10-K/A 1 form10-ka.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K/A

Amendment No. 2

 

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

 

For the fiscal year ended December 31, 2018

 

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
incorporation or organization)
  (IRS Employer
Identification No.)

 

20 Iroquois Street
Niagara Falls, NY 14303

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number: (716) 278-0015

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer [  ] Accelerated filer [  ]
  Non-accelerated filer [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]

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $2.4 million as of June 30, 2018 based upon the closing price of $0.02 per share on June 30, 2018.

 

As of September 10, 2019, there were 124,756,158 shares of the Registrant’s common stock, $0.001 par value, outstanding.

 

Documents Incorporated by Reference

 

None

 

 

 

 
 

 

EXPLANATORY NOTE

 

The purpose of this Amendment No. 2 to the Annual Report on Form 10-K for the year ended December 31, 2018 of Plastic2Oil, Inc. (the “Company”) filed with the Securities and Exchange Commission on June 3, 2019 (the “Form 10-K”), amended on June 4, 2019 to include XBRL financial data (the “Amendment No. 1”) is to provide a corrected auditor consent from D. Brooks and Associates CPA’s, P.A. filed as Exhibit 23.1. The consent previously provided in the Form 10-K incorrectly referenced the periods ending December 31, 2016 and December 31, 2015.

 

 
 

 

PLASTIC2OIL, INC.

Table of Contents

 

PART I
         
  ITEM 1. BUSINESS   4
         
  ITEM 1A. RISK FACTORS   12
         
  ITEM 1B. UNRESOLVED STAFF COMMENTS   12
         
  ITEM 2. PROPERTIES   12
         
  ITEM 3. LEGAL PROCEEDINGS   13
         
  ITEM 4. MINE SAFETY DISCLOSURES   13
         
PART II
         
  ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   13
         
  ITEM 6. SELECTED FINANCIAL DATA   14
         
  ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   14
         
  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   26
         
  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   27
         
  ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   28
         
  ITEM 9A. CONTROLS AND PROCEDURES   28
         
  ITEM 9B. OTHER INFORMATION   29
         
PART III
         
  ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   30
         
  ITEM 11. EXECUTIVE COMPENSATION   32
         
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   37
         
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   39
         
  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES   39
         
PART IV
         
  ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   39

 

 2 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This annual report on Form 10-K (“Report”) contains “forward looking statements” within the meaning of applicable securities laws. Such statements include, but are not limited to, statements with respect to management’s beliefs, plans, strategies, objectives, goals and expectations, including expectations about the future financial or operating performance of our Company and its projects, capital expenditures, capital needs, government regulation of the industry, environmental risks, limitations of insurance coverage, and the timing and possible outcome of regulatory matters, including the granting of patents and permits. Words such as “expect”, “anticipate”, “intend”, “attempt”, “may”, “will”, “plan”, “believe”, “seek”, “estimate”, and variations of such words and similar expressions are intended to identify such forward looking statements. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict.

 

These statements are based on and were developed using a number of factors and assumptions including, but not limited to: stability in the U.S. and other foreign economies; stability in the availability and pricing of raw materials, energy and supplies; stability in the competitive environment; the continued ability of our Company to access cost effective capital when needed; and no unexpected or unforeseen events occurring that would materially alter the Company’s current plans. All of these assumptions have been derived from information currently available to the Company including information obtained by our Company from third party sources. Although management believes that these assumptions are reasonable, these assumptions may prove to be incorrect in whole or in part. As a result of these and other factors, actual results may differ materially from those expressed, implied or forecasted in such forward looking information, which reflect our Company’s expectations only as of the date hereof.

 

Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by the forward-looking statements include risks associated with general business, economic, competitive, political and social uncertainties; risks associated with changes in project parameters as plans continue to be refined; risks associated with failure of plant, equipment or processes to operate as anticipated; risks associated with accidents or labor disputes; risks associated in delays in obtaining governmental approvals or financing, or in the completion of development or construction activities; risks associated with financial leverage and the availability of capital; risks associated with the price of commodities and the inability of our Company to control commodity prices; risks associated with the regulatory environment within which our Company operates; risks associated with litigation including the availability of insurance; and risks posed by competition. These and other factors could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by the forward looking statements.

 

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

 

ITEM 1. BUSINESS

 

Overview

 

We are a technology development and licensing company. We have developed technology that converts waste plastic into ultra-clean, ultra-low sulphur fuel products through our proprietary plastic-to-oil, or P2O, process. Previously, our business model was the sale of fuel produced from our own P2O processors and subsequently we sought to manufacture P2O processors for sale to commercial customers. These prior experiences allowed the Company to hone and solidify its technology, however, the capital requirements were significant. For this and other reasons, management shifted its business strategy to technology development and licensing model. We no longer produce and market fuel for sale and no longer manufacture processors ourselves, instead we rely on third party manufacturers. Under our current business model, we seek to license our technology to companies that generate significant waste plastics and desire to have a P2O processor on site to convert the plastics to useable fuel for their operations. We charge our customers for the P2O processor and related equipment, a royalty fee based on the amount of fuel generated, a licensing fee for the use of our proprietary catalyst, and a set up and service fee.

 

As of May 2019, we had three fully-permitted, P2O processors at our Niagara Falls, NY facility and have the capability to produce and store the fuels at, and ship from, such facility. However, it is our strategy to license our P2O technology and know-how to licensees for their use in producing fuel for their own operations directly from the waste plastics that such licensees generate from their own operations.

 

Of our three P2O processors, one is dedicated to research and development and two dedicated to fuel production during pilot runs for customer demonstration. We have components for two additional processors, Nos. 4 and 5, which are in process of assembly for future sale. For the reasons described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, our three P2O processors have been idle since late December 2013 and assembly of processors #4 and #5 was suspended. In light of the change in our business model, management has determined that it only requires an operational processor to demonstrate the Company’s technology. Thus, our processors are likely to remain idle or incomplete, as applicable. We currently are offering one of our processors for sale, along with certain real estate in an effort to raise operating capital

 

We conduct our P2O business at our facilities located in Niagara Falls, New York. Our corporate address is 20 Iroquois Street, Niagara Falls, NY 14303.

 

Organizational History

 

We were incorporated on April 20, 2006 under the laws of the State of Nevada under the name 310 Holdings Inc. (“310”). On April 24, 2009, the Company’s founder, former CEO and Chief of Technology, John Bordynuik, purchased 63% of the issued and outstanding shares of 310 and became the Chairman of the Board of Directors and Chief Executive Officer. On June 25, 2009, we purchased certain assets from John Bordynuik, Inc., a corporation founded by Mr. Bordynuik. The assets acquired included tape drives, computer hardware, servers and a mobile data recovery container to read and transfer data from magnetic tapes. From inception until August 2009, we were a shell company within the meaning of the rules of the Securities and Exchange Commission. On August 24, 2009, we acquired all of the outstanding shares of Javaco, Inc., a wholly owned subsidiary of Domark International, Inc. On September 30, 2009, we acquired 100% of the issued and outstanding equity interests of Pak-It, LLC. We formed JBI (Canada) Inc. on February 9, 2010 for purposes of distributing Pak-It products in Canada. We formed Plastic2Oil of NY, #1, LLC on May 4, 2010, for the development and commercialization of our Plastic2Oil business in Niagara Falls, NY.

 

On October 5, 2009, we changed our corporate name to JBI, Inc.

 

On August 24, 2009, the Company acquired Javaco, Inc. (“Javaco”), a distributor of electronic components, including home theater and audio video products. On July 9, 2012, we announced the closure of our Javaco operations and sold substantially all of its assets to an unrelated third party. In July 2012, the Company closed Javaco and sold substantially all its inventory and fixed assets.

 

 4 

 

 

In September 2009, the Company acquired Pak-It, LLC (“Pak-It”). Pak-It operated a bulk chemical processing, mixing, and packaging facility. It also developed and patented a delivery system that packages condensed cleaners in small water-soluble packages. . On February 10, 2012, we sold substantially all the assets of Pak-It.

 

In December 2010, the Company entered into a twenty year lease for a recycling facility in Thorold, Ontario. During the period ended December 31, 2013, the Company determined that it would no longer operate the facility and shut down all operations. The property was vacated on November 10, 2015 and the lease was terminated on January 15, 2016 effective October 31, 2015.

 

On July 31, 2014, we changed our corporate name to Plastic2Oil, Inc. On January 6, 2015, we changed the names of our two Canadian subsidiaries from JBI (Canada) Inc. to Plastic2Oil (Canada), Inc., and from JBI RE ONE, Inc. to Plastic2Oil RE ONE, Inc.

 

On March 2, 2018, we sold the Data Business. There were no operations in the Data Business during 2017.

 

Our common stock is quoted on the OTCQB Market under the symbol “PTOI”.

 

Organizational Chart

 

The following outlines our corporate structure, as of May 31, 2019, and identifies the jurisdiction of organization of each of our material subsidiaries. Each material subsidiary is wholly-owned by the company.

 

Plastic2Oil, Inc. - Parent company with corporate office in Niagara Falls, NY.
     
Plastic2Oil of NY #1, LLC - Operates our P2O business in Niagara Falls, NY.
     
Plastic2Oil (Canada) Inc. - Conducts our P2O business in Canada, including management of our idle Ontario, Canada fuel blending site.
     
JBI RE#1, Inc.   Real Estate holding subsidiary operating out of the Niagara Fall, NY
     
Plastic2Oil RE ONE, Inc.   Real Estate subsidiary operating out of Ontario, Canada

 

P2O Overview 

 

We are a technology development and licensing company. We have developed technology that converts waste plastic into ultra-clean, ultra-low sulphur fuel products through our proprietary plastic-to-oil, or P2O, process. We have constructed several fully operational P2O processors to demonstrate our technology and process to potential customers. Previously, our business model was the sale of fuel produced from our own P2O processors and subsequently we sought to manufacture P2O processors for sale to commercial customers. These prior experiences allowed the Company to hone and solidify its technology, however, the attendant capital requirements management were significant. For this and other reasons, management shifted its business strategy to technology development and licensing model. We no longer produce and market fuel for sale and no longer manufacture processors ourselves, instead we rely on third party manufactures. Under our current business model, we seek to license our technology to companies that generate significant waste plastics and desire to have a P2O processor on site to convert the plastics to useable fuel for their operations. We charge the company for the P2O equipment, a royalty fee based on the amount of fuel generated, a license fee for the use of our proprietary catalyst, and a set up and service fee.

 

 5 

 

 

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”).

 

During the years ended December 31, 2018 and 2017, neither manufacturing nor sales activity took place. We plan to grow mainly from sale of P2O equipment, a royalty fee based on the amount of fuel generated, a license fee for the use of our proprietary catalyst, and a set up and service fee. We continue seeking opportunities to execute on our business strategy with the goal of becoming a leading North American company whose technology transforms waste plastic into ultra-clean, ultra-low sulphur fuel. We have years of operating data and have solved numerous challenges that vexed the plastics-to-oil industry. Since inception we have produced approximately 670,000 gallons of fuel. Our P2O processors have evolved into a modular solution with the completion of our third P2O processor in 2013. We use third party contract manufacturers to supply us with many of the key modular components of our processors, including the kilns, distillation towers and other key components that require specialized machining and fabrication.

 

Our proprietary P2O process converts waste plastic into fuel through a series of chemical reactions. We developed this process in 2009 and began very limited commercial production in 2010 following our receipt of a consent order from the New York State Department of Environmental Conservation (“NYSDEC”) allowing us to commercially operate our first large-scale P2O processor at our Niagara Falls, New York facility. Currently, we have three fully-permitted P2O processors, which are capable of producing Naphtha, Fuel Oil No. 2 and Fuel Oil No. 6, all of which are fuels produced to the specifications published by ASTM. One fully-permitted P2O processor is dedicated to research and development activities. We have components for two additional processors at an outside vendor, which were impaired in the 4th quarter of 2016. Our P2O process is capable of producing two by-products, an off-gas similar to natural gas and a petcoke carbon residue. 

 

We shut down our fuel production late in the fourth quarter of 2013 due to severe cold weather that caused damage to condensers and other components of our processors and we have not resumed fuel production due to the repair costs as well as our shift in strategy toward manufacturing processors for sale, as opposed to producing and selling fuel products. Management estimates that the repair of the processors will require the expenditure of between $275,000 and $300,000. An additional $500,000 of startup working capital will be required to resume operations mainly for hiring operational personnel and incremental overhead expenses. We lacked the working capital or access to bank credit to make these repairs. We are reviewing our financing options, including the sale of shares of our common stock or other securities, and or the sale of property and or equipment in order to allow us to obtain sufficient funds to possibly recapitalize the company.

 

Currently, we understand that there are several plastic-to-oil processes operational globally. These other processes employ a wide range of technologies and yield varying purities of fuel output. We believe that our process has many advantages over many other commercially available processes in that our P2O solution requires a comparatively less initial capital investment and yields high-quality, ultra-low sulphur fuel, with no need for further refinement. Additionally, our process uses comparatively little energy and physical space, which, in our view, makes it well suited for high-volume production and expansion to multiple sites.

 

P2O Process and Operations

 

Our patent-pending P2O conversion process involves the cracking of the plastic hydrocarbon chains at ambient pressure using a catalyst. There are various processes in existence for converting plastic and other hydrocarbon materials into products for use in the production of fuels, chemicals and recycled items. These processes include: pyrolysis (conversion using dry materials at high pressure and temperature in the absence of oxygen), catalytic conversion (conversion using a catalyst for stimulating a chemical reaction), depolymerization (conversion using superheated water and high pressure and temperature) and gasification (conversion at high temperature using oxygen or steam).

 

 6 

 

 

We have developed our P2O processors with the ability to be continuously running, energy-efficient and environmentally-friendly while converting waste plastics into end-user ready, and ultra-clean, ultra-low sulfur fuels. The processors are periodically shut-down for maintenance and residue removal during operations. The fuels produced can be used directly by our customers without further refining or processing. Over a three year development period from 2009-2012, we scaled our processing operations from a one gallon processor to three processors, each permitted to feed up to 4,000 pounds of feedstock per hour. In prior years, some of the milestones that we have reached include:

 

  Manufacturing and operating multiple processors at our Niagara Falls, NY site;
     
  From inception, the processors were designed with safety and green emissions as top priorities;
     
  Standardization and modularization of the components of our processors;
     
  Ability to continuously feed waste plastic 24 hours a day;
     
  Approximately 86% of waste plastic by weight is converted to liquid fuel conversion;
     
  Approximately 8% of waste plastic by weight is converted to gas and is used to fuel the process;
     
  Operating at atmospheric pressure, not susceptible to pinhole leaks and other problems with pressure and vacuum-based systems;
     
  No requirement for incinerators, thermal oxidizers or scrubbers and no stack monitoring is necessary;
     
  Three stack tests (two on the initial processor and one on the second processor) conducted by Conestoga-Rovers & Associates (“CRA”), prove emissions are extremely low;
     
  Process validation by SAIC Energy, Environment & Infrastructure, LLC and IsleChem, LLC; and
     
  Permitted to operate three processors commercially in New York by the NYSDEC.

 

Processor Input

 

Waste Plastics: We are able to feed mainly mixed unwashed waste plastics into the Plastic2Oil processors. Waste plastic is widely available, and we are focused on maximizing the types and densities of the plastic we procure for optimal processor performance.

 

Heat Transfer Fluid: We are also able to include hydrocarbon base fluid as feed into the P2O processors.

 

Processor Output

 

We are currently permitted to feed two tons, or 4,000 pounds, of waste plastic per hour into each processor by a continuous conveyor belt where it is heated by a burner that mainly burns off-gases produced from the P2O process. Plastic hydrocarbons are cracked into various shorter hydrocarbon chains and exit in a gaseous state. Any residue, metals, and or non-usable substances remain in the reactor and are periodically removed. Through our proprietary process, Fuel Oil No. 6, Fuel Oil No. 2, and Naphtha are condensed from the reactor through the remainder of the process. The fuel output is then transferred to storage tanks automatically by the system. Our process is mainly operated by an automated computer system that controls the conveyor feed rate, system temperatures, off-gas systems, and the pumping out of newly created fuel to storage tanks. The plastic to liquid fuel conversion is approximately 86% by weight. Therefore, twenty tons of plastic can be processed into approximately 4,100 gallons of fuel. We have three processors at our Niagara Falls, NY facility. One processor was dedicated to research and development and all three processors remained idle due to maintenance and repair issues.

 

Fuel Produced: The fuel produced in our processors is ultra-low sulfur fuel and is ready for end-users without the need for further refinement.

 

 7 

 

 

Off-gas: Approximately 8-10% of waste plastics fed into the processors are converted to a mixture of hydrogen, methane, ethane, butane and propane gas, which we call “off-gas”. Once our processors are in a state to begin the P2O process, they use their own off-gas to fuel the burners in the process.

 

Residue: There is approximately 2-4% residue from our process, which is petroleum coke or carbon black (which we call “petcoke”) that needs to be removed on a periodic basis to a waste facility.

 

Feedstock

 

Our P2O process primarily uses post-commercial and industrial waste plastic that might otherwise be sent to a landfill by the commercial and industrial producers of such waste plastic. We believe that this can be costly for these producers due to the large volumes of plastic waste that they generate. As such, our business model is premised on the processor’s ability to accept numerous types of waste plastics from such sources at a relatively low cost. We believe that our processor ability to accept mainly mixed, unwashed waste plastics is a significant advantage of our P2O process compared to similar operations in our industry.

 

Fuel Products

 

Our P2O process makes both light and heavy fuel products which are Naphtha, Fuel Oil No. 2 and Fuel Oil No. 6, as defined by ASTM. Our process also generates two main by-products, a reusable off-gas similar to natural gas and a carbon residue known as petcoke.

 

Naphtha is a very light fuel product that is used as a cutting component for both high and regular grade gasoline. Fuel Oil No. 2 is a mid-range fuel commonly known as diesel and has numerous transportation, manufacturing, and industrial uses. Fuel Oil No. 6 is a heavy fuel generally used in industrial boilers and ships. Our process produces high quality, ultra-low sulphur fuels, without the need for further refinement which enables fuel sales directly from the processors to the end-user.

 

The reusable off-gas that is produced by the P2O process is used to fuel the burner that heats the entire processor.

 

P2O Facilities

 

We currently own one main facility (located in Niagara Falls, NY) that we use in our P2O business, as well as a second owned facility, our fuel blending site (located in Thorold, Canada), for use in the future. These are briefly described below. Additional information on our properties can be found in Item 2 of this report.

 

Niagara Falls, NY facility: Our Niagara Falls, NY facility currently is comprised of two buildings that are owned by the Company, a 10,000 square foot building that currently houses one commercial-scale P2O processor and one P2O processor devoted to research and development activities, and a 7,200 square foot building housing the third commercial-scale P2O processor. Our Niagara Falls operations are situated on eight acres that can accommodate expansion of our operations. This facility also serves as the center of our research and development operations and our administrative offices.

 

Blending Site: We own a 250,000 gallon fuel-blending facility in Thorold, Ontario, Canada, which, when in use, would allow us to blend and self-certify certain fuels that are produced from our process to meet government specifications.

 

All properties are pledged under various agreements as described in Item 7, Transactions with Related Parties.

 

Sales and Distribution

 

Our P2O business is a commercial manufacturing and production business. We plan to grow mainly from the licensing of technology and the sale of processors.

 

 8 

 

 

Suppliers

 

We rely on third party manufacturers for the manufacture of many components of our processors, including kilns and distillation towers.

 

During the years ended December 31, 2018 and 2017, two suppliers, accounted for 34.3% of accounts payable. The two consist of Colgate Industries and 2335524 Ontario, Inc., for which terms are all past due.

 

Licenses, Permits and Testing

 

We maintain the following permits and licenses in connection with the operation of our P2O business.

 

License/Permit   Issuing Authority   Registration Number   Issue date
Air Permit   NYSDEC   9-2911-00348/00002   06/30/2018(Annual)
Solid Waste Permit   NYSDEC   9-2911-00348/00003   06/30/2018(Annual)
Bulk Fuel Blending License   Ontario Technical Standards & Safety Authority   000184322   10/12/2018(Annual)
Waste Disposal Site   Ontario Ministry of the Environment   A121029   Perpetual (subject to annual reviews)

 

Industry Background

 

Alternative fuels are generally considered to be any substances that can be used as fuel, other than conventional fossil fuels such as naturally occurring oil, gas and coal. There have been many approaches taken to producing alternative fuels, including conversion of corn oil, vegetable oil and non-food-based materials. These approaches have demonstrated varying degrees of commercial potential. Some of the challenges that alternative fuel producers have faced include high feedstock supply costs, lower perceived value of fuel product, higher capital costs and dependence on government regulations for economic viabilities. We believe our company is distinguishable from other producers of alternative or renewable fuels because our P2O solution represents a process and product that is commercially viable and designed to provide immediate benefit for industries, communities and government organizations with waste plastic recycling challenges. Our business model is premised on the need for a more efficient and cost-effective alternative to disposing of waste plastic in jurisdictions where the cost of transporting and landfilling large amounts of plastic is quite costly.

 

Competition

 

Our P2O business has elements of both a recycling business and a fuel refiner/production business, which makes it difficult to identify and make direct comparisons to competitors. Both the recycling and energy sectors are characterized by rapid technological change. Our future success will depend on our ability to achieve and maintain a competitive position with respect to technological advances in both of these sectors. We believe that our business currently faces competition in the plastics-to-energy market, including competition from PK Clean, Green Envirotec Holdings LLC, Vadaxx and RES polyflow, each of which has developed alternative methods for obtaining and generating fuel from plastics. Because P2O solution end products include a variety of fuels, we also face competition from the broader petroleum industry.

 

Business Model

 

We believe that our business model provides a unique proposition for both the “supply side” and the “end-user” side of the waste-to-fuel value chain. Our P2O technology is positioned to link these two sides by offering economic incentives in both directions. We believe P2O offers value to suppliers of waste plastic by saving transport and landfill tipping fees, and value to fuel end-users by providing ultra-low sulphur green fuel. Given these incentives, we believe that our business will be sought after by those industries that can benefit from the added value that we provide, thus allowing the potential for our company’s growth through sale and license of our technology and equipment.

 

 9 

 

 

Business Strategy

 

Under our current business model, we seek to license our technology to companies that generate significant waste plastics and desire to have a P2O processor on site to convert the plastics to useable fuel for their operations. Our target customers for our processors are private companies and municipalities in the recycling industry who can operate on a commercial scale. We charge the company for the P2O equipment, a royalty fee based on the amount of fuel generated, a license fee for the use of our proprietary catalyst, and a set up and service fee. In light of the change in our business model, management has determined that it only requires an operational processor to demonstrate the Company’s technology. Thus, our processors are likely to remain idle or incomplete, as applicable. The key elements of our strategy to achieve this goal are as follows:

 

Marketing Strategy

 

We target post-commercial and industrial waste plastic partners. We believe this allows us to identify sources of large plastic waste streams, such as industrial sites and material recovery facilities and recycling centers. We also seek to partner with businesses and municipalities that collect waste plastics. Our vision is to help redirect these waste plastic streams, preventing them from entering landfills.

 

Manufacturing and Procurement Strategy

 

Our P2O business model allows us to simultaneously pursue sales to multiple commercial opportunities (partners) across the waste plastic and fuel markets. Our P2O processors have evolved to be modular solutions with the completion of processor #3 in 2013. We use third party contract manufacturers for the manufacture of many of the key modular components of our processors, including the kilns, distillation towers as well as other key components that require specialized machining and fabrication. We will license our P2O technology, including construction operation and maintenance of processors for operation at our partners’ sites. Our strategy is to have our partners construct clusters of P2O processors at sources of large plastic waste streams, such as industrial sites, material recovery facilities and recycling centers.

 

Competitive Strengths

 

We believe that our competitive strengths are as follows:

 

Our processors convert unwashed waste plastics into “in specification fuels” ready for use by the end-user customer. Our process does not generate any waste water. The fuel is Halide-free and there is no further need for refinement. The process does not produce any hazardous waste.

 

In addition to producing fuel, our P2O solution simultaneously addresses the problem of disposing of waste plastic. We offer an alternative to disposing of waste plastic in a landfill. Our processors can accept mainly mixed, unwashed plastic feedstock. In the United States and Canada, a substantial amount of plastic is currently considered waste and is disposed of in landfills, resulting in tipping fees levied by the landfill or other waste disposal facility fees. We believe that the current low landfill diversion rates for waste plastic in the United States and Canada, together with the costs of transporting and disposing of plastic in bulk, present a significant opportunity to provide an alternative to conventional recycling and waste disposal.

 

The P2O process provides a highly efficient means of converting plastic into fuel. Our proprietary P2O process and catalyst provide a highly efficient means of converting plastic into fuel. Our business model depends on us being able to provide both a cost-competitive means of disposing of waste plastic and an efficient and non-energy intensive means of producing fuel. Our process requires comparatively minimal electricity to operate, and the energy balance of the process is positive, meaning that more energy can be produced than is consumed by the process.

 

Low capital costs and small footprint. We have designed the processors with a modular design with standardized components, making construction of our processors relatively simple and cost effective. We have designed our processors to take up approximately 3,000 square feet of space, giving the processors a relatively small footprint. We believe that this design facilitates the construction and operation of multiple processors on a single site. We estimate that the costs of constructing our processors on industrial partner sites will be substantially less than the cost of constructing waste-to-fuel facilities offered by our competitors.

 

 10 

 

 

Lower emissions

 

In the United States, businesses and other producers of emissions are subject to various regulatory requirements, including the National Emission Standards for Hazardous Air Pollutants, or “NESHAP.” These emission standards may be established according to Maximum Achievable Control Technology requirements set by the EPA, often referred to as “MACT standards”. MACT standards apply to a number of sources of emissions, including operators of boilers, process heaters and certain solid waste incinerators. Because our P2O fuel products have ultra-low sulphur content, we believe that our P2O fuel can assist industrial partners with meeting MACT requirements through reduced hazardous emissions.

 

Our processors produce fuels that have very low sulphur content, which allows the end-user to potentially lower the emissions generated by its operations while using our fuels. These lower emissions potentially could save the end-user from expensive environmental compliance costs, stemming from such initiatives as the NESHAP regulations and more specifically the MACT standards for each pollution source.

 

Validation of repeatability and scalability of P2O processors.

 

Our P2O business has been validated for repeatability and scalability by extensive testing by our customers and multiple independent tests by outside consultants and third party laboratories.

 

Intellectual Property

 

To ensure the protection of our proprietary technology, we have applied for patent protection for both the P2O process and P2O processor. As of May 2019, we have pending two United States and one Canadian applications. A lack of patent protection could have a material adverse effect on our ability to gain a competitive advantage for our process and processors, since it is possible that our competitors may be able to duplicate the P2O process for their own purposes. We also rely on our trade secrets to provide protection from portions of our process and proprietary catalyst.

 

We also hold a U.S. patent relating to our Data Business for the recovery of tape information. This was sold to 2335524Ontario Inc. on March 2, 2018.

 

We also hold three United States trademarks and are as follows:

 

(1) The standard character mark P2O®

 

(2) Miscellaneous design

 

(3) The standard character mark Plastic2Oil®

 

Research and Development

 

Given our strategic focus on developing our P2O business, we anticipate that our research and development activities related to our P2O processors and the construction, operation and systems management of those processors will decrease. Specifically, we will seek to increase the operational capabilities and performance of our P2O processors as opportunities arise. Research and development expenditures was $0 in 2018 and 2017.

 

Employees

 

As of May 2019, we employed three persons full-time and one person part-time, of which one were executive management, one and one half were in finance and administration, one was in operations. None of our employees are subject to a collective bargaining agreement and we believe that our labor relations are good.

 

 11 

 

 

Environmental and Other Regulatory Matters

 

As we seek to further develop and commercialize our P2O business, we will be subject to extensive and frequently developing federal, state, provincial and local laws and regulations, including, but not limited to those relating to emissions requirements, fuel production, fuel transportation, fuel storage, waste management, waste storage, composition of fuels and permitting. Compliance with current and future regulations could increase our operational costs. Management believes that the company is currently in substantial compliance with applicable environmental regulations and permitting.

 

Our operations require various governmental permits and approvals. We believe that we have obtained, or are in the process of obtaining, all necessary permits and approvals for the operations of our P2O business; however, any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of permits and approvals or to have the necessary approvals in place may adversely affect our operations and may subject us to penalties.

 

Company Information

 

We are a reporting company and file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy these reports, proxy statements and other information at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or e-mail the SEC at publicinfo@sec.gov for more information on the operation of the public reference room. Our SEC filings are also available at the SEC’s website at http://www.sec.gov. Our Internet address is http://www.plastic2oil.com. There we make available, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC.

 

ITEM 1A. RISK FACTORS

 

Not Applicable

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not Applicable

 

ITEM 2. PROPERTIES

 

The following is a summary of our properties. We believe that these facilities are sufficient to support our research and development, operational, processing and administrative needs under our current operating plan.

 

1. Corporate Office and Niagara Falls, NY facility

 

Our Niagara Falls, NY facility currently has two operating buildings, a 10,000 square foot building that currently houses two commercial-scale P2O processors and a 7,200 square foot building that houses one commercial-scale processor of our P2O business and other fabrication equipment and parts relevant to the process. This facility serves as the center of our research and development operations and our corporate and administrative offices and is situated on eight acres of land which we own.

 

2. Fuel Blending Facility

 

We own approximately six acres of land in Thorold, Ontario, Canada where we have the capability to operate our fuel blending tanks facility with a 250,000 gallon capacity. When active, the idle fuel-blending facility gives us the capability to store, blend, analyze and self-certify the fuels produced from the P2O process. The facility was not in use during 2018 and 2017. We own the property and have no mortgage debt outstanding in relation to this facility.

 

 12 

 

 

3. Thorold, Ontario, Canada Office Building

 

We owned approximately 21,000 square feet in Thorold, Ontario, consisting of 5,000 square feet of office space and 16,000 square feet of warehousing and storage space, which serves as storage for our company as well as offsite IT operations. This property has a mortgage securing approximately $206,910 of debt. On March 31, 2017, the Company sold this land and building located at 1783 Allanport Road, Thorold, Ontario for a gain of approximately $254,000. The proceeds were used towards repayment of the outstanding mortgage, real estate taxes and closing costs.

 

ITEM 3. LEGAL PROCEEDINGS

 

As of December 31, 2018, the Company was 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 consolidated financial statements of the Company.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

PART II

 

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is quoted for trading on the OTCQB under symbol “PTOI”. The following table sets forth, for each of the quarterly periods indicated, the high and low bid prices of our common stock. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.

 

Quarter  High   Low 
2018          
First Quarter  $0.05   $0.02 
Second Quarter   0.04    0.01 
Third Quarter   0.02    0.01 
Fourth Quarter   0.02    0.01 
           
2017          
First Quarter  $0.05   $0.03 
Second Quarter   0.05    0.01 
Third Quarter   0.03    0.01 
Fourth Quarter   0.04    0.01 

 

Holders

 

On May 31, 2019, there were 450 holders of record of our common stock, $0.001 par value per share.

 

As of May 31, 2019, we had issued and outstanding 124,756,158 shares of common stock, $0.001 par value per share.

 

Dividend Policy

 

We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that the Board of Directors considers relevant.

 

 13 

 

 

Recent Sales of Unregistered Securities

 

Our sales of unregistered securities have been previously reported in our reports on Forms 8-K and 10-Q filed with the SEC.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth certain information as of December 31, 2018 with respect to equity compensation plans under which the Company’s common stock may be issued.

 

Plan Name  Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans 
Equity Compensation Plans               
                
JBI, Inc. 2012 Long-Term Incentive Plan Approved by Stockholders   1,600,000   $.12    4,808,424 
Equity Compensation Plans not Approved by Stockholders   220,000    0.41    220,000 

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not Applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following management’s discussion and analysis (the “MD&A”) of the results of operations of the Company should be read in conjunction with the consolidated financial statements of the Company, together with the accompanying notes, as well as other financial information included elsewhere in this Report. This discussion contains forward-looking statements that involve certain risks and uncertainties, and that reflect estimates and assumptions. See the section titled, “Cautionary Statement Regarding Forward-Looking Statements” for more information on forward-looking statements. Our actual results may differ materially from those indicated in forward-looking statements.

 

Business Overview

 

For the twelve months ended December 31, 2018 and 2017, the Company has no P2O revenue. The Company’s P2O processors were idle for all of 2017 and 2018. The Company’s data storage and recovery business was idle during the twelve months ended December 31, 2017.

 

On April 17, 2017, the Company recorded $779,287 to Other Income from the settlement of the Glenny and Maskell lawsuit. Net cash received was $524,010, net of legal expenses.

 

 14 

 

 

For financial reporting purposes, we currently operate in one business segment. Prior to 2017, we had operated in two business segments, (i) our P2O® solution business, which manufactured and sold the fuel produced through our two P2O processors and (ii) data storage and recovery (the “Data Business”). On March 2, 2018, we exited the Data Business; it was sold to 2335524 Ontario Inc. As of this filing date of the report, all three of our fully-permitted P2O processors were idle and not producing fuel products. In light of the change in our business model, management has determined that it only requires an operational processor to demonstrate the Company’s technology. Thus, our processors are likely to remain idle or incomplete, as applicable.

 

Our P2O business is a technology development and licensing company. We have developed technology that converts waste plastic into ultra-clean, ultra-low sulphur fuel products through our proprietary plastic-to-oil, or P20, process. Under our current business model, we seek to license our technology to companies that generate significant waste plastics and desire to have a P2O processor on site to convert the plastics to useable fuel for their operations. We charge the company for the P2O equipment, a royalty fee based on the amount of fuel generated, a license fee for the use of our proprietary catalyst, and a set up and service fee. We anticipate that this segment will account for substantially all of our revenues in 2018 and beyond. Historically, however, our revenues have been derived primarily from our other segments and products, including those noted above as discontinued operations.

 

The following table highlights since inception the proceeds from financings, research and development expenditures, investment in property, plant and equipment and fuel produced:

 

   FY 2009-2013   FY 2014-2015   FY 2016   FY 2017   FY 2018   Total 
Cash raised  $31,088,110   $1,730,095   $600,000   $0   $327,930   $33,746,135 
R&D cost  $2,452,560   $22,652   $0   $0   $0   $2,475,212 
Investment in property, plant & Equipment  $4,792,433   $13,775   $0   $0   $0   $4,806,208 
Fuel produced in gallons   655,037    12,959    0    0    0    667,996 

 

Plastic2Oil Business

 

Under our current business model, we seek to license our technology to companies that generate significant waste plastics and desire to have a P2O processor on site to convert the plastics to useable fuel for their operations. Our target customers for our processors are private companies and municipalities in the recycling industry who can operate on a commercial scale. We charge the company for the P2O equipment, a royalty fee based on the amount of fuel generated, a license fee for the use of our proprietary catalyst, and a set up and service fee. In light of the change in our business model, management has determined that it only requires an operational processor to demonstrate the Company’s technology. Thus, our processors are likely to remain idle or incomplete, as applicable

 

We believe that our business model provides a unique proposition for both the “supply side” and the “end-user” side of the waste-to-fuel value chain. Our P2O technology is positioned to link these two sides by offering economic incentives in both directions. We believe P2O offers value to suppliers of waste plastic by saving transport and landfill tipping fees, and value to fuel end-users by providing ultra-low sulphur green fuel. Given these incentives, we believe that our business will be sought after by those industries that can benefit from the added value that we provide, thus allowing the potential for our company’s growth through sale of P2O equipment, a royalty fee based on the amount of fuel generated, a license fee for the use of our proprietary catalyst, and a set up and service fee.

 

Our future success will depend on our ability to achieve and maintain a competitive position with respect to technological advances. We believe that our business currently faces competition in the plastics-to-energy market, including competition from PK Clean, Green Envirotec Holdings LLC, Vadxx and RES polyflow, each of which has developed alternative methods for obtaining and generating fuel from plastics.

 

 15 

 

 

Effective as of October 12, 2017 the Company’s Board of Directors increased the number of directors comprising the Board from two to four members and appointed Jason C. Aspin and Lee C. Brain to fill the vacancies created thereby.

 

In 2018, we substantially reduced the Company’s monthly cash burn rate as a result of actions taken in 2016 and 2017, which resulted in a $327,438 reduction of operating expenses for the twelve months ended December 31, 2018. We continue to monitor our operating expenses closely and exploring every avenue, including the March 31, 2017 sale of vacant land and building we own in Thorold, Canada and also seeking to rent or sell the idle blending facility to a qualified independent operator.

 

Our 2018 and 2017 financing activities came from cash raised through short-term loans from our CEO, related party strategic investors and non-related party strategic investors. Some of these investors have experience in systems integration and we believe that their engineering and operations experience will be instrumental towards delivery, set-up and sale of the P2O processors through commercials partnerships.

 

U.S. Patent Application No.: 15/362,102 Titled, SYSTEM AND PROCESS FOR CONVERTING PLASTICS TO PETROLEUM PRODUCTs, was published on March 16, 2017 under Publication No. US 20170073584 and is available on the USPTO website at http://patft.uspto.gov/.

 

Our P2O sales and marketing program are expected to include direct sales as well as new partnerships. To that end, we made the decision in early 2016 not to further extend our agreement with EcoNavigation LLC as their firm has been unable to conclude processor sales on acceptable terms.

 

On December 21, 2017, we executed a Master Agreement (the “Master Agreement”) with Veridisyn Technologies, LLC, a company engaged in processing waste plastics (the “Customer”), pursuant to which the Customer agreed to purchase all of its requirements for the catalyst and processors for its plastic-to-oil (P2O) operations from the Company and to license from the Company certain related P2O technology. The Master Agreement was executed pursuant to the Company’s previously disclosed Memorandum of Understanding with a then un-disclosed party. Under the Master Agreement, the Customer agreed to submit purchase orders for six processors during the first three years of the Master Agreement, two of which shall be ordered within the first one hundred twenty days of executing the Master Agreement. The purchase price of the P2O processors will be $2 million for each of the initial two processors and $3 million for each subsequent processor. In connection with the sale of processors, the Company agreed to provide certain monitoring and technical support services. In addition, as consideration for the non-exclusive license of certain P2O technology, The Customer agreed to pay the Company a royalty fee of 5% of gross sales of fuel products by the Customer or its customers. The Company granted the Customer a right of first refusal to purchase P2O processors for facilities to be developed in certain southern U.S. States. This could lead to purchase of two processors in 2018, although there can be no assurance as negotiations remain ongoing. This agreement lapsed as of December 2018, but the Customer is still working with the Company on restructuring the business arrangement.

 

Through years of testing and refinement in conjunction with our outside engineering firm, we considered and initiated worked towards bringing our flagship processor #3 back online. We are still considering our ability to work towards this goal, but we are presently undercapitalized to fully engage this effort. We believe it will be important to be able to demonstrate the commercial viability of this processor by regular (pilot) operations at our Niagara Falls plant to potential customers. Of primary influence to our decision to expand our sales efforts and to bring the flagship processor #3 back online is our view based on analysis and consultation that oil prices have reached a bottom and could rise and stay above $50 a barrel in the foreseeable future.

 

While the price of crude is a factor in certain economic analysis pertaining to our processor sales, it is not the only factor. There are significant costs associated with landfill disposal. Financial decisions regarding P2O’s technology are based on the results of models that are tailored specifically to each potential client. These include, but are not limited to, the anticipated life of a processor or cluster, specific configurations of customers’ sites and facilities on hand, and the ability to integrate P2O’s technology into existing operations.

 

 16 

 

 

Data Recovery & Migration Business

 

On March 2, 2018, the Data Business was sold to 2335524Ontario Inc.

 

Listing on the OTCQB

 

On June 3, 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 June 3, 2019, the last trading day prior to the date of this filing, the closing price of the common stock on the OTCQB was $0.02.

 

Sources of Revenues and Expenses

 

Revenues

 

In 2018, we did not derive revenue from our either P2O business or Data Business.

 

 17 

 

 

Cost of Sales

 

We did not incur cost of sales in 2018 or 2017. Costs of Sales for P2O when operating consist of the following:

 

feedstock procurement costs;
   
overhead incurred at our Niagara Falls Facility related to the operation of the processors; and
   
freight costs incurred in shipping of plastics and fuels.

 

Costs of sales for our Data Business mainly consist of direct labor costs incurred in reading and interpreting the tape data as well as costs for transferring the tape data to storage media.

 

Operating Expenses

 

Operating expenses consist primarily of the following:

 

personnel-related costs including employee payroll, payroll taxes, stock based compensation and insurance;
   
plant and processor related costs including repairs and maintenance, processing and welding consumables, safety equipment and related costs;
   
professional fees including legal fees, accounting fees including audit and tax professional costs, certain public company required fees, consulting fees and other professional and administrative costs;
   
insurance costs consisting of pollution, workers compensation, general liability, and directors’ and officers’ insurance policies;
   
compliance related costs including environmental consulting fees, stack test and other related testing costs and permitting costs;
   
depreciation expense related to our property plant and equipment; and
   
Impairment expense related to our deposits and property, plant and equipment.

 

Other Income (Expense).

 

In 2018, total other expenses of $1,786,609 consists of $10,498 of the sale of the Tape Reading Equipment to 2335524 Ontario Inc., $1,161,337 of interest expenses on secured promissory notes and amortization on debt discount, along with $635,770 from the impairment loss of property, plant and equipment.

 

In 2017, total other expenses of $111,166 consisted mainly of $1,134,839 of interest expenses on secured promissory notes and amortization of debt discount, $13,158 impairment loss of property, plant, and equipment, $255,676 gain on disposable of the 1783 Allanport Road land and building and $781,155 income from the Glenny and Maskell settlement.

 

 18 

 

 

Results of Operations – Year ended December 31, 2018 compared to Year ended December 31, 2017

 

Revenue

 

As we only recently shifted our business strategy to selling fuel processors, we did not derive any revenue from processor sales in 2018 or 2017. The following table shows a breakdown of our revenues from these sources.

 

Revenue  Period Ended December 31, 
   2018   2017   % Change 
P2O Revenue               
Fuels  $           -   $        -    -%
Total P2O Revenue   -    -            -%
                
Data Business   -    0    0%
TOTAL REVENUE  $-   $0    0%

  

There was no fuel production in the year ended December 31, 2018 and 2017. Consequently, there was neither fuel shipment nor fuel revenue. The lack of fuel revenue for these years 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. These processors were idle for all of 2018 and 2017 and are currently idle.

 

Cost of Goods Sold & Total Gross Profit

 

As indicated earlier, we had no fuel produced in 2018 and 2017. The following tables are a breakdown of the costs of goods sold and Total Gross Profit:

 

Cost of Goods Sold  Periods Ended December 31, 
   2018   2017   % Change 
P2O Cost of Goods Sold                       
Fuels  $      -   $      -    -%
Total P2O Cost of Goods Sold   -    -    -%
                
Data Business Cost of Goods Sold   -    0    0%
TOTAL COST OF GOODS SOLD  $-   $0    0%

  

Gross Profit (Loss)   Periods Ended December 31,  
    2018     2017     % Change  
P2O Gross Loss                        
Fuels   $            -     $         -                    - %
Total P2O Gross Loss     -       -       - %
                         
Data Business Gross Profit     -       0       0 %
TOTAL GROSS PROFIT   $ -     $ 0       0 %

 

The cost of goods sold related to the Data Business was primarily the direct labor incurred in the reading and interpreting of the magnetic tape data.

 

Operating Expenses

 

We incurred operating expenses of $990,882 during the year ended December 31, 2018, compared to $1,363,320 for the year ended December 31, 2017. This $372,438 decrease was driven by a $226,659 decrease in professional fees (from legal fees incurred in the recovery of $779,287 from the Glenny & Maskell class action suit in 2017), a $141,108 reduction in wages from less full-time equivalent (FTE) employees, $18,489 from reduction in depreciation expenses offset by an increase in other operating expenses of $13,818. For the years ended December 31, 2018 and 2017, compensation expense includes $22,665 and $63,170 for shares of common stock issued for services. A breakdown of the components of operating expenses for the fiscal years ended December 31, 2018 and 2017, are as follows:

  

 19 

 

 

Operating Expenses    
   For the Twelve Months Ended December 31, 
   2018   2017 
Selling, General and Administrative expenses          
Professional Fees  $115,799   $342,458 
Compensation   493,392    634,500 
Other   206,993    193,175 
Depreciation & Accretion   174,698    192,707 
Total Operating Expenses  $990,882   $1,362,839 

 

Non-Operating Expenses

 

Interest Expenses

 

For the year ended December 31, 2018, we incurred net interest expense of $1,161,337 as compared to $1,134,839 for the year ended December 31, 2017.

 

Income Tax Expenses

 

For the years ended December 31, 2018, and 2017, we had no federal taxable income due to net losses and recorded a deferred tax asset and a valuation allowance to the extent that those assets are attributable to net operating losses. We recognized the valuation allowance because we are unsure as to the ability to use these assets in the near future due to continued operating losses.

 

For the years ended December 31, 2018 and 2017, we incurred $0 current income tax or future income tax expenses from continuing operations.

 

Net Loss

 

We incurred a net loss of $2,777,491 for the year ended December 31, 2018 as compared to a net loss of $1,474,005 for the year ended December 31, 2017. The primary reason for the increase in net loss was from a $622,612 increase in Impairment Losses on Long lived assets, an increase in interest expense of $26,498, a gain on disposal of property, plant and equipment incurred in 2017 of $255,676 and a gain on the settlement of a lawsuit in 2017 of $781,155.

 

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 of our processors. 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 complete the repairs on Processors #3 to resume production of fuels for pilot runs and customer demonstrations. At December 31, 2018, we had a cash balance of $47,808. Our principal sources of liquidity in 2018 was from the sale of the property located at 1783 Allanport Road, Thorold, Ontario, Canada and proceeds from the settlement of the Glenny and Maskell (Canadian Insurance Broker) lawsuit. Our principal sources of liquidity in 2017 were the proceeds from the related party short-term loans from our chief executive officer, and proceeds from the sale of related –party and non-related party secured long –term debt.

 

As discussed earlier in this MD&A, our processors are currently idle and, thus, we are not producing fuel or generating fuel sales. Furthermore, we have shifted our business strategy to processor sales, rather than fuel sales. Our current cash levels are not sufficient to enable us to make the required repairs to our processors or to execute our business strategy as described in this Report. As a result, we intend to seek significant additional capital through the sale of our equity and debt securities and other financing methods to enable us to make the repairs, to meet ongoing operating costs and reduce existing current liabilities. We also intend to seek to cash advances or deposits under any new processor sale agreements and/or related technology licenses. Management currently anticipates that the processors will remain idle until at least late 2018 and then pilot, or demo, runs for sale of processors. Due to the many factors and uncertainties involved in capital markets transactions, there can be no assurance that we will raise sufficient capital to allow us to resume operations in 2018, or at all. In the interim, we anticipate that our level of operations will continue to be nominal, although we plan to continue to market our P2O processors with the intention of making additional P2O processor sales and technology licenses.

 

 20 

 

 

Our limited capital resources and recurring losses from operations raise substantial doubt about our ability to continue as a going concern and may adversely affect our ability to raise additional capital. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

The following table provides a comparative summary of our cash flows for the fiscal years ended December 31, 2018 and 2017.

 

Cash Flow from Operating Activities    
   For the Twelve Months Ended
December 31,
 
   2018   2017 
Net Loss  $(2,777,491)  $(1,474,005)
Net cash used in operating activities   (552,932)   (184,424)
Cash flow from investing activities          
Net cash used in investing activities   100,524    (101)
Cash flows from Financing activities:          
Net cash provided by financing activities   327,930    85,913 
Cash at beginning of period   172,286    270,898 
Cash at end of period  $47,808   $172,286 

 

Cash Flow from Operations

 

Cash used in operations was $552,932 and $184,424 for the years ended December 31, 2018 and 2017, respectively. In 2018 and 2017 cash was mainly used to continue funding the minimum operating costs. In 2017, the Glenny and Maskell settlement provided cash in the amount of $524,010, net of legal expenses.

 

Cash Flow from Investing Activities

 

Cash used in investing was $100,524 and $101 for the years ended December 31, 2018 and 2017 and was attributable to restricted cash.

 

Cash Flow from Financing Activities

 

Cash flow from financing activities was $327,930, and $85,913, for the years ended December 31, 2018 and 2017, respectively. For 2018 and 2017, these amounts were mainly driven by the proceeds sale of property in Ontario, Canada, Glenny Maskell settlement and amounts received from short-term notes from related parties

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements in the years ended December 31, 2018 and 2017.

 

Transactions with Related Parties

 

As of December 31, 2018 and 2017, Richard Heddle, CEO is due $1,200,000 and $960,000 in accrued payroll, respectively, which is included in accrued expenses on the balance sheets. Further, as of December 31, 2018 and 2017, Richard Heddle is owed $9,594,893 and $8,867,649, respectively, in secured Promissory Notes.

 

See Note 7 of our financial statements for additional Secured Promissory Notes Payable to related parties.

 

 21 

 

 

At December 31, 2018 and 2017, the Company’s accounts payable and accrued expenses included a $132,217 (adjusted for currency fluctuation) outstanding balance due to Heddle Marine Services, a business controlled by Mr. Heddle. 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.

  

Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract in 2010 with a company owned by Mr. Heddle, who later (in 2014) became the Company’s Chief Executive Officer. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At December 31, 2018, there were no installed marine vessel processors pursuant to the contract.

 

Critical Accounting Policies

 

Basis of Consolidation

 

The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, Plastic2Oil (Canada) Inc., JBI CDE Inc., Plastic2OilI Re One Inc., and JBI Re #1 Inc., Plastic2Oil of NY #1, and Plastic2Oil Marine Inc. 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 and accounts receivable exposures.

 

 22 

 

 

Cash

 

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 December 31, 2018 and 2017.

 

Restricted Cash

 

At December 31, 2018 and December 31, 2017, the Company had $0 and $100,524, respectively, of restricted cash, which is used to secure a line of credit that secures a performance bond on behalf of the Company.

 

Property Plant and Equipment

 

Property, Plant and Equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the various classes of assets as follows:

 

Leasehold improvements lesser of useful life or term of the lease
Machinery and office equipment 3-15 years
Furniture and fixtures 7 years
Office and industrial buildings 25-30 years

 

Gains and losses on depreciable assets retired or sold are recognized in the statement of operations in the year of disposal. Repairs and maintenance expenditures are expensed as incurred and expenditures that increase the value or useful life of the asset are capitalized.

 

Construction in Process

 

The Company capitalizes customized equipment built to be used in the future day to day operations at cost. Once complete and available for use, the cost for accounting purposes is transferred to property, plant and equipment, where normal depreciation rates are applied.

 

Impairment of Long-Lived Assets

 

The Company reviews for impairment of long-lived assets on an asset by asset basis. Impairment is recognized on properties held for use when the expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written down to fair value. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. The sale or disposal of a “component of an entity” is treated as discontinued operations.

 

As of December 31, 2018 and 2017, we recorded impairment losses of $635,770 and $13,158, respectively. The charge in 2017 relates specifically to the sale of the property at 1783 Allanport Road, Thorold, Ontario, Canada.

 

 23 

 

 

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 $67,897, 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 obligation. The December 31, 2018 and 2017 assessment, amounted to a net increase of $0 and $0, respectively. As of December 31, 2018 and December 31, 2017, both the carrying value of the asset retirement obligations were $67,897 and $65,920, respectively. These costs include disposal of plastic and other non-hazardous waste, site closing labor and testing and sampling of the site upon closure. This liability is included in other long-term liabilities.

 

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 equipment and catalyst sales are recognized when the customer takes possession of the items since title to the goods and the risk of loss transfers from P2O to Customer upon delivery. Royalty fee from production are recognized when the customer produces fuel from its P2O processors and related equipment. License fees from the use of our catalyst and a setup fee and service fee are recognized when the customer is in production mode.

 

Foreign Currency Translation

 

The consolidated financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830. All monetary items have been translated using the exchange rates in effect at the balance sheet date. All non-monetary items have been translated using the historical exchange rates at the time of transactions. Income statement amounts have been translated using the average exchange rate for the year. Foreign exchange of $0 and gain of $57,301 for monetary items are included as general and administrative expenses in the condensed consolidated statements of operations for the twelve months ended December 31, 2018 and 2017, respectively. The 2017 foreign exchange gain results from the payoff of the 1783 Allanport property mortgage. Resulting differences are reflected in accumulated other comprehensive income in the accompanying consolidated balance sheets.

 

 24 

 

 

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.

 

Loss Per Share

 

The financial statements include basic and diluted per share information. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Common stock equivalents are excluded from the computation of diluted loss per share when their effect is anti-dilutive. For the year ended December 31, 2018, potential dilutive common stock equivalents consisted of 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 they would be antidilutive. For the year ended December 31, 2017, potential dilutive common stock equivalents consisted of 14,950,000 shares underlying common stock warrants and 6,650,000 shares underlying stock options, which were not included in the calculation of the diluted loss per share because they would be antidilutive.

 

Concentrations and Credit Risk

 

The Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Canada Deposit Insurance Corporation and the U.S. Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and has not experienced any collection losses with these financial institutions.

 

Financial instruments which potentially expose the Company to concentrations of credit risk consist principally of operating demand deposit accounts and accounts receivable. The Company’s policy is to place our operating demand deposit accounts with high credit quality financial institutions that are insured by the FDIC, however, account balances may at times exceed insured limits. The Company extends limited credit to its customers based upon their creditworthiness and establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other pertinent information.

 

During the years ended December 31, 2018 and 2017, two suppliers accounted for 34.3% of accounts payable, respectively.

 

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.

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have experienced negative cash flows from operations since inception, have a history of net losses from continuing operations of $2,777,491 and $1,474,005 for the years ended December 31, 2018 and 2017, respectively, and have an accumulated deficit of $82,195,628 at December 31, 2018. These factors raise substantial doubt about our ability to continue to operate in the normal course of business. We have funded our activities to date almost exclusively from equity financings and issuance of secured long-term debt.

 

Financial Instruments and Other Instruments

 

We do not have any outstanding financial instruments and/or other instruments.

 

Disclosure of Outstanding Securities

 

As of May 31, 2019, we had 124,756,158 shares of common stock issued and outstanding.

 

 25 

 

 

In conjunction with the Company’s 2012 Long Term Incentive Plan, options to purchase 220,000 shares of common stock with the exercise price of $0.32, and 1,600,000 warrants with a weighted average exercise price of $0.12 per shares are vested at December 31, 2018.

 

In conjunction with the Company’s August 10, 2016 private placement, the Company sold a $100,000 principal amount of 12% Promissory Note, together with a five-year warrant to purchase up to one hundred thousand shares of the company’s common stock at an exercisable price of $0.12 per share. The gross proceeds to the Company were $100,000.

 

In conjunction with the Company’s August 25, 2016 private placement, the Company sold a $100,000 principal amount of 12% Promissory Note, together with a five-year warrant to purchase up to one hundred thousand shares of the company’s common stock at an exercisable price of $0.12 per share. The gross proceeds to the Company were $100,000.

 

In conjunction with the Company’s October 18, 2016 private placement, the Company sold a $400,000 principal amount of 12% Promissory Note, together with a five-year warrant to purchase up to four hundred thousand shares of the company’s common stock at an exercisable price of $0.12 per share. The gross proceeds to the Company were $400,000.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Disclosures About Market Risk

 

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

 

Currency Fluctuations and Foreign Currency Risk

 

We mainly operate in the United States and Canada. Due to the relative stability of the Canadian Dollar in comparison to the U.S. Dollar, we have not experienced foreign currency risk, however, should this stability change, we could be exposed to such risk.

 

Interest Rate Risk

 

We do not feel that we are subject to significant interest rate risk. We deposit surplus funds with banks earning daily interest at fixed rates and we do not invest in any instruments for trading purposes. Additionally, all of our outstanding debt instruments (our mortgage and capital leases) carry fixed rates of interests. We are exposed to opportunity risk should interest rates decrease. The amount of interest bearing short-term debt outstanding as of December 31, 2018 and 2017 was $9,924,418 and $7,304,262 respectively.

 

Credit Risk

 

Financial instruments which potentially expose us to concentrations of credit risk consist principally of operating demand deposit accounts and accounts receivable. Our policy is to place our operating demand deposit accounts with high credit quality financial institutions that are insured by the FDIC, however, account balances may at times exceed insured limits. We extend limited credit to our customers based upon their creditworthiness and establish an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other pertinent information.

 

We maintain cash balances, at times, with financial institutions in excess of amounts insured by the Canada Deposit Insurance Corporation and the U.S. Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and has not experienced any collection losses with these financial institutions.

 

There were no revenue and accounts receivable for the years ended December 31, 2018 and December 31, 2017.

 

During the years ended December 31, 2018 and 2017, two suppliers accounted for 34.3% of accounts payable.

 

Inflation Risk

 

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

 

 26 

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Index.

 

Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of – December 31, 2018 and 2017 F-2
Consolidated Statements of Operations for the years ended December 31, 2018, and 2017 F-3
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018 and 2017 F-4
Consolidated Statements of Changes in Stockholders Deficit for the years ended December 31, 2018 and 2017 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017 F-7
Notes to Consolidated Financial Statements F-8

 

 27 

 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Plastic2Oil, Inc.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Plastic2Oil, Inc. (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income and stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes to the consolidated financial statements (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two- year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred operating losses, has incurred negative cash flows from operations and has a working capital deficit. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

D. Brooks and Associates CPA’s, P.A.

 

We have served as the Company’s auditor since 2014.

 

Palm Beach Gardens, Florida

 

June 3, 2019

 

F-1

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

  

As of

December 31, 2018

  

As of

December 31, 2017

 
ASSETS          
CURRENT ASSETS:          
Cash and cash equivalents  $47,808   $172,286 
Restricted cash (Note 2 )   -    100,524 
           
Prepaid expenses and other current assets   11,575    12,386 
TOTAL CURRENT ASSETS   59,383    285,196 
           
Property, plant and equipment, net (Note 4)   537,192    1,525,918 
Property held for sale (Note 5)   180,235    - 
           
Deposits (Note 2)   18,800    10,000 
           
TOTAL ASSETS  $795,610   $1,821,114 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES:          
Accounts payable  $1,846,669   $1,878,821 
Accrued expenses   2,888,224    2,607,561 
Secured promissory notes – related parties, current portion (Note 7)   9,924,418    7,304,262 
Capital lease (Note 9)   22,210    21,362 
TOTAL CURRENT LIABILITIES   14,681,521    11,812,006 
           
LONG-TERM LIABILITIES:          
Asset retirement obligations (Note 2)   67,897    65,920 
Secured promissory notes – related parties, less current portion (Note 7)   632,533    1,972,219 
Secured promissory notes (Note 8)   130,274    115,802 
TOTAL LONG-TERM LIABILITIES   830,704    2,153,941 
           
TOTAL LIABILITIES   15,512,225    13,965,947 
           
Commitments and contingencies ( Note 10)          
           
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    67,176,993 
Accumulated other comprehensive income (loss)   154,599    (28,445)
Accumulated deficit   (82,195,628)   (79,418,137)
TOTAL STOCKHOLDERS’ DEFICIT   (14,716,615)   (12,144,833)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $795,610   $1,821,114 

 

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

 

F-2

 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   December 31, 
   2018   2017 
OPERATING EXPENSES          
Selling general and administrative expenses          
Professional Fees   115,799    342,458 
Compensation   493,392    634,500 
Other   206,993    193,175 
Depreciation of property, plant and equipment   174,698    192,707 
TOTAL OPERATING EXPENSES   990,882    1,362,839 
           
LOSS FROM OPERATIONS   (990,882)   (1,362,839)
           
OTHER (INCOME) EXPENSES          
Impairment loss - property, plant and equipment.   635,770    13,158 
Gain on disposal of property, plant and equipment   -    (255,676)
Interest expense, net   1,161,337    1,134,839 
Other expense, net   (10,498)   (781,155)
TOTAL OTHER (INCOME) EXPENSES   (1,786,609)   (111,166)
           
LOSS BEFORE INCOME TAXES   (2,777,491)   (1,474,005)
           
Provision for Income taxes   -    - 
           
NET LOSS   (2,777,491)   (1,474,005)
           
Basic and diluted loss per share  $(0.02)  $(0.01)
           
Basic and diluted weighted average number of shares outstanding (Note 2)   124,756,158    124,756,158 

 

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

 

F-3

 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

   December 31, 
   2018   2017 
         
NET LOSS  $(2,777,491)  $(1,474,005)
           
OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAX          
Foreign currency items   183,044    (221,961)
COMPREHENSIVE LOSS  $(2,594,447)  $(1,695,966)

 

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

 

F-4

 

 

Plastic2Oil, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

Years Ended December 31, 2018 and 2017

 

  

Common Stock

$0.001 Par Value

   Additional Paid   Accumulated   Other Comprehensive   Total Stockholder 
   Shares   Amount   in Capital   Deficit   Income (Loss)   Deficit 
                         
BALANCES - DECEMBER 31, 2016   124,756,158   $124,756  $67,113,822   $(77,944,132)  $193,516   $(10,512,038)
                               
To book Stock compensation expense related to granting of stock options at $0.05   -    -    63,170    -    -    63,170 
                               
Foreign currency adjustment   -    -    -    -    (221,961)   (221,961)
                               
Net loss   -    -    -    (1,474,005)   -    (1,474,005)
                               
BALANCES - DECEMBER 31, 2017   124,756,158   $124,756   $67,176,992   $(79,418,137)  $(28,445)  $(12,144,834)

 

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

 

(Continued next page)

 

F-5

 

 

Plastic2Oil, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

Years Ended December 31, 2018 and 2017

 

  

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)
                               
Stock compensation expense   -    -    22,666    -    -    22,666 
                               
Foreign currency adjustment   -    -    -    -    183,044    183,044 
                               
Net loss   -    -    -    (2,777,491)   -    (2,777,491)
                               
BALANCES - DECEMBER 31, 2018   124,756,158    124,756  $67,199,658   $(82,195,628)  $154,599   $(14,716,615)

 

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

 

F-6

 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Twelve Months Ended December 31,

 

   2018   2017 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
           
NET LOSS  $(2,777,491)  $(1,474,005)
Reconciliation of net loss to net cash used in operations:          
Depreciation of property plant and equipment   174,699    193,187 
Amortization of debt discount   147,836    198,935 
Impairment loss - property, plant and equipment   635,770    13,158 
Accrued interest expense   1,013,501    928,874 
Stock compensation expense   22,665    63,170 
Gain on sale of property plant and equipment   -    (255,676)
           
Changes in assets and liabilities:          
Accounts receivable   -    (21,950)
Prepaid expenses and other current assets   (7,990)   20,184 
Accounts payable   (15,511)   (169,861)
Accrued expenses   253,589    275,660 
NET CASH USED IN OPERATING ACTIVITIES   (552,932)   (184,424)
           
CASH FLOW FROM INVESTMENT ACTIVITIES:          
Decrease (increase) in restricted cash   100,524    (101)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES   100,524    (101)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from sale of property, plant and equipment   -    365,070 
Proceeds from short-term loans – related party   327,930    - 
Repayment of mortgages and capital leases   -    (279,157)
NET CASH PROVIDED BY FINANCING ACTIVITIES   327,930    85,913 
           
NET DECREASE IN CASH   (124,478)   (98,612)
           
CASH AT BEGINNING OF YEAR   172,286    270,898 
           
CASH AT END OF YEAR  $47,808   $172,286 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid for income taxes  $-   $- 
Cash paid for interest  $578   $7,796 

 

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

 

F-7

 

 

PLASTI2OIL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND GOING CONCERN

 

Plastic2Oil, Inc. (the “Company” or “P2O”) was originally incorporated as 310 Holdings, Inc. (“310”) in the State of Nevada on April 20, 2006. 310 had no significant activity from inception through 2009. In April 2009, John Bordynuik purchased 63% of the issued and outstanding shares of 310. During 2009, the Company changed its name to JBI, Inc. and began operations of its main business operation, transforming waste plastics to oil and other fuel products. During 2014, the Company changed its name to Plastic2Oil, Inc. (“P2O”). P2O is a combination of proprietary technologies and processes developed by P2O which convert waste plastics into fuel. P2O currently, as of the date of this filing, has three processors at its Niagara Falls, NY facility (the “Niagara Falls Facility”). The processors have been idle since December 2013. Our P2O business has begun the transition from research and development to a commercial business that plans to grow through the licensing of technology and or from the sale of processors.

 

Presently, we do not have sufficient cash to operate our business which has forced us to suspend our operations until such time as we receive a capital infusion or cash advances on the sale of our processors.

 

Going Concern

 

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplates continuation of the Company as a going concern which assumes the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has experienced negative cash flows from operations since inception, has net losses from continuing operations of $2,777,491, and $1,474,005 for the years ended December 31, 2018 and 2017, respectively, and has a working capital deficit of $14,622,138 and an accumulated deficit of $82,195,628, at December 31, 2018. 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, loans from related parties and issuance of secured long-term debt.

 

The Company will continue to require substantial funds to continue the expansion of its P2O business to achieve significant commercial productions, and to significantly increase sales and marketing efforts. Management’s plans in order to meet its operating cash flow requirements include financing activities such as private placements of its common stock, issuances of debt and convertible debt instruments.

 

While the Company believes that it will be successful in obtaining the necessary financing to fund its operations, meet regulatory requirements and achieve commercial production goals, there are no assurances that such additional funding will be achieved and that it will succeed in its future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue in existence.

 

F-8

 

 

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES

 

Basis of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Plastic2Oil of NY#1 Inc., Plastic2Oil (Canada) Inc., JBI CDE Inc., Plastic2Oil Re One Inc., JBI Re #1 Inc., Plastic2Oil Marine Inc., Javaco, and Pak-it. All intercompany transactions and balances have been eliminated in consolidation. Amounts in the consolidated financial statements are expressed in US dollars. Recycling Center, Pak-It and Javaco have also been consolidated.

 

Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates include amounts for impairment of long-lived assets, share based compensation, asset retirement obligations, inventory obsolescence, accrued liabilities, accounts receivable exposures and valuation of options and warrants.

 

Cash

 

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 December 31, 2018 and 2017. As of December 31, 2018 and December 31, 2017, the Company has cash of $47,808 and $172,286, respectively.

 

Restricted Cash

 

As of December 31, 2018 and 2017, the Company had $0 and $100,524, respectively, of restricted cash, which was used to secure a line of credit that secured a performance bond on behalf of the Company. Given the Company is no longer producing fuel, the State of New York released the bond requirement.

 

F-9

 

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the various classes of assets, and capital leased assets are given useful lives coinciding with the asset classification they are classified as. These lives are as follows:

 

Leasehold improvements lesser of useful life or term of the lease
Machinery and office equipment 3-15 years
Furniture and fixtures 7 years
Office and industrial buildings 25 -30 years

 

Gains and losses on depreciable assets retired or sold are recognized in the statements of operations in the year of disposal. Repairs and maintenance expenditures are expensed as incurred and expenditures that increase the value or useful life of the asset are capitalized.

 

Construction in Process

 

The Company capitalizes customized equipment built to be used in the future day to day operations at cost. Once complete and available for use, the cost for accounting purposes is transferred to property, plant and equipment, where normal depreciation rates are applied.

 

Impairment of Long-Lived Assets

 

The Company reviews for impairment of long-lived assets on an asset by asset basis. Impairment is recognized on properties held for use when the expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written down to fair value. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. The sale or disposal of a “component of an entity” is treated as discontinued operations.

 

During the years ended December 31, 2018 and 2017, the Company recorded impairment losses on deposits and property, plant and equipment of $635,770 and $13,158, respectively, in accordance to ASC 360-10-50-2 where an impairment loss will be recognized only if the carrying amount of the long-lived assets are not recoverable and exceeds its fair value. The Company estimates the fair value of its long-lived assets for impairment purposes using an undiscounted cash flow method.

 

Asset Retirement Obligations

 

The fair value of the estimated asset retirement obligation is recognized in the consolidated balance sheets when identified and a reasonable estimate of fair value can be made. The asset retirement cost, equal to the estimated fair value of the asset retirement obligation, is capitalized as part of the cost of the related long-lived asset. The balance of the asset retirement obligation is determined through an assessment made by the Company’s engineers, of the total costs expected to be incurred by the Company when closing a facility. The total estimated cost is then discounted using the current market rates to determine the present value of the asset as of the date of this valuation. As of the date of the creation of the asset retirement obligation in the amount of $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 on the consolidated balance sheets and is depreciated over the asset’s estimated useful life and is included in depreciation and accretion expense in the consolidated statements of operations. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligations in the consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation. As of December 31, 2018 and December 31, 2017, the carrying value of the asset retirement obligations was $67,897 and $65,920, respectively. These costs include disposal of plastic and other non-hazardous waste, site closing labor and testing and sampling of the site upon closure.

 

F-10

 

 

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.

 

F-11

 

 

Foreign Currency Translation

 

The consolidated financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830. All monetary items have been translated using the exchange rates in effect at the balance sheet date. All non-monetary items have been translated using the historical exchange rates at the time of transactions. Income statement amounts have been translated using the average exchange rate for the year. Foreign exchange of $0 and gain of $57,301 are included as general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2018 and 2017, 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.

 

F-12

 

 

Loss Per Share

 

The financial statements include basic and diluted per share information. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Common stock equivalents are excluded from the computation of diluted loss per share when their effect is anti-dilutive. For the year ended December 31, 2018, 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 is anti-dilutive. For the year ended December 31, 2017, potential dilutive common stock equivalents consisted 4,850,000 shares underlying common stock warrants and 2,380,000 shares underlying stock options, which were not included in the calculation of the diluted loss per share because of their effect is 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 Federal Deposit Insurance Corporation, however, account balances may at times exceed insured limits.

 

During the years ended December 31, 2018 and 2017 two suppliers accounted for 34.3% of accounts payable.

 

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.

 

F-13

 

 

Recently Issued Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), that replaces existing lease guidance. Under this ASU, leases will be required to record right-of-use assets and corresponding lease liabilities on the balance sheet. This guidance is effective beginning January 1, 2019. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented. The Company has not yet determined the impact that the adoption of this guidance will have on our consolidated financial statements.

 

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

 

F-14

 

 

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, Plant and Equipment consist of the following at:

 

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   $(287,387)  $537,192 

 

As of December 31, 2017  Cost   Accumulated Depreciation   Net Book
Value
 
             
Leasehold improvements  $218,054   $(40,635)  $177,419 
Machinery and office equipment   1,626,379    (1,385,432)   240,947 
Furniture and fixtures   16,368    (16,368)   - 
Land   243,859    -    243,859 
Asset retirement obligation   58,363    (9,799)   48,564 
Office and industrial buildings   1,084,899    (271,672)   813,227 
Equipment under capital lease   53,257    (51,355)   1,902 
Total  $3,301,179   $(1,775,261)  $1,525,918 

 

At December 31, 2018 and 2017, the Company recognized $172,796, and $190,009, respectively, of depreciation expense. At December 31, 2018 and 2017, machinery and equipment with a cost of $53,257 and accumulated amortization of $53,256 and $51,355, respectively, were under capital lease. During the periods ended December 31, 2018 and 2017, the Company recognized $1,902, and $7,608, respectively, of depreciation expense related to these assets under capital lease.

 

At December 31, 2018 and 2017, we recorded impairment loss on property, plant and equipment of $635,770 and $13,158, respectively in accordance to ASC 360-10-50-2 where an impairment loss will be recognized only if the carrying amount of the long-lived assets are not recoverable and exceeds its fair value. The change in 2017 relates specifically to the sale of the 1783 Allanport property.

 

NOTE 5 - 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 in the accompanying balance sheet as of December 31, 2018. 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 December 31, 2018.

 

F-15

 

 

NOTE 6 - INCOME TAXES

 

The following table summarizes the activities for the year ended December 31, 2018 and December 31, 2017, respectively:

 

   2018   2017 
Statutory tax rate:          
U.S.   21%   34%
Foreign   26.5%   26.5%
           
Loss from operations before recovery of income taxes:          
U.S.  $(2,622,093)  $(1,603,917)
Foreign   (155,398)   129,912 
    (2,777,491)  $(1,474,005)
           
Expected income tax recovery   (591,820)  $(510,905)
           
Permanent differences   265    1,889 
Other adjustments   (35,662)   (7,122,672)
Change in Tax Rate   -    7,019,512 
Increase in valuation allowance   627,217    612,176 
           
Income tax recovery from continuing operations  $-   $- 

 

The Company’s income tax recovery is allocated as follows:

 

The Company’s deferred tax assets and liabilities as at December 31, are as follows:

 

   2018   2017 
Deferred Tax Assets          
Net operating losses  $13,395,733   $13,700,176 
Reserve – contingency   64,563    81,415 
Property, plant and equipment   239,907    258,553 
Accounts receivable   137,144    146,965 
Accrued expenses   296    317 
Stock based compensation   225,466    236,756 
Impairment Reserve   458,121    490,680 
Other   1,171    1,255 
    14,522,401    14,916,118 
Deferred Tax Liability          
Property, plant and equipment   (451,476)   (462,779)
           
Less: Valuation allowance   (14,070,925)   (14,453,339)
   $-   $- 

 

The Company has $46,166,933 of US and $5,928,358 of foreign, net operating tax losses that begin to expire in the year 2038.

 

F-16

 

 

The Company calculates its income tax expense by estimating the annual effective tax rate and applying that rate to the year-to-date ordinary income (loss) at the end of the period. The Company records a tax valuation allowance when it is more likely than not that it will not be able to recover the value of its deferred tax assets. For the years ended December 31, 2018 and 2017, the Company calculated its estimated annualized effective tax rate at 0% and 0%, respectively, for both the United States and Canada. The Company had no income tax expense on its $2,777,491 and $1,474,005 losses for the years ended December 31, 2018 and 2017, respectively.

 

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest accrued on uncertain tax positions as well as interest received from favorable tax settlements within interest expense. The Company recognizes penalties accrued on unrecognized tax benefits within selling, general and administrative expenses. As of December 31, 2018 and 2017, the Company had no uncertain tax positions.

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act decreases the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The impact of the re-measurement on the Corporation’s net deferred tax asset, as of December 31, 2017, was an approximately $7,000,000 decrease in deferred tax assets, with a corresponding decrease in the Company’s valuation allowance, and no impact on income tax expense. The Act also includes a number of other provisions including, among others, the elimination of net operating loss carrybacks and limitations on the use of future losses, the repeal of the Alternative Minimum Tax regime and the repeal of the domestic production activities deduction. These provisions are not expected to have a material effect on the Corporation.

 

Given the significant complexity of the Act and anticipated additional implementation guidance from the Internal Revenue Service, further implications of the Act may be identified in future periods.

 

The Company does not anticipate any significant changes to the total amounts of unrecognized tax benefits in the next twelve months. The years ended December 31, 2014 through December 31, 2018 are open tax years.

 

F-17

 

 

NOTE 7 – SECURED PROMISSORY NOTES - RELATED PARTIES

 

Secured promissory notes with related parties consists of the following:

 

   As of
December 31, 2018
   As of
December 31, 2017
 
Secured Demand Promissory Notes bearing interest ranging from 4 to 12% per annum.  $1,907,636   $1,969,121 
           
Secured Demand Promissory Notes bearing interest ranging from 4 to 12% per annum.   628,382    588,651 
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.   75,892    - 
Secured Promissory Notes of-$1,000,000 in November 19, 2014 bearing interest of 12% per annum compounded annually, together with a five-year warrant to purchase up to one million shares of the Company’s common stock at an exercise price of $0.12 per share, and payable upon maturity in 2019 and secured by a security interest in substantially all of the assets of the Company and its subsidiaries.   1,595,798    1,413,186 
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.   126,711    - 
Secured Promissory Notes ($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. This note is currently in default.   5,463,259    4,746,490 
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.   126,740    - 
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.   129,685    115,276 
           
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.   502,848    443,757 
           
Total   10,556,951    9,276,481 
           
Less: Current portion short term secured promissory notes – related parties  $9,924,418   $7,304,262 
Long Term Secured promissory notes – related parties  $632,533   $1,972,219 

 

Continuity of Secured Promissory Notes – Related Parties  As of
December 31, 2018
   As of
December 31, 2017
 
Face value of secured notes payable  $6,996,441   $6,668,511 
Accrued interest on secured promissory notes   3,581,343    2,776,639 
Less: Unamortized debt discount   (20,833)   (168,669)
Carrying value secured promissory notes  $10,556,951   $9,276,481 

 

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  $9,924,418 
2020     
2021   - 
2022   632,533 
Total  $10,556,951 

 

F-18

 

 

NOTE 8 – SECURED PROMISSORY NOTE

 

Secured promissory note consists of the following at periods ended:

 

   As of
December 31, 2018
   As of
December 31, 2017
 
         
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.   130,275    115,802 
Total   130,275    115,802 
Less: current portion   -    - 
Secured promissory notes  $130,275   $115,802 

 

Continuity of Secured Promissory Notes  As of
December 31, 2018
   As of
December 31, 2017
 
Face value of August 10, 2016 secured note payable  $100,000   $100,000 
Total face value of promissory notes payable   100,000    100,000 
Discount on August 10, 2016 secured notes payable (100,000 warrants)   (2,000)   (2,000)
Accretion of discount on secured notes payable ($100,000 secured note payable)   933    533 
Accrued interest on secured notes payable   31,342    17,269 
Carrying value of Secured Promissory Notes  $130,275   $115,802 

 

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

 

Years Ending December 31,  Annual Payments 
2019  $- 
2020   - 
2021   130,275 
      
Total  $130,275 

 

F-19

 

 

NOTE 9 - CAPITAL LEASES

 

The Capital Leases consist of the following at periods ending:

 

   As of
December 31, 2018
   As of
December 31, 2017
 
         
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 (1).   22,210    21,362 
           
Total   22,210    21,362 
Less: current portion   22,210    21,362 
Mortgages payable and capital leases  $-   $- 

 

(1) Includes accrued interest

 

F-20

 

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Commitments

 

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 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 December 31, 2018, there were no currently installed marine vessel processors pursuant to the contract.

 

As of December 31, 2018, the Company has committed to purchase certain pieces of key machinery from vendors related to the future expansion of its operations.

 

Contingencies

 

As of December 31, 2018, 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 consolidated financial statements of the Company.

 

F-21

 

 

NOTE 11 – STOCKHOLDERS’ DEFICIT

 

Warrants

 

The following table summarizes the activities for the years ended December 31, 2018 and 2017:

 

       Weighted   Weighted 
   Warrants   Average   Average 
   Number   Exercise Price   Remaining Term 
OUTSTANDING, December 31, 2016   14,950,000   $0.18    0.9 
Expired   10,100,000    0.09    0 
OUTSTANDING, December 31, 2017   4,850,000   $0.38    1.3 
Expired   3,250,000    0.06      
OUTSTANDING, December 31, 2018   1,600,000   $0.12    1.58 

 

Pursuant to a secured debt issuance on August 10, 2016, August 24, 2016 and October 25, 2016, the Company issued 600,000 warrants, to purchase shares of common stock for $0.12 per share to the holder of the secured debt. The warrants have a five year term from the date of issuance, as such the corresponding expiry dates are August 10, 2021, August 25, 2021 and October 25, 2021 respectively. The Company allocated $24,000 of the proceeds to the warrants based on their relative fair value. Such amount was recorded as a discount against the debt and is being amortized in to interest expense through the maturity date of the debt. The relative fair value of the warrants was determined on the date of the grant using the Black-Scholes pricing model.

 

NOTE 12 – STOCK-BASED COMPENSATION PLANS AND AWARDS

 

The Company’s 2012 Long Term Incentive Plan (the “2012 Plan”) provides for the issuance of stock options, restricted stock units and other stock-based awards to members of management and key employees. The 2012 Plan is administered by the compensation committee of the Board of Directors of the Company, or in the absence of a committee, the full Board of Directors of the Company. The Plan was enacted in July 2012, and prior to this time, no plan and consequently, no stock options or shares of restricted stock were granted under an equity compensation plan.

 

Stock Options-2012 Plan

 

There were no options granted during the year ended December 31, 2018. There were 50,000 options granted during the year ended December 31, 2017 whose fair value was deemed insignificant. For years ended December 31, 2018 and 2017, the Company recorded stock-based compensation expense (included in selling, general and administrative expense) of $22,665 and $63,170, respectively, related to stock options that vested. As of December 31, 2018, 195,000 options are vested.

 

Valuation of Awards

 

The per-share fair value of each stock option granted during the year ended December 31, 2017 was determined on the date of grant using the Black-Scholes option pricing model using the following assumptions:

 

   2017 
Expected life (in years)   7.00 
Risk-free interest rate   0.05%
Expected volatility   306.83 
Expected dividend yield   0%

 

F-22

 

 

A summary of stock option activity for the years ended December 31, 2018 and 2017 is as follows:

 

   Outstanding   Weighted-Average   Aggregate 
   Stock Options   Exercise Price   Intrinsic Value (1) 
Balance as of December 31, 2016   4,390,000    1.12      
Issued   50,000    .05      
Expired/Forfeited   (2,060,000)   .38      
Balance as of December 31, 2017   2,380,000   $0.42   $- 
Expired/Forfeited   (2,160,000)   0.38    - 
                
Balance as of December 31, 2018   220,000    0.41      
Exercisable as of December 31, 2018   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.

 

F-23

 

 

Stock Options-2016 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.

 

A summary of stock option activity for the years ended December 31, 2018 and 2017 is as follows:

 

   Outstanding   Weighted-Average   Aggregate 
   Stock Options   Exercise Price   Intrinsic Value (1) 
Balance as of December 31, 2016   2,250,000    .17      
Expired/Forfeited   -           
Balance as of December 31, 2017   2,250,000   $.17   $- 
Expired/Forfeited   (2,250,000)  $.17      
Balance as of December 31, 2018   -        $- 

 

NOTE 13 – RETIREMENT PLAN

 

The Company adopted a defined contribution benefit plan (the “Defined Contribution Plan”) for our U.S. employees which complies with section 401(k) of the Internal Revenue Code. The Company does not currently match any of the employee contributions. Employees are not required to make contributions into the fund. For the years ended December 31, 2018 and 2017, $8,357 and $31,051 respectively were contributed by employees. Total administrative expense under this plan was $3,039, and $3,055 for the years ended December 31, 2018, and 2017 respectively.

 

NOTE 14 – RELATED PARTY TRANSACTIONS AND BALANCES

 

As of December 31, 2018 and 2017, Richard Heddle, CEO is due $1,200,000 and $960,000 in accrued payroll, respectively, which is included in Accrued Expenses on the Balance Sheets.

 

At December 31, 2018 and 2017, 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 7 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 December 31, 2018 and December 31, 2017, there were no currently installed marine vessel processors pursuant to the contract.

 

F-24

 

 

NOTE 15 – RISK MANAGEMENT

 

Concentration of Credit Risk

 

The Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Canada Deposit Insurance Corporation and the U.S. Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and has not experienced any collection losses with these financial institutions.

 

During the years ended December 31, 2018 and 2017 two suppliers accounted for 34.3% of accounts payable.

 

Contingencies

 

As of December 31, 2018, 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 consolidated financial statements of the Company.

 

NOTE 16 – SUBSEQUENT EVENTS