Quarterly Report (10-q)

Date : 09/11/2019 @ 9:07PM
Source : Edgar (US Regulatory)
Stock : Plastic2oil, Inc. (QB) (PTOI)
Quote : 0.023  -0.0007 (-2.95%) @ 8:35PM

Quarterly Report (10-q)

 

 

 

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

 

June 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 September 11, 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 –June 30, 2019 and December 31, 2018 (Unaudited) 4
     
  Condensed Consolidated Statements of Operations – Three and six months Ended June 30, 2019 and 2018 (Unaudited) 5
     
  Condensed Consolidated Statements of Comprehensive Loss – Three and six months Ended June 30, 2019 and 2018 (Unaudited) 6
     
 

Condensed Consolidated Statements of Stockholder’s Deficit – Six months ended June 30, 2019 and 2018

7
 
  Condensed Consolidated Statements of Cash Flows – Six months Ended June 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 22
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Rick 29
     
ITEM 4. Controls and Procedures 30
     
PART II Other Information 31
     
ITEM 1. Legal Proceedings 31
     
ITEM 1A. Risk Factors 31
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
     
ITEM 3. Defaults Upon Senior Securities 31
     
ITEM 4. Mine Safety Disclosures 31
     
ITEM 5. Other Information 31
     
ITEM 6. Exhibits 31
     
SIGNATURES 32

 

  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
June 30, 2019
    As of
December 31, 2018
 
             
ASSETS                
CURRENT ASSETS:                
Cash   $ 13,637     $ 47,808  
                 
Prepaid expenses and other current assets     23,809       11,575  
TOTAL CURRENT ASSETS     37,446       59,383  
                 
Property, plant and equipment, net     523,460       537,190  
Property held for sale (Note 5)     180,237       180,237  
Deposits     18,800       18,800  
                 
TOTAL ASSETS   $ 759,943     $ 795,610  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
CURRENT LIABILITIES:                
Accounts payable   $ 1,873,642     $ 1,846,669  
Accrued expenses     1,704,092       1,688,224  
Accrued officer salary     1,320,000       1,200,000  
Secured promissory notes and accrued interest – related parties, current portion     10,721,178       9,924,418  
Capital leases     22,647       22,210  
TOTAL CURRENT LIABILITIES     15,641,559       14,681,521  
                 
LONG-TERM LIABILITIES:                
Asset retirement obligations     68,915       67,897  
Secured promissory notes and accrued interest – related parties     672,229       632,533  
Secured promissory notes and accrued interest     138,052       130,274  
TOTAL LONG-TERM LIABILITIES     879,196       830,704  
                 
TOTAL LIABILITIES     16,520,755       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     59,373       154,599  
Accumulated deficit     (83,144,599 )     (82,195,628 )
TOTAL STOCKHOLDERS’ DEFICIT     (15,760,812 )     (14,716,615 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 759,943     $ 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

June 30,

   

For the Six Months Ended

June 30,

 
    2019     2018     2019     2018  
                         
OPERATING EXPENSES                                
                                 
Professional Fees   $ 38,543     $ 18,268     $ 69,014     $ 55,284  
Compensation     105,829       117,451       213,851       269,452  
Other     39,315       50,372       82,418       115,281  
Depreciation of property, plant and equipment and accretion of liability     7,374       92,833       14,747       187,568  
TOTAL OPERATING EXPENSES     191,061       278,924       380,030       627,585  
                                 
LOSS FROM OPERATIONS     (191,061 )     (278,924 )     (380,030 )     (627,585 )
                                 
OTHER (INCOME) EXPENSES                                
Interest expense, net     286,075       249,915       569,453       482,188  
Other income, net     (513 )     -       (513 )     (10,498 )
                                 
TOTAL OTHER EXPENSES, NET     285,562       249,915       568,940       471,690  
                                 
LOSS BEFORE INCOME TAXES     (476,623 )     (528,839 )     (948,970 )     (1,099,259 )
                                 
Provision for Income taxes     -       -       -       -  
                                 
NET LOSS   $ (476,623 )   $ (528,839     $ (948,970 )   $ (1,099,259 )
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

June 30,

   

For the Six Months Ended

June 30,

 
    2019     2018     2019     2018  
                         
NET LOSS   $ (476,623 )   $ (528,839 )   $ (948,970 )   $ (1,099,259 )
                                 
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX                                
Foreign currency items     (48,330 )     (51,541 )     (95,226 )     109,606  
COMPREHENSIVE (LOSS)   $ (524,953 )   $ (580,380 )   $ (1,044,196 )   $ (989,653 )

 

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 Six Months Ended June 30, 2018

(Unaudited)

 

   

Common Stock

$0.001 Par Value

    Additional Paid     Accumulated     Other Comprehensive     Total Stockholder  
    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 )

 

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

 

  7  
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Six Months Ended June 30, 2019

(Unaudited)

 

   

Common Stock

$0.001 Par Value

    Additional Paid     Accumulated     Other Comprehensive     Total Stockholder  
    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 )

 

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

 

  8  
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30,

(Unaudited)

 

    2019     2018  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
NET LOSS     (948,970 )     (1,099,258 )
Reconciliation of net loss to net cash used in operations:                
Depreciation of property, plant, equipment and accretion     14,748       88,303  
Accrued interest expense     554,796       468,726  
Amortization of debt discount     8,208          
Stock or options issued for Services     -       14,666  
                 
Working capital changes:                
Prepaid expenses and other current assets     (12,234 )     (38,437 )
Accounts payable     17,980       (21,664 )
Accrued expenses     128,931       149,799  
NET CASH USED IN OPERATING ACTIVITIES     (236,541 )     (437,865 )
                 
CASH FLOW FROM INVESTMENT ACTIVITIES:                
Release of (increase in) restricted cash     -       100,524  
NET CASH PROVIDED BY/(USED) IN INVESTING ACTIVITIES     -       100,524  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Cash proceeds from Note Payable     204,166       77,930  
NET CASH PROVIDED BY FINANCING ACTIVITIES     204,166       77,930  
Foreign currency exchange effect on cash flows     (1,796 )     109,607  
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS     (34,171 )     (149,804 )
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     47,808       172,286  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 13,637     $ 22,482  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash paid for income taxes   $ -     $ -  
Cash paid for interest   $ -     $ -  

 

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 current 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 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 our securities, including the debt and /or equity securities or equity equivalents in order to allow us to restart 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 $948,970, and $1,099,259, for the six months ended June 30, 2019, and 2018, respectively. At June 30, 2019, the Company had a net working capital deficit of $15,604,113, and an accumulated deficit of $83,144,599. 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. 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.

 

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.

 

  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, 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. The Company held no cash equivalents as of June 30, 2019 and 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 six months ended June 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 $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 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 June 30, 2019 and December 31, 2018, the carrying value of the asset retirement obligations was $68,916 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 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.

 

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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 as general and administrative expenses in the condensed consolidated statements of operations for the three and six months ended June 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  
 

 

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 six months ended June 30, 2019, potential dilutive common stock equivalents consisted 1,600,000 shares underlying common stock warrants and 220,000 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 six months ended June 30, 2018, potential dilutive common stock equivalents 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, leases, 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 June 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       (13,846 )     44,517  
Office and industrial buildings     542,449       (172,787 )     369,662  
Equipment under capital lease     53,257       (53,257 )     -  
Total   $ 824,575     $ (301,116 )   $ 523,460  

 

  14  
 

 

As of December 31, 2018   Cost     Accumulated
Depreciation
    Net Book
Value
 
                   
Machinery and office equipment     47,137       (47,056 )     81  
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     542,450       (160,408 )     382,042  
Equipment under capital lease     53,257       (53,257 )     -  
Total   $ 824,576     $ (287,384 )   $ 537,192  

 

For the six months ended June 30, 2019 and 2018, the Company recognized $14,747 and $86,951, for the three months ended June 30, 2019 and 2018, $7,374 and $ 43,784 respectively, of depreciation expense. At June 30, 2019 and 2018, machinery and equipment with a cost of $53,257 and accumulated amortization of $53,257, 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 $180,235 has been presented in the accompanying balance sheet as property held for sale at June 30, 2019 and December 31, 2018.

 

  15  
 

 

NOTE 5 – SECURED PROMISSORY NOTES - RELATED PARTIES

 

Related Parties Secured promissory Notes consists of the following at periods ended:

 

    As of
June 30, 2019
    As of
December 31, 2018
 
Secured Demand Promissory Note bearing interest of 4% to 12% per annum with the Company’s CEO.   $ 2,048,265     $ 1,907,636  
                 
Secured Demand Promissory Note bearing interest of 4% to 12% per annum with the Company’s CEO.     649,397       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     80,641       75,892  
                 
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 November 2019 and secured by a security interest in substantially all of the assets of the Company and its subsidiaries.     1,695,487       1,595,798  
                 
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     129,246       126,711  
                 
Secured Promissory Notes with the Company’s CEO –( $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 (See note 12).     5,780,480       5,463,259  
                 
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     129,275       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     15,512       -  
                 
Secured Demand Promissory Note - $110,000 Canadian dollars in first and second quarter 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     84,921       -  
                 
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.     137,429       129,685  
                 
Secured Demand Promissory Note - $140,000 Canadian dollars in the first and second quarter 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     107,954       -  
                 
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.     534,800       502,848  
                 
Total   $ 11,393,407       10,556,951  
                 
Less: Current Portion Short Term Secured Promissory Notes- Related Parties   $ 10,721,178     $ 9,924,418  
Long Term Secured promissory notes – related parties   $ 672,229     $ 632,533  

 

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Continuity of Secured Promissory Notes – Related Parties   As of
June 30, 2019
    As of
December 31, 2018
 
Face value of secured promissory notes   $ 7,200,607     $ 6,996,441  
Accrued interest on secured promissory notes     4,205,225       3,581,343  
Less: Unamortized debt discount     (12,425 )     (20,833 )
                 
Carrying value of secured promissory notes- related parties   $ 11,393,407     $ 10,556,951  

 

The following annual payments of principal and interest are required over the next five years in respect to these short term and long term related party secured notes payables:

 

Years Ending December 31,   Annual Payments  
       
2019   $ 10,721,178  
2020        
2021     672,229  
         
Total   $ 11,393,407  

 

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NOTE 6 – SECURED PROMISSORY NOTES

 

Secured notes payable consists of the following at periods ended:

 

    As of
June 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.   $ 138,052     $ 130,274  
Total     138,052       130,274  
Less: current portion     -       -  
Secured promissory notes   $ 138,052     $ 130,274  

 

Continuity of Secured Promissory Notes   As of
June 30, 2019
    As of
December 31, 2018
 
Face value of August 10, 2016 secured promissory notes   $ 100,000     $ 100,000  
Total face value of secured promissory notes     100,000       100,000  
Discount on August 10, 2016 secured notes payable (100,000 warrants)     (2,000 )     (2,000 )
Accretion of discount on secured promissory notes ($100,000 secured note payable)     1,133       93  
Interest on secured notes payable     38,919       31,341  
Carrying value of Secured Promissory Notes   $ 138,052     $ 130,274  

 

The following annual payments of principal and interest are required over the next five years in respect to these secured promissory notes:

 

Years Ending December 31,   Annual Payments  
2019     -  
2020     -  
2021     138,052  
Total   $ 138,052  

 

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NOTE 7 - CAPITAL LEASES

 

The Mortgages Payable and Capital Leases consists of the following at periods ending:

 

    As of
June 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.   $ 22,647     $ 22,210 (1)
                 
Total     22,647       22,210  
Less: current portion     22,647       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 June 30, 2019 and December 31, 2018, there were no currently installed marine vessel processors pursuant to the contract.

 

Contingencies

 

As of June 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.

 

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NOTE 9 - WARRANTS

 

The following table summarizes the activities for the period.

 

Warrants

 

The following table summarizes the activities for the quarter ended June 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, June 30, 2019       1,600,000     $ 0.12       1.09  

 

There were no warrants issued, expired or exercised during the three or six months ended June 30, 2019.

 

NOTE 10 – STOCK-BASED COMPENSATION PLANS AND AWARDS

 

2012 Incentive Plan

 

There were no options granted during the three or six months ended June 30, 2019. As of June 30, 2019, 220,000 options were outstanding, of which 195,000 are fully vested.

 

A summary of stock option activity for the three and six months ended June 30, 2019 is as follows:

 

    Outstanding
Stock
Options
    Weighted-
Average
Exercise
Price
    Aggregate
Intrinsic
Value (1)
 
Balance as of December 31, 2018     220,000     $ 0.41     $ -  
Balance as of June 30, 2019     220,000     $ 0.41     $        -  
Exercisable as of June 30, 2019     195,000     $ 0.46     $ -  

 

(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 June 30, 2019, compensation to be recognized on unvested options is not significant.

 

2016 Incentive Plan

 

On October 25, 2016, the Board awarded Rahoul S Banerjea, the former chief financial officer 2,250,000 options to purchase shares of common stock at $0.17 per share. This grant was independent of the Company’s 2012 long term incentive plan. The purpose of this award was to further incentivize Mr. Banerjea and promote the interests of the Company, its subsidiaries and its stockholders by enabling the Company and its subsidiaries to attract, retain and motivate executive employees of the Company and/or its subsidiaries, and to align the interests of those individuals and the Company’s stockholders. At December 31, 2017, all 2,250,000 were vested and an expense of $90,000 was recognized. As of April 18, 2018, Rahoul S Banerjea, CFO, resigned and forfeited his vested options 90 days after that date.

 

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NOTE 11 – RELATED PARTY TRANSACTIONS AND BALANCES

 

As of June 30, 2019 and December 31, 2018, Richard Heddle, CEO is due $1,320,000 and $1,200,000 in accrued payroll, respectively, which is included in Accrued Officers Salary on the consolidated balance sheets.

 

At June 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 June 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 $22,396 on August 16, 2019, $23,529 on July 15, 2019 and $22,442 on August 23, 2019 from the Company’s CEO and Directors in the form of demand secured promissory notes. The advances bear interest at 4%.

 

On July 25, 2019, Plastic2Oil, Inc., a Nevada corporation (the “Company”), entered into an agreement (“Amendment to Note 1”) with Mr. Richard Heddle, the Company’s chief executive officer and a member of the Company’s board of directors, to extend the maturity date of the outstanding $1 million principal amount 12% Secured Promissory Note and all accrued interest due December 1, 2018 (“Note 1”) to December 31, 2020. Mr. Heddle originally purchased Note 1 from the Company on August 29, 2013 in the Company’s private placement of 12% Secured Promissory Notes due December 31, 2018.

 

On July 25, 2019, the Company entered into an agreement (“Amendment to Note 2”) with Mr. Heddle to extend the maturity date of the outstanding $2 million principal amount 12% Secured Promissory Note and all accrued interest due December 1, 2018 (“Note 2”) to December 31, 2020. Mr. Heddle originally purchased Note 2 from the Company on September 30, 2013 in the Company’s private placement of 12% Secured Promissory Notes due December 1, 2018.

 

In consideration for extending the maturity dates of Notes 1 and 2, the Company issued Richard Heddle 3,000,000 options to purchase common stock shares with an exercise price of $.02 per share. The options vest 50% in six months and fully vest one year from July 25, 2019.

 

On July 25, 2019, the Company issued an aggregate of 500,000 options to purchase common stock shares with an exercise price of $0.02 per share to directors, employees and a consultant for services. The options vest 50% in six months and fully vest one year from July 25, 2019.

 

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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 six months ended June 30, 2019 and 2018, the Company had no revenues. The Company’s P2O processors were idle for all of 2017 through 2018 and remained idle during the three and six months ended June 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.

 

  22  
 

 

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 through either the sale of technology, processors, and or 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.

 

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 2018 and remained idle for the six months ended June 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 six months ended June 30, 2019 and 2018.

 

Listing on the OTCQB

 

At June 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 September 11, 2019, the last trading day prior to the date of this filing, the closing price of the common stock on the OTCQB was $.02.

 

Sources of Revenues and Expenses

 

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

 

Revenue

 

We had no revenues during the three months ended June 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.

 

  23  
 

 

We had no fuel production or processor sales in the three months ended June 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 for all of 2014, through, 2018 and remain idle through the date of this filing. Management estimates the processors will remain idle until the Company can raise additional capital.

 

The Company’s operating expenses consisted of the following:

 

Operating Expenses –

 

    For the Three Months Ended
June 30,
 
    2019     2018  
Professional Fees   $ 38,543     $ 18,268  
Compensation     105,829       117,451  
Other     39,315       50,372  
Depreciation & Accretion     7,374       92,833  
Total Operating Expenses   $ 191,061     $ 278,924  

 

We incurred operating expenses of $191,061 during the three months ended June 30, 2019, compared to $278,924 for the three months ended June 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 $87,863. 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 June 30, 2019, we incurred net interest expense of approximately $285,562 as compared to approximately $249,915 for the three months ended June 30, 2018, which were materially due to related party secured promissory and short term notes.

 

Income Tax Expenses

 

For the three months ended June 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 $476,623 for the three months ended June 30, 2019 as compared to a net loss of approximately $528,839 for the three months ended June 30, 2018.

 

  24  
 

 

Results of Operations – Six months ended June 30, 2019 compared to Six months ended June 30, 2018.

 

Revenue

 

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

 

The Company’s operating expenses consisted of the following:

 

Operating Expenses –

 

    For the Six Months Ended
June 30,
 
    2019     2018  
Professional Fees   $ 69,014     $ 55,284  
Compensation     213,851       269,452  
Other     82,418       115,281  
Depreciation & Accretion     14,747       187,568  
Total Operating Expenses   $ 380,030     $ 627,585  

 

We incurred operating expenses of $380,030 during the six months ended June 30, 2019, compared to $627,585 for the six months ended June 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 $247,556. The Company is currently attempting to minimize its operating expenses while it works to recapitalize the company.

 

Non-Operating Expenses

 

Interest Expenses

 

For the six months ended June 30, 2019, we incurred net interest expense of approximately $569,453 as compared to approximately $482,188 for the six months ended June 30, 2018, which were materially due to related party secured promissory and short term notes.

 

Income Tax Expenses

 

For the six months ended June 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 $948,970 for the six months ended June 30, 2019 as compared to a net loss of approximately $1,099,259 for the six months ended June 30, 2018.

 

  25  
 

 

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 and 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 June 30, 2019, we had a cash balance of $13,637. Our principal sources of liquidity in 2019 have been the proceeds of secured promissory notes.

 

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. 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

 

Cash Flow from Operating Activities –

 

    For the Six Months Ended June 30,  
    2019     2018  
Net loss     (948,970 )     (1,099,258 )
Net cash used in operating activities     (236,541 )     (437,865 )
Cash flows from investing activities                
Net cash provided by investing activities     -       100,524  
Cash flows from financing activities:                
Net cash provided by financing activities     204,166       77,930  
Foreign currency exchange effect on cash flows     (1,796 )    

109,607

 
Cash at beginning of period     47,808       172,286  
Cash at end of period     13,637     $ 22,482  

 

Cash Flow from Operations

 

Cash used in operations was approximately $236,541 and $437,865 for the six months ended June 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 from investing activities was approximately $0, and $100,524, for the six months ended June 30, 2019 and 2018, respectively, and was attributed to the release of a cash bond for fuel oil taxes that released the reserved cash.

 

  26  
 

 

Cash Flow from Financing Activities

 

Cash flow from financing activities was approximately $204,166 and $77,930, for the six months ended June 30, 2019 and 2018, respectively. For 2019 and 2018, these amounts were from secured promissory notes from related parties.

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements in the periods ended June 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., Plastic2OilI Re One Inc., and JBI Re #1 Inc., Plastic2Oil of NY #1, and Plastic2Oil Marine Inc.. 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.

 

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.

 

  27  
 

 

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 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.

 

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

 

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).

 

  28  
 

 

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.

 

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 June 30, 2019 and December 31, 2018 was $10,721,178 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.

 

  29  
 

 

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 June 30, 2019. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of June 30, 2018 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.

 

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.

 

  30  
 

 

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.

 

  31  
 

 

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: September 11, 2019 By: /s/ Richard Heddle
  Name: Richard Heddle
  Title: President and Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer)

 

  32  
 

 

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

 

  33  
 

 

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