercisable as of September 30, 2019     220,000     $ 0.41     $  

 

    Outstanding Stock
Options  
   

Weighted-
Average

Exercise
Price

    Aggregate
Intrinsic
Value (1)
 
Balance as of December 31, 2017     4,380,000     $ 1.12     $               –  
Balance as of September 30, 2018     4,380,000     $ 0.42     $  
Exercisable as of September 30, 2018     2,330,000     $ 0.72     $  

 

  (1) There was no intrinsic value associated with options outstanding, exercisable and expected to vest as of September 30, 2019, as the stock price was below the lowest option exercise price or was not vested. Aggregate intrinsic value represents total pretax intrinsic value (the difference between PTO’s closing stock price on September 30, 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2019. The intrinsic value will change based on the fair market value of PTO’s stock.

 

A summary of stock options not yet vested as of September 30, 2019 is set forth below:

 

    Number of Options    

Weighted-
Average

Grant-Date Fair Value

 
Non-vested as of January 1, 2019     25,000     $ 0.01  
Options Granted     3,500,000     $ 0.02  
Vested     (25,000 )   $ 0.01  
Non-vested as of September 30, 2019     3,500,000     $ 0.02  

 

There were no options granted during the three or nine months ended September 30, 2018. As of September 30, 2018, 4,380,000 options were outstanding of which 2,330,000 were fully vested. As of September 30, 2018, there was $37,333 of unrecognized compensation expense for options outstanding not yet vested. .

 

During the nine month period ended September 30, 2019, there were no NQSOs that were cancelled or forfeited.

 

The weighted-average remaining contractual life of the non-qualified stock options outstanding and exercisable, as of September 30, 2019 were approximately 9.5 years and 4 years, respectively. Share-based compensation represents both stock options based expense and stock grant expense. Stock compensation expense is included in general and administrative expense for the periods then ended. At September 30, 2019, the Company had approximately $70,000 of total unamortized share-based compensation expense, related to stock option plans that will be recognized over the weighted average remaining period of 2 years.

 

NOTE 11 – RELATED PARTY TRANSACTIONS AND BALANCES

 

As of September 30, 2019 and December 31, 2018, Richard Heddle, CEO is due $1,380,000 and $1,200,000 in accrued payroll, respectively, which is included in Accrued Officers Salary on the consolidated balance sheets.

 

At September 30, 2019 and December 31, 2018, the company’s accounts payable and accrued expenses included $132,217 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.

 

See also Note 5 for secured promissory notes with related parties.

 

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. As of September 30, 2019 and December 31, 2018, there were no currently installed marine vessel processors pursuant to the contract.

 

NOTE 12 – SUBSEQUENT EVENTS

 

The Company received $30,000 on October 1, 2019, $15,000 on October 21, 2019, $15,000 on October 29, 2019, $30,000 on November 18, 2019 and $30,000 on November 22, 2019, all in Canadian funds, from the Company’s CEO and Directors in the form of demand secured promissory notes. The advances bear interest at 4%.

 

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ITEM 2. 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.

 

Business Overview

 

For the three and nine months ended September 30, 2019 and 2018, the Company had no revenues. The Company’s P2O processors were idle for all of 2018 and remained idle during the three and nine months ended September 30, 2019. For financial reporting purposes, we currently operate in one business segment, our P2O® solution business. As of the filing date of the report, our two operating processors were idle and not producing fuel products. Previously, we operated in two business segments, which also included a business data and recovery segment and 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. which we discontinued, prior to 2017. Our P2O business is a commercial manufacturing and production business. We plan to grow mainly from sale of processors, and secondarily from the sale of fuel products. Historically, our revenues have been derived primarily from our other segments and products.

 

Plastic2Oil Business

 

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 PK Clean, Vadxx Energy, Green Envirotec Holdings LLC, and RES polyflow, each of which has developed alternative methods for obtaining and generating fuel from plastics. Because P2O solution products include a variety of fuels, we also face competition from the broader petroleum industry.

 

We continue our business strategy with the goal of becoming a leading North American company that transforms waste plastic into ultra-clean, ultra-low sulphur fuel.

 

When in operation, 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 our P2O processors and have the capability to produce and store the fuels at, and ship from, our facilities in Niagara Falls, New York. 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.

 

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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, these processors were idle for all of 2017 and remained idle for the nine months ended September 30, 2019. 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. Since inception, we have produced a total of 667,996 gallons of fuel, however no fuel was produced in the three and nine months ended September 30, 2019 and 2018.

 

Listing on the OTCQB

 

At September 30, 2019, we had 124,756,158 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 December 16, 2019, the last trading day prior to the date of this filing, the closing price of the common stock on the OTCQB was $0.05.

 

Sources of Revenues and Expenses

 

Results of Operations – Three months ended September 30, 2019 compared to Three months ended September 30, 2018.

 

Revenue

 

We had no revenues during the three months ended September 30, 2019 and 2018. We have shifted our business strategy to attempting to license our intellectual property and technology related to our fuel processors, selling fuel processors and selling oil produced by our own P2O equipment.

 

We had no fuel production or processor sales in the three and nine months ended September 30, 2019. Consequently, there was neither fuel shipment nor fuel revenue. This 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 and the lack of operating cash. The damage requires substantial working capital for general repairs and replacement of damaged condensers and we have been unable to obtain the financing necessary to make these repairs. These processors were idle from December of 2014 through 2018 and remained idle through the date of this filing. Management estimates the processors will remain idle until the Company can raise additional capital or procure new revenue producing contracts.

 

The Company has recently entered into a Master Agreement and Purchase Order to provide several units and other services that is awaiting an initial deposit to commence work. The initial deposit is tied to final governmental approvals and contract awards that are currently working its way through the procurement cycle. There can be no assurance that these awards will be made and that the initial deposit due under the Master Agreement and Purchase Order will be honored.

 

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The Company’s operating expenses consisted of the following:

 

Operating Expenses

 

    For the Three Months Ended
September 30,
    2019     2018
           
Professional Fees   $ 18,309     $ 27,834  
Compensation     104,370       104,446  
General and administrative expenses     35,016       51,304  
Depreciation and Accretion     7,373       87,663  
Total Operating Expenses   $ 165,068     $ 271,247  

 

We incurred operating expenses of $165,068 during the three months ended September 30, 2019, compared to $271,247 for the three months ended September 30, 2018, respectively. This decrease in operating expenses was materially due to a decrease in depreciation, along with decreases in Professional fees and other expenses for a total reduction of $106,179. The Company is currently attempting to minimize its operating expenses while it works to recapitalize the company.

 

Non-Operating Expenses

 

Interest Expenses

 

For the three months ended September 30, 2019, we incurred net interest expense of approximately $292,049 as compared to approximately $254,390 for the three months ended September 30, 2018, an increase of $37,659, which was due to increases in related party secured promissory and short-term notes.

 

Income Tax Expenses

 

For the three months ended September 30, 2019 and 2018, 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

 

Net Loss

 

As a result of the above, we incurred a net loss of approximately $(457,117) for the three months ended September 30, 2019 as compared to a net loss of approximately $(525,637), for the three months ended September 30, 2018.

 

Results of Operations - Nine months ended September 30, 2019 compared to Nine months ended September 30, 2018.

 

Revenue

 

We had no revenues during the nine months ended September 30, 2019 and 2018 due to the same factors discussed in the three month period comparison above.

 

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The Company’s operating expenses consisted of the following:

 

Operating Expenses

 

    For the Nine Months Ended
September 30,
    2019     2018
           
Professional Fees   $ 87,324     $ 83,118  
Compensation     318,221       359,231  
General and administrative     117,433       181,252  
Depreciation and Accretion     22,120       275,231  
Total Operating Expenses   $ 545,098     $ 898,832  

 

We incurred operating expenses of $545,098 during the nine months ended September 30, 2019, compared to $898,832 for the nine months ended September 30, 2018, respectively. This decrease in operating expenses was materially due to a decrease in compensation, other expenses, along with depreciation and accretion for a total reduction of approximately $353,734. The Company is currently attempting to minimize its operating expenses while it works to recapitalize the company.

 

Non-Operating Expenses

 

Interest Expenses

 

For the nine months ended September 30, 2019, we incurred net interest expense of approximately $861,503 as compared to approximately $736,578 for the nine months ended September 30, 2018 an increase of $124,941, due to an increase in related party secured promissory and short-term notes.

 

Income Tax Expenses.

 

For the nine months ended September 30, 2019 and 2018, 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.

 

Net Loss

 

As a result of the above, we incurred a net loss of approximately $(1,406,087) for the nine months ended September 30, 2019 as compared to a net loss of approximately $(1,624,896) for the nine months ended September 30, 2018.

 

Liquidity and Capital Resources

 

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 or license of our processors and or related technology. We intend to source additional capital through the sale of our equity, debt securities, and other financing methods. We plan to use the cash proceeds from any financing to either complete the repairs on Processors #3 to resume production of fuels for pilot runs and customer demonstrations and or review other options including but not limited to licensing intellectual property and or pursuing other operational alternatives that may become available to management as we review the options available to the Company. At September 30, 2019, we had a cash balance of $1,033. Our principal sources of liquidity in 2019 were the proceeds of secured promissory notes and the elimination of the cash security we placed against our fuel oil sale tax bond.

 

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As discussed earlier in this MD&A, our processors are currently idle and, thus, we are not producing fuel or generating fuel sales or processor 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 liabilities. We also intend to seek 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 the company can raise additional capital. While management has recently secured additional debt financing to attempt to re-initiate the limited production of processing used fuel oils and plastic films, management cannot determine if it will be successful and or if additional capital will be required to be successful. 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 2019, 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 P2O processor sales and technology licenses, along with attempting to restart fuel oil processing.

 

Our limited capital resources, lack of revenue 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 financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

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Cash Flow from Operating Activities.

 

    For the Nine Months Ended
September 30,
 
    2019     2018  
Net loss     (1,406,087 )     (1,624,896 )
Net cash used in operating activities     (315,806 )     (431,398 )
Cash flow from investing activities                
Net cash provided by investing activities     -       100,524  
Cash flows from Financing activities:                
Net cash provided by financing activities     272,534       252,930  
Foreign currency exchange effect on cash     (3,503 )        
Cash at beginning of period     47,808       172,286  
Cash at end of period   $ 1,033     $ 94,342  

 

Cash Flow from Operations

 

Cash used in operations was approximately $315,806 and $431,398 for the nine months ended September 30, 2019 and 2018, respectively. In 2019 and 2018 cash was mainly used to continue funding the minimum operating costs.

 

Cash Flow from Investing Activities

 

Cash flow provided from investing activities was approximately $0, and $100,524, for the nine months ended September 30, 2019 and 2018, respectively, and was attributed to the release of a cash bond for fuel oil taxes that released the reserved cash for 2018.

 

Cash Flow from Financing Activities

 

Cash flow from financing activities was approximately $272,534 and $252,930, for the nine months ended September 30, 2019 and 2018, respectively. For 2019 and 2018, these amounts were mainly from proceeds received from secured promissory notes from related parties.

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements in the periods ended September 30, 2019 and 2018.

 

Critical Accounting Policies

 

Basis of Consolidation

 

The condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, Plastic2Oil (Canada) Inc., JBI CDE Inc., Plastic2Oil, 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.

 

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-lives assets, share based compensation, asset retirement obligations, inventory obsolescence, accrued liabilities.

 

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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 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   15 -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.

 

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.

 

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 $69,424, 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 unaudited condensed 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 unaudited condensed consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligations.

 

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Environmental Contingencies

 

The Company records 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.

 

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).

 

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. Realized foreign exchange gains and losses are included in the consolidated statements of operations. Resulting differences are reflected in accumulated other comprehensive income in the accompanying consolidated balance sheets.

 

  26  
 

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

Disclosures About Market Risk

 

We may be exposed to changes in financial market conditions in the normal course of business. Market risk generally represents the risk that losses may occur as a result of movements in interest rates and equity prices. We currently do not use financial instruments in the normal course of business that are subject to changes in financial market conditions.

 

Currency Fluctuations and Foreign Currency Risk

 

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 September 30, 2019 and December 31, 2018 was $11,022,843 and $9,924,418, 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 may 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.

 

Inflation Risk

 

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

 

ITEM 4. CONTROLS AND PROCEDURES

 

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 September 30, 2019. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2019 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, 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.

 

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The Company currently has just three directors, one of whom is member of executive management and not independent. The Company does not maintain separately designated audit, compensation, and nominating and corporate governance committees of the Board.

 

Changes in Internal Control over Financial Reporting

 

On April 18, 2018 the Company’s Chief Financial Officer resigned. The Company is currently undertaking a review to determine what course of action it may take in regards to filling this position given the Company’s current negative financial condition. Currently, the Chief Executive Officer has assumed the additional responsibilities of the Chief Financial Officer. The Company has retained a financial consultant to assist management in the preparation and review of its Exchange Act reports. The continuing deterioration of the financial condition of the Company along with the reduction of staffing continues to hamper the ability of management to ensure effective internal controls and unless the financial condition improves an effective remediation plan cannot be put into place to correct the current deficiencies. With the exception of the noted changes herein, there were no other changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management has reported to the Board of Directors material weaknesses described herein and also under the heading Management’s Report on Internal Control over Financial Reporting” in Section 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

For a discussion of legal proceedings affecting the Company, see the information in Note 7, “Commitments and Contingencies,” to the financial statements, included in Part I of this Report.

 

Item 1A. Risk Factors

 

As a “smaller reporting company”, we are not required to provide the information required by this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

The exhibits required by this item are listed on the Exhibit Index attached hereto, which is incorporated herein by reference.

 

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Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  PLASTIC2OIL, INC.
     
Date: December 16, 2019 By: /s/ Richard Heddle
  Name: Richard Heddle
  Title: President and Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer)

 

  29  
 

 

Item 6. Exhibit Index

 

Exhibit

Number

  Description
     
31.1   Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
     
31.2   Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
     
32.1   Certification of Principal Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
     
32.2   Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
     
101.INS*   XBRL Instance Document
     
101.SCH*   XBRL Taxonomy Schema Document
     
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document
     
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document

 

  30  
 

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