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EX-31.1 - Plastic2Oil, Inc.ex31-1.htm
EX-32.2 - Plastic2Oil, Inc.ex32-2.htm
EX-32.1 - Plastic2Oil, Inc.ex32-1.htm
EX-31.2 - Plastic2Oil, Inc.ex31-2.htm
EX-23.1 - Plastic2Oil, Inc.ex23-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K

 

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

 

For the fiscal year ended December 31, 2015

 

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   [  ] Smaller reporting company [X]

 

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

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $10.3 million as of June 30, 2015 based upon the closing price of $0.09 per share on June 30, 2015.

 

As of April 14, 2016, there were 124,756,158 shares of the Registrant’s common stock, $0.001 par value, outstanding.

 

Documents Incorporated by Reference

 

None

 

 

 

   
   

 

PLASTIC2OIL, INC.

Table of Contents

 

PART I
       
  ITEM 1. BUSINESS 5
       
  ITEM 1A. RISK FACTORS 15
       
  ITEM 1B. UNRESOLVED STAFF COMMENTS 26
       
  ITEM 2. PROPERTIES 26
       
  ITEM 3. LEGAL PROCEEDINGS 27
       
  ITEM 4. MINE SAFETY DISCLOSURES 27
       
PART II
       
  ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 27
       
  ITEM 6. SELECTED FINANCIAL DATA 29
       
  ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 29
       
  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 44
       
  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 45
       
  ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 46
       
  ITEM 9A. CONTROLS AND PROCEDURES 46
       
  ITEM 9B. OTHER INFORMATION 47
       
PART III
       
  ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 48
       
  ITEM 11. EXECUTIVE COMPENSATION 50
       
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 54
       
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 56
       
  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 57
       
PART IV
       
  ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 57

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

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

 

Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by the forward-looking statements include risks associated with general business, economic, competitive, political and social uncertainties; risks associated with changes in project parameters as plans continue to be refined; risks associated with failure of plant, equipment or processes to operate as anticipated; risks associated with accidents or labor disputes; risks associated in delays in obtaining governmental approvals or financing, or in the completion of development or construction activities; risks associated with financial leverage and the availability of capital; risks associated with the price of commodities and the inability of our Company to control commodity prices; risks associated with the regulatory environment within which our Company operates; risks associated with litigation including the availability of insurance; and risks posed by competition. These and other factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by the forward looking statements are discussed in more detail in the section entitled “Risk Factors” Part I, Item 1A of this Report and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Report.

 

Some of the forward-looking statements may be considered to be financial outlooks for purposes of applicable securities legislation including, but not limited to, statements concerning capital expenditures. These financial outlooks are presented to allow the Company to benchmark the results of our Company’s Plastic2Oil business. These financial outlooks may not be appropriate for other purposes and readers should not assume they will be achieved.

 

Our Company does not intend to, and the Company disclaims any obligation to, update any forward-looking statements (including any financial outlooks), whether written or oral, or whether as a result of new information, future events or otherwise, except as required by law.

 

Unless otherwise noted, references in this Report to “P2O” the “Company,” “we,” “our” or “us” means Plastic2Oil, Inc., a Nevada corporation.

 

 3 
 

 

GLOSSARY OF TECHNICAL TERMS

 

In this filing, the technical terms, phrases, and abbreviations set forth below have the following meanings:

 

“ASTM” means American Society for Testing and Materials, the entity responsible for the development and delivery of international voluntary consensus standards.

 

“distillate” means a product derived from petroleum-based hydrocarbons.

 

“Fuel Oil” means various ranges of Number 1 to 6 fuels distilled from crude oil, or in P2O’s case, distilled from plastic;

 

“Fuel Oil No. 2” means a distillate heating oil similar to diesel fuel with the same cetane number, or measurement of combustibility quality, as diesel fuel. This is generally obtained in the crude oil distillation process from the lighter cuts of crude oil. In our process, it is the second fuel made in the conversion from plastic to oil;

 

“Fuel Oil No. 6” means a high viscosity residual oil that requires preheating to 104 – 127 degree Celsius. It is generally the material remaining after the more valuable cuts of crude oil have been boiled off. In our process, it is the first fuel made in the conversion from plastic to oil;

 

“hydrocarbon” means an organic compound consisting entirely of hydrogen and carbon;

 

“MACT” means Maximum Achievable Control Technology, which are various degrees of emissions reductions that the EPA determines to be achievable;

 

“Naphtha” means a flammable liquid mixture of hydrocarbons covering the lightest and most volatile fraction of the liquid hydrocarbons in petroleum with a boiling range of 60 to 200 degrees Celsius. In our process, it is the last liquid fuel made in the conversion from plastic to oil;

 

“NESHAP” means the National Emissions Standards for Hazardous Pollutants which are emissions standards set by the EPA for an air pollutant that may cause an increase in fatalities or in serious irreversible and incapacitating illnesses; and

 

“Stack Test” means a procedure for sampling a gas stream from a single sampling location at a facility, used to determine a pollutant emission rate, concentration or parameter while the facility equipment is operating at conditions that result in the measurement of the highest emission values approved by regulatory authorities;

 

“tipping fees” means the charge levied on a given quantity of waste received at a landfill, recycling center or waste transfer facility.

 

 4 
 

 

PART I

 

ITEM 1. BUSINESS

 

Overview

 

We manufacture processors which produce fuel products mainly from unsorted, unwashed waste plastics for distribution across a number of markets. We continue to execute on our business strategy with the goal of becoming a leading manufacturer of processors and other related equipment that transform waste plastic into ultra-clean, ultra-low sulphur fuel.

 

Our P2O business is a commercial manufacturing and production business. We plan to grow mainly from sale of processors, secondarily from the sale of fuel products. We provide environmentally-friendly solutions through our processors and technologies. Our primary offering is our Plastic2Oil®, or P2O®, solution, which is our proprietary process that converts waste plastic into fuel through a series of chemical reactions (our “P2O business”). We collect mainly mixed plastics from commercial and industrial enterprises that generate large amounts of waste plastic for use in our process. Generally, this waste plastic would otherwise be sent to landfills and its disposal potentially can be quite costly for companies. We use this waste plastic as feedstock to produce Fuel Oil No. 2, Naphtha, and Fuel Oil No. 6 for various uses by our customers. We own and operate our P2O processors and have the capability to produce and store the fuels at, and ship from, our facilities in Niagara Falls, NY. We sell the fuels we produce to customers through two main distribution channels, fuel wholesalers and directly to commercial and industrial end-users.

 

At April 14, 2015, we had three fully-permitted operational P2O processors, one dedicated to research & development and two dedicated to fuel production. All three processors are located at our Niagara Falls, NY facility, and our fourth and fifth processors were in process of assembly for sale. For the reasons described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, the three operational P2O processors have been idle since late December 2013.

 

For financial reporting purposes, we operate in two business segments, (i) our P2O solution, which manufactures and sells processors as well as sells the fuel produced through our processors (ii) data storage and recovery (the “Data Business”). As part of our P2O business segment, we began to offer for sale built-to-order P2O processors for use at a customer’s site. Previously, we operated a chemical processing and cleaning business, known as Pak-It and a retail and wholesale distribution business known as Javaco, Inc. As of December 31, 2012, we had exited both of these businesses and their results in all periods presented are classified as discontinued operations. As of this filing date of the report, our processors were idle and not producing fuel products. Our P2O business has been operating in a limited commercial capacity since December 2010 and we anticipate that this line of business will account for a majority of our revenues in 2016 and periods thereafter. Historically, however, our revenues have been partially derived from our other lines of business and products, Javaco and Pak-It, which are classified in this Annual Report as discontinued operations. In the year ended December 31, 2015, we had total sales of approximately $16,728, of which $0 were derived from our P2O business and $16,728 were derived from our Data Business. In the year ended December 31, 2014, we had total sales of $59,017 from our P2O business and $12,906 from our Data Business.

 

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

 

 5 
 

 

Organizational History

 

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

 

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

 

On August 24, 2009, the Company acquired Javaco, Inc. (“Javaco”), a distributor of electronic components, including home theater and audio video products. On July 9, 2012, we announced the closure of our Javaco operations and sold substantially all of its assets to an unrelated third party. In July 2012, the Company closed Javaco and sold substantially all its inventory and fixed assets. The operations of Javaco have been classified as discontinued operations for all periods presented (See Note 15).

 

In September 2009, the Company acquired Pak-It, LLC (“Pak-It”). Pak-It operated a bulk chemical processing, mixing, and packaging facility. It also developed and patented a delivery system that packages condensed cleaners in small water-soluble packages. During 2011, the Company initiated a plan to sell certain operating assets of Pak-It and subsequently sold Pak-It in February 2012, with an effective date of January 1, 2012. On February 10, 2012, we sold substantially all the assets of Pak-It. The operations of Pak-It have been classified as discontinued operations for all periods presented (See Note 16).

 

In December 2010, the Company entered into a twenty year lease for a recycling facility in Thorold, Ontario. During the period ended December 31, 2013, the Company determined that it would no longer operate the facility and shut down all operations. The assets and operations related to the recycling facility have been reclassified as discontinued operations for all periods presented (See Note 15). 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.

 

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

 

Organizational Chart

 

The following chart outlines our corporate structure, as of March 30, 2016, and identifies the jurisdiction of organization of each of our material subsidiaries. Each material subsidiary is wholly-owned by the company.

 

 

 

 6 
 

 

Plastic2Oil, Inc. - Operates our Data Recovery and Migration business and Parent company with corporate office in Niagara Falls, NY.
     
Plastic2Oil of NY #1, LLC - Operates our P2O business in Niagara Falls, NY.
     
Plastic2Oil (Canada) Inc. - Conducts our P2O business in Canada, including management of our 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

 

Our Primary Business - Plastic2Oil

 

P2O Overview

 

Our business focus is to manufacture and sell processors that produce fuel products mainly from unsorted, unwashed waste plastics for distribution across a number of markets. We plan to grow mainly from sale of processors, secondarily from the sale of fuel products. We continue to execute on our business strategy with the goal of becoming a leading North American company that sells procesors to transform 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. As of the filing date of this report, our processors were idle and not producing fuel products. Processors are being used only for customer visits and for maintenance activities.

 

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 are included in the balance sheet as deposits. Our P2O process is capable of producing two by-products, an off-gas similar to natural gas and a petcoke carbon residue. In instances when wwe produce and sell fuel products, we primarily use our off-gas product in our operations to fuel the burners in our P2O processors. Historically, we have sold our fuel products through two main distribution channels comprised of fuel wholesalers and directly to commercial and industrial end-users.

 

 7 
 

 

We shut down our fuel production late in the fourth quarter of 2013 due to severe cold weather that caused damage to condensers and other components of our processors and we have not resumed fuel production due to the repair costs as well as our shift in strategy toward manufacturing processors for sale, as opposed to producing and selling fuel products. Management estimates that the repair of the processors will require the expenditure of between $175,000 and $200,000. An additional $300,000 of startup working capital will be required to resume operations mainly for hiring operational personnel and incremental overhead expenses. At March 30, 2016, we lacked the working capital or access to bank credit to make these repairs. We are reviewing our financing options, including the sale of shares of our common stock or other securities, in order to allow us to obtain sufficient funds to make the required repairs and resume pilot operation of our processors to support processor sales. These processors were idle for all of 2015.Management currently anticipates that the processors will remain idle at least until the third quarter of 2016 other than pilot,or demo ,runs to support processor sales. During the idle period, we significantly reduced our headcount by furloughing our operations personnel but retained a small team to perform general repairs and maintenance on the processors. Once the processors are fully operational, we expect a small increase in our headcount in order to resume fuel production.

 

Our P2O process accepts mainly unsorted, unwashed waste plastics. We believe our P2O process offers a cost-effective solution for businesses that currently have to pay to dispose of these types of waste. Although many sources of plastic waste are available, we have focused our feedstock sources on primarily post-commercial and industrial waste plastic. Generally, we believe that this waste stream is more costly for companies to dispose of, making it more readily available in large quantities and cheaper for us to acquire than other potential types of feedstock.

 

Currently, we understand that there are several plastic-to-oil processes operational globally. These other processes employ a wide range of technologies and yield varying purities of fuel output. We believe that our process has many advantages over 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-pendingP2O conversion process involves the cracking of the plastic hydrocarbon chains at ambient pressure and comparatively low temperature 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).

 

We have developed our Plastic2Oil 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. The fuels produced can be used directly by our customers without further refining or processing. Over a three year period, we have scaled our processing operations from a one gallon processor to three processors, each permitted to feed up to 4,000 pounds of feedstock per hour. 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;

 

 8 
 

 

  No requirement for incinerators, thermal oxidizers or scrubbers and no stack monitoring is necessary;
     
  Three stack tests (two on the initial processor and one on the second processor) conducted by Conestoga-Rovers & Associates (“CRA”), prove emissions are extremely low;
     
  Process validation by SAIC Energy, Environment & Infrastructure, LLC and IsleChem, LLC; and
     
  Permitted to operate three processors commercially in New York by the NYSDEC.

 

Processor Input

 

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

 

Heat Transfer Fluid: We are also able to include hydrocarbon based transfer fluid as feed into the Platic2Oil processors.

 

Processor Output

 

We are currently permitted to feed two tons, or 4,000 pounds, of waste plastic per hour into each processor by a continuous conveyor belt where it is heated by a burner that mainly burns off-gases produced from the P2O process. Plastic hydrocarbons are cracked into various shorter hydrocarbon chains and exit in a gaseous state. Any residue, metals and or non-usable substances remain in the reactor and are periodically removed. Through our proprietary process, Fuel Oil No. 6, Fuel Oil No. 2, and Naphtha are condensed from the reactor through the remainder of the process. The fuel output is then transferred to storage tanks automatically by the system. Our process is mainly operated by an automated computer system that controls the conveyor feed rate, system temperatures, off-gas systems and the pumping out of newly created fuel to storage tanks. The plastic to liquid fuel conversion is approximately 86% by weight. Therefore, 20 tons of plastic can be processed into approximately 4,100 gallons of fuel. At March 30, 2016, we had 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.

 

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

 

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

 

Feedstock

 

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

 

Fuel Products

 

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

 

 9 
 

 

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

 

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

 

P2O Facilities

 

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

 

Niagara Falls, NY facility: Our Niagara Falls, NY facility currently has two buildings, 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.

 

Sales and Distribution

 

Our P2O business is a commercial manufacturing and production business. We plan to grow mainly from sale of processors first, and fuel seller second.

 

We sell our fuel products through two main channels: fuel brokers and direct to end-users. We have no long-term contracts for fuel sales; rather, we sell our fuel through the issuance of routine purchase orders.

 

During the years ended December 31, 2015 and 2014, 100%, and 89% of total net revenues were generated from a single, and two customers, respectively. As of December 31, 2015 and 2014, one and two customers, respectively, accounted for 100% of accounts receivable.

 

Suppliers

 

The principal goods that we require for our P2O business are the waste plastic that we use as feedstock for production of our fuels. We collect waste plastics from commercial and industrial businesses that generate large amounts of this waste stream. As of April 14, 2016, we had approximately 327,000 pounds of waste plastic and approximately 10,000 gallons of heat transfer fluid available in inventory as feedstock, to support the resumption of operations upon the repairs, as mentioned above.

 

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

 

During the years ended December 31, 2015 and 2014, five and four suppliers, respectively, accounted for 30.9% and 38.0% of accounts payable, respectively.

 

Licenses, Permits and Testing

 

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

 

 10 
 

 

License/Permit   Issuing Authority   Registration Number   Issue date
Air Permit   NYSDEC   9-2911-00348/00002   06/30/2015(Annual)
Solid Waste Permit   NYSDEC   9-2911-00348/00003   06/30/2015(Annual)
Bulk Fuel Blending License   Ontario Technical Standards & Safety Authority   000184322   10/12/2015(Annual)
Waste Disposal Site   Ontario Ministry of the Environment   A121029   Perpetual (subject to annual reviews)

 

In 2010, our P2O process and processors were tested by IsleChem, LLC, an independent chemical firm providing contract research and development, manufacturing and scale-up services, using two small prototypes of our P2O processor. The IsleChem test results indicated that our process is both repeatable and scalable. Following this testing, we assembled a large-scale P2O processor capable of processing at least 20 metric tons of plastic per day. In September 2010, we had a Stack Test performed by Conestoga-Rovers & Associates (“CRA”), an independent engineering and consulting firm, which concluded that, with a feed rate of 2,000 pounds of plastic per hour, our processor’s emissions were below the maximum emissions levels allowed by the NYSDEC simple air permit, which is needed to commercially operate the P2O processor at that location. We used the CRA test results to apply for the required operating permits and in June 2011 we received an Air State Facility Permit (“Air Permit”) and Solid Waste Management Permit (“Solid Waste Permit”) for up to three processors at the Niagara Falls, NY facility. In December 2011, we had a second stack test performed by CRA for an increased rate of 4,000 pounds per hour. In January 2012, we received a final emissions report from CRA confirming that emissions were considerably decreased with an increased feed rate. In December 2012, we had a stack test performed on the second processor.

 

The emissions tests conducted by CRA on our processors are summarized in the following table:

 

Emissions  Units1   Original Stack Test
(2010) – Processor #1
   Final Stack Test
(Dec. 2011) –
Processor #1
   Stack Test
(Dec. 2012) –
Processor #2
 
CO – Carbon Monoxide   ppm    3.16    3.1    3.7 
SO 2 - Sulphur Dioxide   ppm    0.23    0.02    0.39 
NOx – Oxides of Nitrogen   ppm    86.4    15.1    21.3 
TNMHC – Total Non-Methane Hydrocarbons   ppm    0.25    3.92    0.62 
PM – Particulate Matter   Lbs./hr.    0.016    0.002    0.012 
Hexane   Lbs./hr.    Not tested    0.00001    0.0013 

 

1 “ppm” means parts per million

 

Industry Background

 

Alternative fuels are generally considered to be any substances that can be used as fuel, other than conventional fossil fuels such as naturally occurring oil, gas and coal. There have been many approaches taken to producing alternative fuels, including conversion of corn oil, vegetable oil and non-food-based materials. These approaches have demonstrated varying degrees of commercial potential. Some of the challenges that alternative fuel producers have faced include high feedstock supply costs, lower perceived value of fuel product, higher capital costs and dependence on government regulations for economic 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.

 

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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, Vadxx Energy, Green Envirotec Holdings LLC, Agilyx and RES polyflow, each of which has developed alternative methods for obtaining and generating fuel from plastics. See “Risk Factors—Risks Related to Our Business”. Because P2O solution end products include a variety of fuels, we also face competition from the broader petroleum industry.

 

Business Model

 

We believe that our 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 processors.

 

Business Strategy

 

Our long-term strategy is to become the leading plastic-to-oil processor manufacturer. Our processor buyer are private and municipalities in the recycling industry who can operate on a commercial scale. Our fuels consumers are fuel distributors. Our processors are to demonstrate our technology and processor capabilities, for process improvement, for research and development activities and to test potential customer feedstock. The key elements of our strategy to achieve this goal are as follows:

 

Marketing Strategy

 

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

 

Manufacturing and Procurement Strategy

 

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

 

Feedstock Procurement Strategy

 

Our feedstock strategy is as follows:

 

  Get the Right Material to Maximize Throughput. Although the P2O processor can process many different types of plastic and create consistent fuels, we will focus on the types of plastic that will maximize the machine’s productivity. This is typically high density material.
     
  Contract for Long-Term Consistent Feedstock Supply. By contracting with our suppliers, we are able to gain commitments for consistent flows of feedstock. This also allows us to more accurately forecast our feedstock supply and fuel outputs. An additional benefit of contracting with suppliers is that we are able to rely on this material flow as it relates to our continued growth planning.
     
  Cost to the Processor. We look at all feedstock opportunities considering the “cost to the processor”. This means we consider including the cost is the price we pay to the supplier, the cost of transportation or our costs to pre-process the feedstock material, the critical thing is the total cost incurred for “ready to process” material.

 

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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.

 

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.

 

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Other Businesses

 

Data Recovery & Migration

 

In June 2009, we purchased certain assets from John Bordynuik, Inc., a corporation founded by John Bordynuik, our former Chief Executive Officer and former Chief of Technology and who now serves as a consultant to the company.. The assets acquired from John Bordynuik, Inc. included tape drives, computer hardware, servers and a mobile data recovery lab to read and transfer data from magnetic tapes and these assets are used in our Data Recovery & Migration business.

 

Magnetic tapes were previously a primary media for data storage. Because of its cost effectiveness, magnetic tape was widely used by government, scientific, educational and commercial organizations for decades. Over time, these tapes can become vulnerable to deterioration when exposed to natural elements, which can render the tapes difficult to read or unreadable using the original tape-reading equipment. Our Data Business involves reading old magnetic tapes, interpreting and restoring the data where necessary and transferring the recovered data to storage formats used in current systems. The recovered data is verified for accuracy and returned to customers in the media storage format of their choice. Our process gives customers the ability to conveniently catalogue and safely archive difficult-to-retrieve data on readily accessible, contemporary storage media. Users of these services generally include businesses or organizations that have historically stored information on magnetic tape, such as government agencies, oil and gas companies and academic institutions.

 

The process for data recovery was developed and is very highly dependent on the services of Mr. Bordynuik. The Data Business’s reliance on Mr. Bordynuik was a key driver to achieving revenue in 2015 and 2014. In light of our business strategy focus on our P2O business, we anticipate that revenues and profits generated from our Data Business operations will represent a decreasing share, if any, of our total revenues and profits in future reporting periods. Due to these factors, all related to the assets of the Data Business was recorded as impaired in 2012.

 

Pak-It

 

From September 2009 until February 2012, through Pak-It, we were engaged in the manufacture of cleaning chemicals. As previously reported, we sold substantially all of the assets of this business in February 2012 because management felt that Pak-It’s business was no longer aligned with our strategic focus on our P2O business. For all years reported, the results of operations of Pak-It have been recorded as discontinued operation, as recorded in Footnote 17 of our Consolidated Financial Statements.

 

Javaco

 

From August 2009 until July 2012, through Javaco, we were a retailer and wholesale distributor of equipment, hardware and tools for the safety, maintenance and construction industries. As previously reported, in July 2012, we closed Javaco and liquidated substantially all of the fixed assets and inventory because management felt that Javaco’s business was no longer aligned with our strategic focus on our P2O business. For all years reported, the results of operations of Javaco have been recorded as discontinued operations, as recorded in Footnote 17 of our Consolidated Financial Statements.

 

Intellectual Property

 

To ensure the protection of our proprietary technology, we have applied for patent protection for both the P2O process and P2O processor. As of March 30, 2016, no patents have been issued. (The application was published on January 1, 2015 under Publication No. US2015/0001061 and is available on the USPTO website at http://patft.uspto.gov/). Management anticipates filing additional patent applications for various aspects of our P2O process in the near future. A lack of patent protection could have a material adverse effect on our ability to gain a competitive advantage for our process and processors, since it is possible that our competitors may be able to duplicate the P2O process for their own purposes. We also rely on our trade secrets to provide protection from portions of our process and proprietary catalyst. See “Risk Factors—Risks Related to Our Business”.

 

We also hold a U.S. patent relating to our Data Business for the recovery of tape information.

 

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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 were $1,653, and $20,999 in 2015 and 2014, respectively.

 

Employees

 

As of April 14,, 2016, we employed four persons on a full-time basis, of which one is were executive management, two were in finance and administration, one were in operations. None of our employees are subject to a collective bargaining agreement and we believe that our labor relations are good.

 

Environmental and Other Regulatory Matters

 

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

 

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

 

Company Information

 

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

 

ITEM 1A. RISK FACTORS

 

The following risk factors should be considered in evaluating our businesses and future prospects. These risk factors represent what we believe to be the known material risk factors with respect to our business and our company. Our businesses, operating results, cash flows and financial condition are subject to these risks and uncertainties, any of which could cause actual results to vary materially from recent results or from anticipated future results.

 

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Risks Related to our Business

 

We are an early stage company with a history of net losses, and we may not achieve or maintain profitability.

 

We have incurred net losses since our inception, including losses of $4,266,070, and $6,801,519 in 2015 and 2014, respectively. We expect to incur losses and potentially have negative cash flow from operating activities for the near future. We have divested of our significant non-core businesses, which historically had generated revenues for the Company and have transitioned our focus solely on the development of our P2O business. To date, our revenues from our P2O business have been limited and we expect to invest significant additional capital in the further development and expansion of our P2O business and for marketing and general and administrative expenses associated with our planned growth and management of operations as a public company. As a result, even if our revenues increase substantially, we expect that our expenses could exceed revenues for the foreseeable future. It is not certain when we will achieve profitability. If we fail to achieve profitability, or if the time required to achieve profitability is longer than we anticipate, we may not be able to continue our business. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. We may experience significant fluctuations in our revenues, significantly driven in part by the long negotiation periods, market price of fuel and we may incur losses from period to period. The impact of the foregoing may cause our operating results to be below the expectations of investors and securities analysts, which may result in a decrease in the market value of our securities.

 

We have a limited operating history and are focused on our P2O business, which may make it difficult to evaluate our current business and predict our future performance.

 

After divesting certain non-core business lines, we are solely focused on our P2O business and our limited operating history may make it difficult to evaluate our current business and predict future performance as we continue to expand and grow, as well as modify the current processors to become more efficient. Additionally, with the shutdown of our regional recycling center in 2013 and the divestitures of Pak-It and Javaco in 2012, our historical results are not indicative of future revenues. Any assessment of our current business and predictions about our future success or viability may not be as accurate as otherwise possible if we had a longer operating history. We have encountered, and may continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries. If we do not address these risks successfully, our business could be harmed.

 

Our process and processors may fail to produce fuel at the volumes we expect.

 

A key component of our business strategy is to market our processors that produce a viable high quality fuel to wholesalers and industrial end users. Even with a reliable supply of sufficient volumes of waste plastic, our and ours customer processors may fail to perform due to mechanical failure or unscheduled maintenance resulting in potentially significant downtime. Our processors do not have a long operating history, and accordingly the equipment and systems in any given processor may not operate as planned or for as long as expected based on preliminary testing and trials.

 

We may be required to replace parts more often than expected due to excessive wear and tear or malfunction due to their use during the evolution of our process. Replacement of parts or components of the processor could result in additional unplanned downtime, resulting in lower fuel volume productions.

 

Different feedstock may result in different fuel yields including potentially higher production of off-gas or petcoke residue, which would proportionately reduce the amount of salable fuels produced. The presence of contaminants in our feedstock could reduce the purity of the fuel that we produce and require further investment in more costly separation processes or equipment. Additionally, contaminants that are present in the feedstock could result in damage to the processor which would cause unplanned downtime and lower than expected fuel volumes.

 

Unexpected problems with either the processor or our feedstock supplies may force us to cease or delay production and the time and costs involved with such delays may be significant. Any or all of these risks could prevent us from achieving the production volumes and yields, and producing fuel at the costs, necessary to achieve profitability from our business. Failure to achieve expected production volumes and yields, or achieving them only after significant additional expenditures, could substantially harm our financial condition and operating results.

 

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We need substantial additional capital in the future in order to develop our business.

 

Our future capital requirements will be substantial, particularly as we continue to develop our P2O business. We believe that our current cash and cash equivalents will not allow us to expand commercial operations at the Niagara Falls, NY Facility. Because the costs of developing the P2O business on a commercial scale are highly contingent on our approach to commercialization, and are subject to many variables, including site-specific development costs and the number of processors to be placed at a given location, we cannot reliably reasonably estimate the amount of capital required to expand the P2O business beyond the Niagara Falls, NY facility; thus processor manufacturer first, and fuel seller second. If we are successful in achieving our plans to enter into other P2O industrial partnerships, we may require significant additional funding to execute such partnerships and may not be able to rely on funding through our own earnings. Funding would be required for constructing P2O processors, site specific build-outs and developing other aspects of our business with our industrial partners.

 

To date, we have funded our operations primarily through private offerings of equity securities. If future financings involve the issuance of equity securities, our existing stockholders could suffer dilution. If we were able to raise debt financing to expand our operations, we may be subject to restrictive covenants that could limit our ability to conduct our business. Our plans and expectations may change as a result of factors currently unknown to us, and we may need additional funds sooner than planned. We may also choose to seek additional capital sooner than required due to favorable market conditions or strategic considerations.

 

Our future capital requirements will depend on many factors, including:

 

the financial success of our P2O business and sale of processors;
   
the timing of, and costs involved in, entering into agreements with suitable industrial partners, and the timing and terms of those agreements;
   
the cost of constructing P2O processors and the amount of other capital expenditures related to site development;
   
our ability to negotiate distribution or further sale agreements for the processors we manufacture, and the timing and terms of those agreements; and
   
the timing of, and costs involved in obtaining, the necessary government or regulatory approvals and permits by our customers.

 

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If funds are necessary or required and are not available to us on a timely basis, we may delay, limit, reduce or terminate:

 

our research and development activities;
   
our plans to expand our business through industrial partnerships;
   
our activities in negotiating agreements necessary in connection with the commercial scale operation of the P2O business; and
   
the development of the P2O business, generally.

 

If we fail to raise sufficient funds and continue to incur losses, our ability to fund our operations, construct processors, enter into agreements with suitable industrial partners, take advantage of other strategic opportunities and otherwise develop our business could be significantly limited. We may not be able to raise sufficient additional funds on terms that are favorable or acceptable to us, if at all. If adequate funds are required for operations and are not available, we may not be able to successfully execute our business plan or continue our business.

 

Our future success is dependent on being able to attract and retain qualified management and personnel.

 

We will require additional expertise in specific areas applicable to our P2O business and will require the addition of new personnel, and the development of additional expertise by existing personnel. The inability to attract talented personnel with appropriate skills or to develop the necessary expertise could impair our ability to develop and grow our business.

 

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The loss of any key members of our management team or the failure to attract or retain qualified management and personnel who possess the requisite expertise for the conduct of our business could prevent us from further developing our businesses according to our current strategy. We may be unable to attract or retain qualified personnel in the future due to the intense competition for qualified personnel amongst technology-based businesses, or due to the unavailability of personnel with the qualifications or experience necessary for our business. Competition for business, financial, technical and other personnel from numerous companies and academic and other research institutions may limit our ability to attract and retain such personnel on acceptable terms. If we are unable to attract and retain the necessary personnel to accomplish our business objectives, we may experience staffing constraints that will adversely affect our ability to meet the demands of our industrial partners and customers in a timely fashion or to support continued development of our P2O business.

 

Competitors and potential competitors who have greater resources and experience than we do may develop processors and technologies that make ours obsolete or may use their greater resources to gain market share at our expense.

 

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

 

Our P2O business faces competition in acquiring feedstock, mainly because there are other technologies and processes that are being developed and/or commercialized to offer recycling solutions for plastic. Additionally, there is significant competition from businesses in the energy sector that sell fuel, including both traditional producers and alternative fuel producers. Companies in the fuel sales industry may be able to exert economies of scale in the fuels market to limit the success of our fuel sales business. We believe that our business is more appealing in both the recycling sector and the fuel sector due to its green aspect. Technological developments by any form of competition could result in our processors and technologies becoming obsolete.

 

In addition, various governments have recently announced a number of spending programs focused on the development of clean technologies, including alternatives to petroleum-based fuels and the reduction of carbon emissions. Such spending programs could lead to increased funding for our competitors or a rapid increase in the number of competitors within these markets.

 

Our limited resources relative to many of our competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competiveness and market share, adversely affect our results of operations and financial position and prevent us from obtaining or maintaining profitability.

 

The effectiveness of our business model may be limited by the availability or potential cost of plastic feedstock sources.

 

Our P2O business model depends on sale of processors. However, our customers may delay procurement due to the availability of waste plastic obtained at relatively low cost to be used as a feedstock to produce our fuel products. If the availability of feedstock decreases, or if our customers are required to pay substantially more than is reasonable to become profitable for feedstock, this could reduce their fuel production and/or potentially reduce their profit margins if they are forced to use alternative, more costly measures to procure feedstock. It is possible that an adequate supply of feedstock may not be available for the customer processors to meet daily processing capacity. This could have a materially adverse effect on our customer’s financial condition and operating results.

 

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Our P2O financial results will also be dependent on the operating costs of our processors, including costs for feedstock and the prices at which we are able to sell our end products. Volatility in both the pricing of feedstock as well as the market price for fuels could have an impact on this relationship. General economic, market, and regulatory factors may influence the availability and potential cost of waste plastic. These factors include the availability and abundance of waste plastic, government policies and subsidies with respect to waste management and international trade and global supply and demand. The significance and relative impact of these factors on the availability of plastic is difficult to predict.

 

We will, for the very near future, depend on one production facility for revenues related to our business. Therefore, any operational disruption could result in a reduction of our fuel production volumes.

 

A significant portion of our anticipated revenue for fiscal 2016 will be derived from processor sales, as well as from the sale of fuel that we produce at our Niagara Falls, NY Facility. We will incur additional expenses to increase production at that facility and any failure to produce fuel at anticipated volumes and costs would adversely affect our revenues, free cash flow and potential ability to build other planned production facilities. Such failure would adversely affect our business, financial condition and results of operations.

 

Unforeseen manufacturing issues or processor downtime could have significant adverse impact on our business.

 

Our business and strategic growth plans rely on assumptions of processor uptime reaching certain levels in which ample fuel can be produced to meet the needs of our customers and provide us with adequate operating cash flow to cover our cost of operating. Unforeseen manufacturing issues with the processors or unscheduled downtime due to mechanical failure, low quality feedstock, severe weather conditions or unexpected issues with the processors could have a material adverse impact on our fuel production and operating results. In addition, manufacturing and/ or fabrication delays with respect to additional processors could cause our revenues and fuel production to be lower than anticipated.

 

We may have difficulties gaining market acceptance and successfully marketing our processors or fuel to our customers.

 

A key component of our business strategy is to market our processors and fuel as a viable high quality fuel to wholesalers and industrial end-users. If we fail to successfully market our processors or fuel or the targeted customers do not accept it, our business, financial condition and results of operations will be materially adversely affected.

 

To gain market acceptance and successfully market our processors and fuel, we must effectively demonstrate the advantages of using P2O fuel over other fuels, including conventional fossil fuels, biofuels and other alternative fuels and blended fuels. We must show that P2O fuel is a direct replacement for fossil fuels. We must also overcome marketing and lobbying efforts by producers of other fuels, many of whom have greater resources than we do. If the markets for our processors and fuel do not develop as we currently anticipate, or if we are unable to penetrate these markets successfully, our revenue and revenue growth rate could be materially and adversely affected.

 

Pre-existing contractual commitments and skepticism of new production methods for fuels may hinder market acceptance of our processors and fuel.

 

Adverse public opinions concerning the alternative fuel industry in general could harm our business.

 

The plastic-to-fuel industry is new, and general public acceptance of this method of recycling and fuel generation is uncertain. Public acceptance of P2O fuel as a reliable, high-quality alternative to traditionally refined petroleum fuels may be limited or slower than anticipated due to several factors, including:

 

public perception issues associated with the fact that P2O fuel is produced from waste plastics;
   
public perception that the use of P2O fuel will require excessive burner, boiler or engine modifications;
   
actual or perceived problems with P2O fuel quality or performance; and
   
to the extent that P2O fuel is used in transportation applications, concern that using P2O fuel will void engine warranties.

 

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Such public perceptions or concerns, whether substantiated or not, may adversely affect the demand for our fuels, which in turn could decrease our sales, harm our business and adversely affect our financial condition.

 

A decline in the price of petroleum products may reduce demand for our P2O fuels and may otherwise adversely affect our business.

 

We anticipate that our fuels will be marketed as alternatives to their corresponding conventional petroleum product counterparts, such as heating oil, diesel fuel and naphtha. If the prices of these products fall, we may be unable to produce products that are cost-effective alternatives to conventional petroleum products. Declining oil prices, or the perception of a future decline in oil prices, may adversely affect the prices we can obtain from our potential customers or prevent potential customers from entering into agreements with us to buy our products. During sustained periods of lower oil prices, we may be unable to sell some of our fuel products, which could materially and adversely affect our operating results.

 

In addition, recent discoveries and drilling of shale gas deposits has caused a general decrease in natural gas prices which could cause commercial and industrial fuel users to switch from using petroleum-based products to natural gas to power their equipment, machinery and operations. In such case, demand for our fuel products may decline. Any decline in demand for petroleum-based products could materially and adversely affect our results from operation.

 

Our operations are subject to various regulations, and failure to obtain necessary renewed permits, licenses or other approvals, or failure to comply with such regulations, could harm our business, results of operations and financial condition.

 

We are, and may become subject to, various federal, state, provincial, local and foreign laws, regulations and approval requirements in the United States, Canada and other jurisdictions, including those relating to the discharge of materials or pollutants into the air, water and ground, the generation, storage, handling, use, transportation and disposal of waste materials, and the health and safety of our employees.

 

The Company currently possesses an Air Permit and Solid Waste Permit for up to three processors at the Niagara Falls, NY facility. Failure to maintain these permits on terms and conditions acceptable to and achievable by us, or at all, could affect the commercial viability of the Niagara Falls, NY facility, which could have a material adverse effect on our business, financial condition and results of operations.

 

As we implement our growth strategy, our planned P2O business will require additional permits, licenses or other approvals from various governmental authorities. Our ability to obtain, amend, comply with, sustain or renew such permits, licenses or other approvals on acceptable, commercially viable terms may change, as could the regulations and policies of applicable governmental authorities. Our inability to obtain, amend, comply with, sustain or renew such permits, licenses or other approvals may have a material adverse effect on our business, financial condition and results of operations.

 

Any fuels developed using our P2O process will be required to meet applicable government regulations and standards. Any failure to meet these standards and/or future regulations and standards could prevent or delay the commercialization or sale of any fuels developed using our P2O process or subject us to fines and other penalties.

 

All phases of designing, constructing and operating fuel production facilities present environmental risks and hazards. Among other things, environmental legislation provides for restrictions and prohibitions on spills and discharges, as well as emissions of various substances produced in association with fuel operations. Legislation also requires that sites be operated, maintained, abandoned and reclaimed in such a way that would satisfy applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner that may result in stricter standards and enforcement, larger fines, penalties and liability, as well as potentially increased capital expenditures and operating costs. The discharge of pollutants into the air, soil or water may give rise to liabilities to governments and third parties, and may require us to incur costs to remedy such discharge.

 

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There is no assurance that our operations will comply with environmental or occupational, safety and health regulations in any applicable jurisdiction. Failure to comply with applicable laws, regulations and approval requirements could subject us to civil and criminal penalties, require us to forfeit property rights, and may affect the value of our assets or our ability to conduct our business. We may also be required to take corrective actions, including, but not limited to, installing additional equipment, which could require us to make substantial capital expenditures. These penalties could have a material adverse effect on our business, financial condition and results of operations.

 

We may be unable to produce our fuel products in accordance with governmental specifications.

 

Even if we produce P2O fuel at our targeted volumes and yields, we may be unable to produce fuel that meets future governmental regulations. If we fail to meet these specific regulations customers may not purchase our fuel or, to the extent we have an agreement in place for the supply of fuel, the customer may seek an alternate supply of fuel or terminate the agreement completely. A failure to successfully meet these specifications could decrease demand for our fuel, leading to reduced sales and operating results.

 

Our dependence on contract manufacturers for processor components exposes our business to supply risks.

 

We have limited internal capacity to manufacture our processor components. As a result, we are heavily dependent upon the performance and capacity of third party manufacturers for the manufacturing of many of the key components of our processors, including kilns and distillation towers as well as certain other key components that require specialized machining and fabrication.

 

We are working to establish long-term supply contracts with contract manufacturers. However, we cannot guarantee that we will be able to enter into long-term supply contracts on commercially reasonable terms, or at all, or to acquire, develop or contract for internal manufacturing capabilities. Any resources we expend on acquiring or building internal manufacturing capabilities could be at the expense of other potentially more profitable opportunities.

 

We currently have only patent-pending protection for our P2O process and processor.

 

We have sought patent protection of our intellectual property by filing for international patents via the Patent Cooperation Treaty, however, as yet, none have been granted. We also rely on trade secrets to provide protection for our proprietary catalyst. We currently have patent pending status for our P2O process and processor. However, a lack of patent protection could have a material adverse effect on our ability to gain a competitive advantage for our P2O processors, since it is possible that our competitors may be able to duplicate our P2O process for their own purposes. This may have a material adverse effect on our results of operations, including on our ability to enter into industrial partnership arrangements or other agreements relating to our P2O processors.

 

We rely in part on trade secrets to protect some of our intellectual property, and our failure to obtain or maintain trade secret protection could adversely affect our competitive position.

 

We rely on trade secrets to protect some of our intellectual property, such as our proprietary catalyst. However, trade secrets are difficult to maintain and protect. We have taken measures to protect our trade secrets and proprietary information, but there is no guarantee that these measures will be effective. We require new employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Nevertheless, our proprietary information may be disclosed, or these agreements may be unenforceable or difficult and costly to enforce. If any of the above risks materialize, our failure to obtain or maintain trade secret protection could adversely affect our competitive position.

 

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Collaborations with third parties have required us to share some confidential information, including with employees of these third parties. Our strategy for the development of our business may require us to share additional confidential information with our industrial partners and other third parties. While we use reasonable efforts to protect our trade secrets, third parties, or our industrial partners’ employees, consultants, contractors and/or other advisors may unintentionally or willfully disclose proprietary information to competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, foreign courts are sometimes less willing than domestic courts to protect trade secrets. If our competitors develop equivalent knowledge, methods and know-how, we may not be able to assert our trade secrets against them. Without trade secret protection, it is possible that our competitors may be able to duplicate our process for their own purposes. This may have a material adverse effect on our results of operations, including on our ability to enter into industrial partnership arrangements or other agreements relating to our process and processors.

 

Our quarterly operating results may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of investors or research analysts, which could cause our share price to decline.

 

Our financial condition and operating results have varied significantly in the past and may continue to fluctuate from quarter to quarter and year to year in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the various risk factors described elsewhere in this report. Due to these various risk factors, and others, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.

 

During the ordinary course of business, we may become subject to lawsuits or indemnity claims, which could materially and adversely affect our business and results of operations.

 

From time to time, we may in the ordinary course of business be named as a defendant in lawsuits, claims and other legal proceedings. Plaintiffs in these actions may seek, among other things, compensation for alleged personal injury, worker’s compensation, and damages for employment discrimination or breach of contract, property damages and injunctive or declaratory relief. In the event that such actions or indemnities are ultimately resolved unfavorably at amounts exceeding our accrued liability, or at material amounts, the outcome could materially and adversely affect our reputation, business and results of operations. In addition, payments of significant amounts, even if reserved, could adversely affect our liquidity position.

 

We are responsible for the indemnification of our officers and directors.

 

Our by-laws provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against costs and expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. Consequently, we may be required to expend substantial funds to satisfy these indemnity obligations. We currently hold directors’ and officers’ liability insurance policies for the benefit of our directors and officers, although our insurance coverage may not be sufficient in some cases, including the liability we may face in connection with pending actions. See “Legal Proceedings.” Furthermore, our insurance carriers may seek to deny coverage in some cases, in which case we may have to fund the indemnification amounts owed to such directors and officers ourselves.

 

We may have difficulty in attracting and retaining management and outside independent members to our Board of Directors as a result of their concerns relating to their increased personal exposure to lawsuits and stockholder claims by virtue of holding these positions in a publicly held company.

 

The directors and management of publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits and stockholder claims, as well as governmental and creditor claims which may be made against them, particularly in view of recent changes in securities laws imposing additional duties, obligations and liabilities on management and directors. Due to these perceived risks, directors and management are also becoming increasingly concerned with the availability of directors’ and officers’ liability insurance to pay on a timely basis the costs incurred in defending such claims. Although we currently maintain directors’ and officers’ liability insurance, our coverage has limits and has recently become more expensive. If we are unable to continue or provide directors’ and officers’ liability insurance at affordable rates or at all, it may become increasingly more difficult to attract and retain qualified outside directors to serve on our Board of Directors.

 

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Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.

 

Our independent registered public accounting firm, in their audit opinions issued in connection with our consolidated balance sheets as of December 31, 2015 and 2014 and our consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2015 and 2014, have expressed substantial doubt about our ability to continue as a going concern given our net losses, accumulated deficit and negative cash flows. The accompanying consolidated financial statements were prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business, and accordingly do not contain any adjustments which may result due to the outcome of this uncertainty.

 

Risks Relating to Ownership of Securities of the Company

 

Investors may lose their entire investment in our securities.

 

Investing in our securities is speculative and the price of our securities has been and may continue to be volatile. Only investors who are experienced in high risk investments and who can afford to lose their entire investment should consider an investment in our securities.

 

Shares of our common stock are quoted and trade on the OTCQB Market, which may have an unfavorable impact on our stock price and liquidity.

 

Shares of our common stock are quoted and traded on the OTCQB Market. Trading in shares quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with a company’s operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to our operating performance. Moreover, the OTCQB is not a stock exchange and is a significantly more limited market than the New York Stock Exchange, NASDAQ or other stock exchanges. Stockholders may have difficulty buying and/ or selling their shares. The quotation of our shares on the OTCQB may result in a less liquid market available for existing and potential stockholders to trade our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

 

Our common stock is subject to price volatility unrelated to our operations.

 

The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve planned growth, quarterly operating results of other companies in the same or similar industries, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, stock markets may be subject to price and volume fluctuations. This volatility could have a significant effect on the market price of our common stock for reasons unrelated to our operating performance.

 

Our common stock may be classified as a “penny stock” as that term is generally defined in the United States Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00. As such, our common stock would be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.

 

We may be subject to the penny stock rules adopted by the SEC that require brokers to provide extensive disclosure to its customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for investors to buy or sell shares.

 

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Rule 3a51-1 of the United States Securities Exchange Act of 1934 establishes the definition of a “penny stock” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. This classification would severely and adversely affect any market liquidity for our common stock.

 

For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth the basis on which the broker or dealer has made the suitability determination and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and commission payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter difficulties in their attempt to sell our common stock, which may affect the ability of stockholders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our common stock, if and when such shares become listed on a stock exchange. In addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of our common stock. Our common stock could be subject to such penny stock rules for the foreseeable future and our stockholders could find it difficult to sell their common stock.

 

Listing our stock on markets other than the OTCQB could be costly for us.

 

Our common stock is currently quoted and traded on the OTCQB Market. In the future, we may file an application to be listed on a stock exchange in the United States or elsewhere. Unlike the OTCQB, a stock exchange has corporate governance and other listing standards, which we will have to meet. Such standards and regulations may restrict our capital raising or other activities by requiring stockholder approval for certain issuances of stock, for certain acquisitions, and for the adoption of stock option or stock purchase plans. Applying for and obtaining any such listing on a stock exchange, and complying with the requirements of such stock exchange, would require us to incur significant expenses.

 

Concentration of ownership among our existing officers, directors and principal stockholders may prevent other stockholders from influencing significant corporate decisions and depress our share price.

 

We do not anticipate paying cash dividends, and accordingly, stockholders must rely on share appreciation for any return on their investment.

 

Since inception, we have not paid dividends on our common stock and we do not anticipate paying cash dividends in the near future. As a result, only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. Investors seeking cash dividends should consider not investing in our common stock.

 

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We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives.

 

As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, as well as related rules implemented by the SEC, the Public Company Accounting Oversight Board (“PCAOB”) and the OTCQB impose various requirements on public companies. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities, such as maintaining director and officer liability insurance, more time-consuming and costly.

 

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. We must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404(a) of the Sarbanes-Oxley Act. Our compliance with Section 404(a) will require that we incur substantial accounting expense and expend significant management time on compliance-related issues. If we are not able to comply with the requirements of Section 404 in a timely manner, our stock price could decline, and we could face sanctions, delisting or investigations, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity.

 

Shares of common stock eligible for sale in the public market may adversely affect the market price of our common stock.

 

Sales of substantial amounts of our common stock by stockholders in the public market, or even the potential for such sales, may adversely affect the market price of our common stock and could impair our ability to raise capital through selling equity securities. As of the date of this filing, approximately [99.9 million] of the 124.8 million shares of common stock currently outstanding were freely transferable without restriction or further registration under the securities laws, unless held by “affiliates” of our company, as that term is defined under the securities laws. We also have outstanding, approximately 124.8 million shares of restricted stock, as that term is defined in Rule 144 under the securities laws that are eligible for sale in the public market, subject to compliance with the requirements of Rule 144.

 

Techniques employed by manipulative short sellers may drive down the market price of our common stock.

 

Short selling is the practice of selling securities that the seller does not own but rather has, supposedly, borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s best interests for the price of the stock to decline, many short sellers (sometime known as “disclosed shorts”) publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a stock short. While traditionally these disclosed shorts were limited in their ability to access mainstream business media or to otherwise create negative market rumors, the rise of the Internet and technological advancements regarding document creation, videotaping and publication by weblog (“blogging”) have allowed many disclosed shorts to publicly attack a company’s credibility, strategy and veracity by means of so-called research reports that mimic the type of investment analysis performed by large Wall Street firms and independent research analysts. These short attacks have, in the past, led to selling of shares in the market, on occasion in large scale and broad base. Issuers who have limited trading volumes and are susceptible to higher volatility levels than large-cap stocks, can be particularly vulnerable to such short seller attacks. These short seller publications are not regulated by any governmental, self-regulatory organization or other official authority in the U.S., are not subject to the certification requirements imposed by the Securities and Exchange Commission in Regulation and, accordingly, the opinions they express may be based on distortions of actual facts or, in some cases, fabrications of facts. In light of the limited risks involved in publishing such information, and the enormous profit that can be made from running just one successful short attack, unless the short sellers become subject to significant penalties, it is more likely than not that disclosed short sellers will continue to issue such reports.

 

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While we intend to strongly defend our public filings against any such short seller attack, oftentimes we are constrained, either by principles of freedom of speech, applicable state law (often called “Anti-SLAPP statutes”), or issues of commercial confidentiality, in the manner in which we can proceed against the relevant short seller. Investors should be aware that in light of the relative freedom to operate that such persons enjoy, should we be targeted for such an attack, our common stock will likely suffer from a temporary, or possibly long term, decline in market price should the rumors created not be dismissed by market participants.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not Applicable

 

ITEM 2. PROPERTIES

 

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

 

1.           Corporate Office and Niagara Falls, NY facility

 

Our Niagara Falls, NY facility currently has two operating buildings, a 10,000 square foot building that currently houses two commercial-scale P2O processors and a 7,200 square foot building that houses one commercial-scale processor of our P2O business and other fabrication equipment and parts relevant to the process. This facility serves as the center of our research and development operations and our corporate and administrative offices and is situated on eight acres of land which we own, subject to a mortgage securing approximately $30,000 of mortgage debt outstanding as of April 14, 2016. We believe that this site is adequate to accommodate further expansion of our operations in the foreseeable future.

 

2.           Recycling Facility

 

The property was vacated on November 10, 2015 and the lease was terminated on January 15, 2016 effective October 31, 2015. The original lease would have expired on December 31, 2030. We leased approximately 18,000 square feet of commercial space on nine acres in Thorold, Ontario, Canada, in which we operated our discontinued waste plastics and cardboard recycling facility. This location is located approximately 15 miles from the Niagara Falls, NY facility. In the fourth quarter of 2013, the Company determined that it would no longer operate the facility and shut down all operations. The assets and operations related to the recycling facility have been reclassified as discontinued operations for all periods presented. (See Note 17)

 

3.           Fuel Blending Facility

 

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

 

4.           Thorold, Ontario, Canada Office Building

 

We own approximately 21,000 square feet in Thorold, Ontario, consisting of 5,000 square feet of office space and 16,000 square feet of warehousing and storage space which serves as storage for our company as well as offsite IT operations. This property is encumbered by a mortgage securing approximately $202,000 of debt.

 

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ITEM 3. LEGAL PROCEEDINGS

 

On August 9, 2013, a purported shareholder derivative suit was filed in the United States District Court for the District of Massachusetts against John Bordynuik, former Chief Executive Officer of the Company and a former member of the Company’s Board of Directors, and Ronald C. Baldwin, former Chief Financial Officer of the Company. The Complaint was filed by Erwin Grampp, allegedly acting on behalf of the Company, and it names the Company as a nominal defendant. This is the second purported shareholder derivative suit that Mr. Grampp has filed in which the Company has been named as a nominal defendant. As previously reported, the first such suit by Mr. Grampp was dismissed by the court. This recent Complaint (“Grampp II”) alleges, inter alia, that defendants Bordynuik and Baldwin breached fiduciary duties owed to the Company by causing the Company to erroneously book certain media credits in 2009. Grampp II alleges that this conduct resulted in two lawsuits against the Company, one an action brought by the Securities and Exchange Commission (the “SEC Action”) and the other a purported class action by Ellisa Pancoe and Howard Howell (the “Class Action”). Grampp II alleges that the Company has settled the SEC Action, and that the Company is in the process of settling the Class Action, but that the Company has been damaged as a result of these two lawsuits. Grampp II seeks to recover damages on behalf of the Company from defendants Bordynuik and Baldwin in an unspecified amount. It also seeks unspecified equitable relief, and costs and attorneys’ fees incurred in the action. On October 11, 2013, defendants Bordynuik and Baldwin filed a motion to dismiss this action. Thereafter, the Court granted plaintiff leave to amend his complaint, and defendants Bordynuik and Baldwin renewed their motion to dismiss. On September 22, 2015, the Court issued its Order denying that motion without prejudice and ordering the parties to conduct limited discovery regarding the issue of whether plaintiff Grampp is an adequate shareholder representative. The Court further ordered that upon completion of that discovery, the parties were to report to the Court by December 10, 2015, whether they had reached an agreement to resolve the case, and if not, whether either party believed it had a basis for filing a meritorious motion for summary judgment regarding whether plaintiff Grampp is an adequate shareholder representative. On October 30, 2015, the plaintiff filed an unopposed motion to dismiss the case, and on November 16, 2015, the court granted that motion and ordered that the case be dismissed with prejudice. Thus, the matter is concluded.

 

On August 14, 2013, John Bordynuik, Inc., a Company not affiliated with Mr. John Bordynuik, former Chief of Technology, brought suit against the Company in the United States District Court for the District of Nevada, alleging damages for breach of contract, conversion, fraud and fraud in the inducement in connection with an alleged 2009 Asset Purchase Agreement. In September 2013 and October 2013, the Company brought motions to dismiss the complaint and for summary judgment. On January 13, 2015, the Court issued its Order denying those motions, and on January 30, 2015, the Company filed its Answer to the Complaint, denying the material allegations of the Complaint and raising a number of affirmative defenses. On December 7, 2015, the parties filed with the Court a stipulation to dismiss the case, and on or about December 8, 2015, the Court ordered the matter dismissed with prejudice.

 

As of December 31, 2015, the Company is involved in litigation and claims in addition to the above mentioned legal claims, which arise from time to time in the normal course of business. In the opinion of management, based upon the information and facts known to them, any liability that may arise from such contingencies would not have a material adverse effect on the consolidated financial statements of the Company.

 

ITEM 4. (REMOVED AND RESERVED)

 

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.

 

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Quarter  High   Low 
2015          
First Quarter  $0.12   $0.06 
Second Quarter   0.09    0.07 
Third Quarter   0.09    0.05 
Fourth Quarter   0.08    0.03 
           
2014          
First Quarter  $0.31   $0.06 
Second Quarter   0.19    0.08 
Third Quarter   0.19    0.08 
Fourth Quarter   0.12    0.05 

 

Holders

 

The last sales price of our common stock as reported by the OTC Market on April 13, 2016 was $0.04 per share.

 

On April 14, 2016, there were 485 holders of record.

 

As of April 14, 2016, 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.

 

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.

 

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Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth certain information as of December 31, 2015 with respect to equity compensation plans under which the Company’s common stock may be issued.

 

Plan Name  Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans 
Equity Compensation Plans Approved by Shareholders:               
                
JBI, Inc. 2012 Long-Term Incentive Plan   1,628,000   $1.09    7,560,424 
Equity Compensation Plans not Approved by Stockholders   N/A    N/A    N/A 

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not Applicable

 

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

 

The following management’s discussion and analysis (the “ MD&A “) of the results of operations of the Company should be read in conjunction with the consolidated financial statements of the Company, together with the accompanying notes, as well as other financial information included elsewhere in this Report. This discussion contains forward-looking statements that involve certain risks and uncertainties, and that reflect estimates and assumptions. See the section titled, “Cautionary Statement Regarding Forward-Looking Statements” for more information on forward-looking statements. Our actual results may differ materially from those indicated in forward-looking statements. Factors that could cause our actual results to differ materially from our forward-looking statements are described in “Risk Factors” Part I Item 1A, and elsewhere in this Report.

 

Business Overview

 

For financial reporting purposes, we operate in two business segments, (i) our P2O® solution business, which manufactures and sells the fuel produced through our two operating P2O processors and (ii) data storage and recovery (the “Data Business”). As of this filing date of the report, our two operating processors were idle and not producing fuel products. Previously, we operated a recycling facility for waste paper fiber processing, a chemical processing and cleaning business, known as Pak-It, and a retail and wholesale distribution business, known as Javaco, Inc. As of December 31, 2015, we had exited all of these businesses and their results in all periods presented are classified as discontinued operations (Note 15).

 

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Our P2O business is a commercial manufacturing and production business. We plan to grow mainly from sale of processors, and secondarily from the sale of fuel products. We anticipate that this segment will account for substantially all of our revenues in 2016 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 2009-2011   FY 2012   FY 2013   FY 2014   FY 2015   Total 
Financing proceeds  $12,316,292   $11,699,066   $7,072,752   $1,705,095   $25,000   $32,818,205 
Research & development expenditures  $1,540,942   $445,947   $465,671   $20,999   $1,653   $2,475,212 
Investment in property, plant & equipment  $4,480,435   $311,998   $2,581,555   $13,775    -   $7,387,763 
Fuel produced (in gallons)   -    317,224    337,813    12,959    -    667,996 

 

Plastic2Oil Business

 

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

 

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

 

Currently, we provide environmentally-friendly solutions through our processors and technologies. Our primary offering is our Plastic2Oil®, or P2O®, solution, which is our proprietary process that converts waste plastic into fuel through a series of chemical reactions (our “P2O business”). We collect mainly mixed plastics from commercial and industrial enterprises that generate large amounts of waste plastic for use in our process.

 

Generally, this waste plastic would otherwise be sent to landfills and its disposal potentially can be quite costly for companies. We use this waste plastic as feedstock to produce Fuel Oil No. 2, Naphtha, and Fuel Oil No. 6 for various uses by our customers. We own our P2O processors and have the capability to produce and store the fuels at, and ship from, our facilities in Niagara Falls, NY. We sell the fuels we produce to customers through two main distribution channels, fuel wholesalers and directly to commercial and industrial end-users.

 

Our P2O processors have evolved to be modular solutions with the completion of processor #3 in 2013. We use third party contract manufacturers for the manufacture of many of the key modular components of our processors, including the kilns and distillation towers as well as certain other key components that require specialized machining and fabrication.

 

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Our P2O business is a proprietary process that converts waste plastic into fuel through a series of chemical reactions. We began developing this process in 2009 and began very limited production in late 2010 following our receipt of a consent order from the New York State Department of Environmental Conservation (“NYSDEC”) allowing us to commercially operate our first large-scale P2O processor located at our Niagara Falls, New York facility. Currently, as of the filing of this report, we have three processors and components for two additional processors at an outside vendor site which are included in the balance sheet as deposits.These processors were idle for all of 2015. Our processors are capable of producing Naphtha, Fuel Oil No. 2 and Fuel Oil No. 6. Our P2O process also produces two by-products, a reusable off-gas similar to natural gas and a petcoke carbon residue. We sell our fuel products to fuel wholesalers and directly to commercial and industrial end-users. We primarily use our off-gas product in our processing operations to fuel the burners in our P2O processors. We have years of significant operating data and have solved numerous challenges that have blocked competitor success. Since inception we have produced a total of 667,996 gallons of fuel.

 

2015 update

 

P2O has substantially reduced the Company’s monthly cash burn rate, including cost cutting decisions, such as coming to agreement with the landlord in terminating the discontinued operations RRON lease in Thorold, Canada which had a term ending December 1, 2030. This termination will save approximately $1,161,360 in lease payments over the original life of the lease term ending on December 1, 2030. The property was vacated on November 10, 2015 and the lease was terminated on January 15, 2016, effective as of October 31, 2015.

 

Our 2016 P2O sales and marketing program are expected to include direct sales as well as new partnerships To that end, we made the decision not to further extend our agreement with EcoNavigation LLC as their firm has been unable to conclude processor sales via acceptable terms. The 2016 initiative has started and P2O is currently in discussion with a Southeast potential customer for up to six processors and two Midwest potential customers for up to four processors. The Southeast potential could lead to purchase of two processors in 2016.

 

Through years of testing and refinement in conjunction with our outside engineering firm, we are considering bringing our flagship processor #3 back online in the coming months. It will be important to be able to demonstrate the commercial viability of this processor by regular operations at our Niagara Falls plant. Of primary influence to our decision to expand our sales efforts and to bring the flagship processor #3 back on line is our view based on analysis and consultation that oil prices have reached a bottom and could rise to $50 a barrel by the end of the year.

 

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.

 

Internal Changes

 

While our primary focus continues to be on the sale of our disruptive technology, a number of internal operational changes are being addressed:

 

1. Management expects the Niagara Falls plant to provide a source of revenue. We plan to raise additional outside capital for the restart of flagship processor #3 and we are also considering modifications to our processor #2 in order to improve economies of scale and deliver cash flow.

 

2. Plastics2Oil owns a fully permitted fuel blending facility in Thorold, Canada. Regional demand justifies bringing the facility back on line and we intend to lease the blending facility to a qualified independent operator in 2016.

 

3. P2O will continue to draw support from our loyal shareholder base that includes individuals with impressive business credentials, experience and acumen. Valuable strategic suggestions have been offered and are being evaluated. P2O is also considering making important additions to support the our 2016 sales and marketing initiatives. This will require a project management team and P2O may also require an ancillary advisory board.

 

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Madison County, New York

 

Many P2O investors may be aware that an RFP has been issued by Madison County, New York. We applaud Madison County’s role in recognizing environmental issues and initiating a regional alternative to the disposal of agricultural waste plastic in landfills. In the past, P2O has successfully processed plastic feedstock for Madison County.

 

We will continue to evaluate the situation in order to determine if we wish to make a bid , there is a worthy, viable proposal that can be submitted. If no bid is accepted by Madison County for its RFP, P2O will seek to provide other solutions that may work for our neighbors in Madison County.

 

Recent Development

 

On January 21, 2016, the Company elected not to extend the term of its pilot program with EcoNavigation, LLC.

 

Feedstock Procurement

 

Historically, we operated under the premise that we would be able to obtain significant quantities of waste plastic at little or no cost to us, as we offered companies a more cost-effective disposal method for this waste stream. During 2013, as we processed increasing amounts of waste plastic, we made the determination that in order to obtain the most optimal feedstock on a consistent basis, we would be required to purchase this feedstock. We continue to receive free plastic from time to time, however, we have concluded that these sources are not able to provide us with the amount of feedstock required to consistently feed the processors at the optimum feedrates.

 

Data Recovery & Migration Business

 

The Data Recovery & Migration Business is not as capital intensive as our P2O business, but is time consuming with regard to the allocation of the time of John Bordynuik, our founder and currently a consultant. His time is needed to interpret and read tape data and make necessary adjustments to the programming of the tape-reading equipment in order to accurately read the data. Revenues for this segment will vary based on our ability to read the tape data timely and the availability of Mr. Bordynuik to dedicate portions of his time to reading and interpreting the data from our customers’ media in the event that certain updates or changes to the programming are needed. During 2015 and 2014, we were able to complete certain orders for tape reading and recognize revenue related to this service. Due to the aforementioned time constraints of the Data Business, we are unable to routinely complete orders for tape reading services and recognize revenue for the work and revenue from this business will be limited and not predictable.

 

Listing on the OTCQB

 

On April 14, 2016, 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 April 14, 2016, the last trading day prior to the date of this filing, the closing price of the common stock on the OTCQB was $0.04.

 

Sources of Revenues and Expenses

 

Revenues

 

In 2015, we derived revenues from one defined business segments: (1) P2O, through the manufacture of processor and as well as from the sale of Fuel Oil No 2, Naphtha and Fuel Oil #6; and (2) Data Business, through the reading and interpretation of magnetic tape data. We did not derive any revenue from the operations of Recycling Center, Javaco and Pak-It during the year; however, the results of operations Recycling Center, Javaco and Pak-It for all prior years presented have been classified as discontinued in the statement of operations.

 

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Cost of Sales

 

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.

 

The costs of sales for the Recycling Center, Javaco and Pak-It have been classified as discontinued operations in the statement of operations.

 

Operating Expenses

 

Operating expenses consist primarily of the following:

 

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

 

Other Income (Expense)

 

In 2015, other expense of $1,211,425 consisted mainly of $618,278 of interest expenses on short-term loans and secured debt and $593,060 impairment loss from property plant and equipment. In 2014, other expense of $1,447,654 consisted mainly of the interest expenses on short term loans and secured debt $438,992, loss on disposal of assets $75,052, impairment loss from property plant and equipment $927,163 and offset by miscellaneous receipts of payments from scrap metal.

 

Results of Operations – Year ended December 31, 2015 compared to Year ended December 31, 2014

 

Revenue

 

As we only recently shifted our business strategy to selling fuel processors, we did not derive any revenue from processor sales in 2015 or 2014. Additionally, we supplement this revenue with revenue from our Data Business through reading and interpreting magnetic tape media. The following table shows a breakdown of our revenues from these sources.

 

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   Year Ended December 31, 
Revenue  2015   2014   % Change 
P2O Revenue               
Fuels  $-   $46,111    (100.0)%
Total P2O Revenue   -    46,111    (100.0)%
                
Data Business   16,728    12,906    29.6%
TOTAL REVENUE  $16,728   $59,017    (71.7)%

 

There was no fuel production in the year ended December 31, 2015. Consequently, there was neither fuel shipment nor fuel revenue. The decrease in fuel revenue for the year ended December 31, 2015 as compared to December 31, 2014, 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 2014 and 2015, and are currently idle. Fuel shipment from inventory stock accounts for the 2014 fuel revenue. Management estimates the processors will remain idle until third quarter of 2016, other than pilot runs to support processor sales.

 

Fuel revenues are based on either a set pricing structure with our customers or the prevailing market rate for the specific type of fuel being sold. Our fuels are sold under both long term sale contracts with specified pricing or through the issuance of purchase orders by our customers. Generally, we are able to obtain a higher price per gallon for our Fuel Oil No. 2 as compared to Fuel Oil No. 6, and a significantly lower pricing for our Naphtha.

 

The following tables provide a comparison of production and sales of our three specific fuels for the year ended December 31, 2014. As indicated earlier, we had no fuel produced in 2015.

 

   Gallons Produced   Gallons Sold 
   Twelve Months ended December 31,   Twelve Months ended December 31, 
Fuel Type  2015   2014   % Change   2015   2014   % Change 
Fuel Oil No. 2   -    12,959    (100)%   -    17,699    (100)%
TOTAL   -    12,959    (100)%   -    17,699    (100)%

 

Revenues from the Data Business were driven by the completion of open and outstanding purchase orders.

 

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Cost of Goods Sold & Total Gross Profit

 

As indicated earlier, we had no fuel produced in 2015 and 2014 were mainly from existing inventory on hand. The following tables are a breakdown of the costs of goods sold and Total Gross Profit:

 

   Year Ended December 31, 
Cost of Good Sold  2015   2014   % Change 
P2O Cost of Good Sold               
Fuels  $-   $92,500    (100.0)%
Total P2O Cost of Goods Sold   -    92,500    (100.0)%
                
Data Business Cost of Goods Sold   6,435    5,206    23.6%
TOTAL COST OF GOODS SOLD  $6,435   $97,706    (93.4)%

 

   Twelve Months ended December 31, 
Gross Profit (Loss)  2015   2014   % Change 
P2O Gross Loss               
Fuels  $-   $(46,389)   (100.0)%
Total P2O Gross Loss   -    (46,389)   (100.0)%
                
Data Business Gross Profit   10,293    7,700    33.7%
TOTAL GROSS LOSS  $10,293   $(38,689)   (126.6)%

 

There were no fuel shipments for the years months ended December 31, 2015 as compared to December 31, 2014, as noted above. The P2O inventory was revalued at December 31, 2015 and fully reserved. The cost of goods sold related to the Data Business relate to the direct labor incurred in the reading and interpreting of the magnetic tape data.

 

Operating Expenses

 

We incurred operating expenses of $3,322,630 during the year ended December 31, 2015, compared to $5,306,456 for the year ended December 31, 2014. This $1,983,826 decrease was driven by a $793,065 in professional fees decrease from elimination of outside consultants including a gain of $1,400 from revaluation of stocks and warrants paid to consultants, a $328,328 reduction in wages and $1,110,242 reduction of additional operational expenses, offset by a $240,000 of expenses related to the class action suit settlement (Note 9). For the years ended December 31, 2015 and 2014. For the years ended December 31, 2015 and 2014 compensation expense includes $ 347,850 and $583,818 of non-cash accrued wages. A breakdown of the components of operating expenses for the fiscal years ended December 31, 2015 and 2014, are as follows:

 

   Years ended December 31, 
   2015   2014 
Selling, General and Administrative expenses          
Professional Fees  $614,330   $1,368,295 
Compensation   886,965    1,215,293 
Other   805,547    1,656,649 
Depreciation & Accretion   928,533    1,045,220 
Manufacturing expenses- other   85,602    - 
Research & Development   1,653    20,999 
Total Operating Expenses  $3,322,630   $5,306,456 

 

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Non-Operating Expenses

 

Interest Expenses

 

For the year ended December 31, 2015, we incurred net interest expense of $618,278 as compared to $438,992 for the year ended December 31, 2014.

 

Income Tax Expenses

 

For the years ended December 31, 2015, and 2014, 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, 2015 and 2014, we incurred $0 current income tax or future income tax expenses from continuing operations.

 

Net Loss

 

We incurred a net loss of $4,324,310 for the year ended December 31, 2015 as compared to a net loss of $6,801,519 for the year ended December 31, 2014. These losses consisted of losses from continuing operations of $4,523,762 and $6,792,799 for the years ended December 31, 2015 and 2014, respectively, and gains from discontinued operations of $199,452 and losses from discontinued operations of $8,720 for the years ended December 31, 2015 and 2014, respectively. The discontinued (Niagara Fall Recycling Facility) operations property was vacated on November 10, 2015 and the lease was terminated on January 15, 2016 effective October 31 with no penalty for early termination. This resulted in a 2015 adjustment to the short-term and long-term obligations set up in 2013 to zero, which resulted in a gain of $195,044.

 

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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. At December 31, 2015, we had a cash balance approximately $18,488. Our principal sources of liquidity in 2015 were the proceeds from the related party short-term loans from our chief executive officer, and proceeds from the sale of shares or our common stock. In 2014, the proceeds from the sale of secured promissory note, the proceeds from the sale of shares of our common stock in private placements and cash generated from our P2O operations. As discussed earlier in this MD&A, our processors are currently idle and, thus, we are not producing fuel or generating fuel sales. Furthermore, we have shifted our business strategy to processor sales, rather than fuel sales. Our current cash levels are not sufficient to enable us to make the required repairs to our processors or to execute our business strategy as described in this Report. As a result, we intend to seek significant additional capital through the sale of our equity and debt securities and other financing methods to enable us to make the repairs, to meet ongoing operating costs and reduce existing current liabilities. We also intend to seek to cash advances or deposits under any new processor sale agreements and/or related technology licenses. Management currently anticipates that the processors will remain idle until at least the third quarter of 2016 other than running 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 2016, or at all. In the interim, we anticipate that our level of operations will continue to be nominal, although we plan to continue to market our P2O processors with the intention of making additional P2O processor sales and technology licenses.

 

Our limited capital resources and recurring losses from operations raise substantial doubt about our ability to continue as a going concern and may adversely affect our ability to raise additional capital. The audit report prepared by our independent registered public accounting firm relating to our consolidated financial statements for the year ended December 31, 2015 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

The following table provides a comparative summary of our cash flows for the fiscal years ended December 31, 2015 and 2014.

 

   For the Twelve Months ended
December 31,
 
Cash Flow from Operating Activities  2015   2014 
Net Loss from Continuing Operations  $(4,523,762)  $(6,792,799)
Net Income (Loss) from Discontinued Operations   199,452    (8,720)
Net Loss   (4,324,310)   (6,801,519)
Net Cash Used in Operating Activities   (1,745,409)   (1,813,053)
Cash Flows from Investing Activities        - 
Net Cash (Used) Provided in Investing Activities   (552)   88,599 
Cash Flows from Financing Activities          
Net Cash Provided by Financing Activities   1,584,797    1,700,157 
           
Cash and Cash Equivalents at Beginning of Year   179,652    203,949 
Cash and Cash Equivalents at End of Year  $18,488   $179,652 

 

Cash Flow from Operations

 

Cash used in operations was $1,745,409 and $1,813,053 for the years ended December 31, 2015 and 2014, respectively. In 2015 and 2014 cash was mainly used to continue funding the minimum operating costs.

 

Cash Flow from Investing Activities

 

Cash used in investing was $552 and $88,599 for the years ended December 31, 2015 and 2014, respectively. In 2014, the investment pertains to existing capital leases.

 

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Cash Flow from Financing Activities

 

Cash flow from financing activities was $1,584,797, and $1,700,157, for the years ended December 31, 2015 and 2014, respectively. For 2015, these amounts were mainly driven by the proceeds received from short-term notes and shares of common stock in private placement. For 2014, these amounts were mainly driven by the proceeds received from the issuances of a secured note and shares of common stock in private placements, slightly offset by the repayment of short term notes and loans.

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements in the years ended December 31, 2015 and 2014, other than operating leases, as discussed in Note 7.

 

Transactions with Related Parties

 

From June 2014 to December 31, 2015, Mr. Heddle, the Company’s Chief Executive Officer, made several personal loans to the company to provide working capital. As of December 31, 2015, the current aggregate outstanding balance including accrued interest at 4% per annum was$1,593,291. (See Note 6).

 

At December 31, 2015, the company’s accounts payable and accrued expenses included a $132,218 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.

 

Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract in 2010 with a company owned by Mr. Heddle, who later (in 2014) became the Company’s Chief Executive Officer. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At December 31, 2015, there were no installed marine vessel processors pursuant to the contract.

 

In November 19, 2014, we entered into a Subscription Agreement with Heddle Marine Services, a business controlled by Mr. Richard Heddle, the Company’s Chief Executive Officer and a member of the Company’s board of directors, pursuant to which we issued to Heddle Marine a $1 million principal amount 12% Secured Promissory Note, together with a five-year warrant to purchase up to one million shares of the Company’s common stock at an exercise price of $0.12 per share.

 

Critical Accounting Policies

 

Basis of Consolidation

 

The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, Plastic2Oil (Canada) Inc., JBI CDE Inc., Plastic2OilI Re One Inc., and JBI Re #1 Inc., Plastic2Oil of NY #1, and Plastic2Oil Marine Inc.. The results of Javaco and Pak-It are consolidated and classified as discontinued operations for all periods presented. (Note 17) 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.

 

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Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

 

Restricted Cash

 

At December 31, 2015 and December 31, 2014, the Company had $100,322 and $100,222, respectively, of restricted cash, which is used to secure a line of credit that secures a performance bond on behalf of the Company. The performance bond is required by the State of New York for fuel distributors in perpetuity.

 

Cash Held in Attorney Trust

 

The amount held in trust represents retainer payments the Company has made to law firms which are being held on our behalf for the payment of future services.

 

Accounts Receivable

 

Accounts receivable represent unsecured obligations due from customers under terms requesting payments upon receipt of invoices up to ninety days, depending on the customer. Accounts receivable are non-interest bearing and are stated at the amounts billed to the customer net of an allowance for uncollectible accounts. Customer balances with invoices over 90 days old are considered delinquent. Payments of accounts receivable are applied to the specific invoices identified on the customer remittance, or if unspecified, are applied to the earliest unpaid invoice.

 

The allowance for uncollectible accounts reflects management’s best estimate of amounts that may not be collected based on an analysis of the age of receivables and the credit standing of individual customers. The allowance for uncollectible accounts for December 31, 2015 and December 31, 2014 was $22,994 and $23,182, respectively.

 

Inventories

 

Inventories, which consist primarily of plastics, costs to process the plastic and processed fuel are stated at the lower of cost or market. We use an average costing method in determining cost. Inventories are periodically reviewed for use and obsolescence, and adjusted as necessary. As of December 31, 2015 and 2014, reserves for obsolescence were $412,128 and $326,526, respectively.

 

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. The operating properties sold by the Company typically meet the definition of a component of an entity and as such the revenues and expenses associated with sold properties are reclassified to discontinued operations for all periods presented (See Note 15).

 

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As of December 31, 2015 and 2014, we had recorded impairment losses on property, plant and equipment of $593,060 and $927,163, respectively. The charge in 2015 relates specifically to construction in process parts and spare parts used in Processor #3 and #2 respectively. The charge in 2014 relates specifically to Processor #3, which along with Processor #2 is being set up mainly for pilot runs to support ongoing processor sales.

 

Asset Retirement Obligations

 

The fair value of the estimated asset retirement obligation is recognized in the consolidated balance sheets when identified and a reasonable estimate of fair value can be made. The asset retirement cost, equal to the estimated fair value of the asset retirement obligation, is capitalized as part of the cost of the related long-lived asset. The balance of the asset retirement obligation is determined through an assessment made by the Company’s engineers, of the total costs expected to be incurred by the Company when closing a facility. The total estimated cost is then discounted using the current market rates to determine the present value of the asset as of the date of this valuation. As of the date of the creation of the asset retirement obligation in the amount of $57,530, the Company determined the present value of the obligation using a discount rate equal to 2.96%. The present value of the asset retirement obligation is then capitalized on the consolidated balance sheets and is depreciated over the asset’s estimated useful life and is included in depreciation and accretion expense in the unaudited condensed consolidated statements of operations. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligations in the unaudited condensed consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation.The December 31, 2015 assessment, amounted to a net increase of $8,849. As of December 31, 2015 and December 31, 2014, the carrying value of the asset retirement obligations were $41,000 and $31,215, respectively. These costs include disposal of plastic and other non-hazardous waste, site closing labor and testing and sampling of the site upon closure. 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.

 

Deposits

 

Deposits represent utility services deposit and payments made to vendors for fabrication of key pieces of property, plant and equipment that have been made in accordance with the Company’s agreements to purchase such equipment. Payments are made to these vendors as progress is made on the fabrication of the equipment, with final payments made when the equipment is delivered. Until we have possession of the equipment, all payments made to these vendors are classified as deposits on assets. As at December 31, 2015 and December 31, 2014, the carrying value of the Deposits were $1,484,438 and $1,483,987 respectively.

 

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Leases

 

The Company has entered into various leases for buildings and equipment. At the inception of a lease, the Company evaluates whether it is operating or capital in nature. Operating leases are recorded as expense in the appropriate periods of the lease. Capital leases are classified as property, plant and equipment and the related depreciation is recorded on the assets. Also, the debt related to the capital lease is included in the Company’s short- and long-term debt obligations, in accordance with the lease agreement.

 

Lease inducements are recognized for periods of reduced rent or for larger than usual rent escalations over the term of the lease. The benefit of a rent free period and the cost of future rent escalations are recognized on a straight-line basis over the term of the lease.

 

Revenue Recognition

 

The Company recognizes revenue when it is realized or realizable and collection is reasonably assured. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

P2O processor sales are recognized when the customer take possession of the processors since title to the goods and the risk of loss transfers from P2O to Customer upon delivery. P2O fuel sales are recognized when the customers take possession of the fuel since at that stage the customer has completed all prior testing necessary for their acceptance of the fuel. At the time of possession they have arranged for transportation to pick it up and the sales price has either been set in contract or negotiated prior to the time of pick up. The Company negotiates the pricing of the fuel based on the quality of the product and the type of fuel being sold (e.g. Naphtha, Fuel Oil No.6 or Fuel Oil No. 2).

 

Shipping and Handling Costs

 

The Company’s shipping and handling costs of $147 and $18,639 for the years ended December 31, 2015 and 2014, respectively, are included in cost of goods sold for the periods presented. Shipping and handling costs related to the purchase of inventory items are capitalized to inventory and expensed to cost of sales when the related inventory is sold for the periods presented.

 

Advertising costs

 

The Company expenses advertising costs as incurred. Advertising costs were $1,868 and $2,245 for the years ended December 31, 2015 and 2014, respectively. These expenses are included in selling, general and administrative expenses in the consolidated statements of operations.

 

Research and Development

 

The Company is engaged in research and development activities. Research and development costs are charged as operating expense of the Company as incurred. For the years ended December 31, 2015, and 2014, the Company expensed $1,653, and $20,199, respectively, towards research and development costs.

 

Foreign Currency Translation

 

The consolidated financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830. All monetary items have been translated using the exchange rates in effect at the balance sheet date. All non-monetary items have been translated using the historical exchange rates at the time of transactions. Income statement amounts have been translated using the average exchange rate for the year. Foreign exchange gains and losses are included in the consolidated statements of operations. Resulting differences are reflected in accumulated other comprehensive income in the accompanying consolidated balance sheets. Foreign exchange gain of $7,320 and loss of $2,330 for monetary items are included as general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2015 and 2014, respectively.

 

Income Taxes

 

The Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

 41 
 

 

The Company adopted the accounting standards associated with uncertain tax positions as of January 1, 2007. The adoption of this standard did not have a material impact on the Company’s consolidated statements of operations or financial position. Upon adoption, the Company had no unrecognized tax benefits. Furthermore, the Company had no unrecognized tax benefits at December 31, 2015 and 2014. The Company files tax returns in the U.S. federal and state jurisdictions as well as a foreign country. The years ending December 31, 2008 through December 31, 2015 are open tax years for IRS review.

 

Loss Per Share

 

The financial statements include basic and diluted per share information. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Common stock equivalents are excluded from the computation of diluted loss per share when their effect is anti-dilutive. For the year ended December 31, 2015, potential dilutive common stock equivalents consisted of 14,350,000 shares underlying common stock warrants and 1,628,000 shares underlying stock options, which were not included in the calculation of the diluted loss per share because they would be antidilutive. For the year ended December 31,2014, potential dilutive common stock equivalents consisted of 14,100,000 shares underlying common stock warrants, and 5,303,334 shares underlying stock options, which were not included in the calculation of the diluted loss per share because they would be anti-dilutive.

 

Segment Reporting

 

We operate in two reportable segments. ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, establishes standards for the way that public business enterprises report information about operating segments in their annual consolidated financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our operating segments include plastic-to-oil conversion (Plastic2Oil), which includes processor sales as well as fuel sales and Data Recovery and Migration, our magnetic tape reading segment. Our Chief Operating Decision Maker is the Company’s Chief Executive Officer.

 

Concentrations and Credit Risk

 

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

 

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, 2015 and 2014, 100.0%, and 89% of total net revenues were generated from a single, and two customers respectively. As of December 31, 2015 and 2014, one and two customers, respectively, accounted for 100.0% of accounts receivable.

 

During the years ended December 31, 2015 and 2014 five and four suppliers, respectively, accounted for 30.9% and 38.0% of accounts payable, respectively.

 

 42 
 

 

Fair Value of Financial Instruments

 

Fair value is defined under FASB ASC Topic 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for an asset or liability in an orderly transaction between participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The levels are as follows:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities-
   
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities
   
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities

 

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, notes payable, leases, promissory notes, mortgage payable and short-term loans approximate fair value because of the short-term nature of these items. Per ASC Topic 820 framework these are considered Level 2 inputs where estimates are unobservable by market participants outside of the Company and must be estimated using assumptions developed by the Company.

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have experienced negative cash flows from operations since inception, have a history of net losses from continuing operations of $4,523,762 and $6,792,799 for the years ended December 31, 2015 and 2014, respectively, and have an accumulated deficit of $72,244,097 at December 31, 2015. These factors raise substantial doubt about our ability to continue to operate in the normal course of business. We have funded our activities to date almost exclusively from equity financings. See “Risk Factors—Risks Related to Our Business”.

 

Financial Instruments and Other Instruments

 

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

 

Disclosure of Outstanding Securities

 

As of April 14, 2016, we had 124,756,158 shares of common stock issued and outstanding. On June 30, 2014, all of the issued and outstanding shares of Series B Preferred Stock were converted at the rate of one (1) share of Series B Preferred Stock to seven (7) shares of common stock.

 

In conjunction with the Company’s 2012 Long Term Incentive Plan, options to purchase 1,040,0000 shares of common stock with the exercise price of $1.50, 538,000 shares of common stock with the exercise price of $0.38, and 50,000 shares of common stock with the exercise price of $0.05 have been issued and outstanding at December 31, 2015. All 1,628,000 shares are vested at December 31, 2015.

 

In conjunction with the Company’s November 19, 2014 private placement, the Company sold a $1,000,000 principal amount of 12% Promissory Note, together with a five-year warrant to purchase up to one million shares of the company’s common stock at an exercisable price of $0.12 per share. The gross proceeds to the Company were $1 million.

 

On October 28, 2014, the Company entered into Subscription Agreements with two investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchasers an aggregate of 1.25 million shares of its common stock and Warrants. The purchase price per share was $0.10 and the gross proceeds to the Company were $125,000. The Warrants have a three year term, and an initial exercise price of $0.15 per share of common stock.

 

On March 26, 2014, the Company entered into Subscription Agreements with eleven investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchasers an aggregate of 3.2 million shares of its common stock and Warrants to purchase up to an additional 3.2 million shares of its common stock. The closings occurred between March 17 and 28, 2014. The purchase price per share was $0.05 and the gross proceeds to the Company were $320,000. The Warrants have a three year term, and an initial exercise price of $0.15 per share of common stock.

 

 43 
 

 

On February 19, 2014, the Company entered into Subscription Agreements with three investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchasers an aggregate of 2.4 million shares of its common stock and Warrants to purchase up to an additional 2.4 million shares of its common stock. The closings occurred between February 19 and 24, 2014. The purchase price per share was $0.05 and the gross proceeds to the Company were $120,000. The Warrants have a three year term, and an initial exercise price of $0.10 per share of common stock.

 

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, 2015 and 2014 was $1,593,291 and $8,850, respectively.

 

Credit Risk

 

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

 

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

 

During the years ended December 31, 2015 and 2014, 100.0%, and 89% of total net revenues were generated from a single, and two customers respectively. As of December 31, 2015 and 2014, one and two customers, respectively, accounted for 100.0% of accounts receivable.

 

During the years ended December 31, 2015 and 2014 five and four suppliers, respectively, accounted for 30.9% and 38.0% of accounts payable, respectively.

 

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.

 

 44 
 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Index

 

Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets – December 31, 2015 and 2014 F-2
Consolidated Statements of Operations for the years ended December 31, 2015, and 2014 F-3
Consolidated Statement of Comprehensive Loss F-4
Consolidated Statement of Changes in Stockholders Deficit years ended December 31, 2015 and 2014 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014 F-7
Notes to Consolidated Financial Statements F-8

 

 45 
 

 

 

D. Brooks and Associates CPA’s, P.A.

Certified Public Accountants ●Valuation Analysts ● Advisors

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and
Stockholders of Plastic2Oil, Inc.

 

We have audited the accompanying consolidated balance sheets of Plastic2Oil, Inc. Inc. as of December 31, 2015, and the related statements of operations, comprehensive income, stockholder’s deficit, and cash flows for year then ended. Plastic2Oil, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

We were not engaged to examine management’s assertion about the effectiveness of Plastic2Oil, Inc.’s internal control over financial reporting as of December 31, 2015 and, accordingly, we do not express an opinion thereon.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Plastic2Oil, Inc. as of December 31, 2015, and the results of its operations and cash flows for year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

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

 

 
D. Brooks and Associates CPA’s, P.A.  
West Palm Beach, Florida  
April 14, 2016  

 

 

 

D. Brooks and Associates CPA’s, P.A. 319 Clematis Street, Suite 318 West Palm Beach, FL 33401 – (561) 429-6225

 

 F-1 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   December 31, 2015   December 31, 2014 
ASSETS          
CURRENT ASSETS          
Cash and cash equivalents  $18,488   $179,652 
Cash held in attorney trust (Note 2 )   -    2,003 
Restricted cash (Note 2 )   100,322    100,222 
Accounts receivable, net of allowance of $22,994 and $23,182, respectively.   3,345    4,436 
Inventories (Note 3)   -    86,053 
Prepaid expenses and other current assets   11,698    20,229 
TOTAL CURRENT ASSETS   133,853    392,595 
           
PROPERTY, PLANT AND EQUIPMENT, NET (Note 4)   3,775,527    5,112,506 
           
Deposits (Note 2)   1,484,438    1,483,987 
           
TOTAL ASSETS  $5,393,818   $6,989,088 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES          
Accounts payable  $1,858,666   $1,850,000 
Accrued expenses   2,062,480    1,928,361 
Accrued lease obligation – current (Note 15)   -    101,914 
Demand promissory note – related party (Note 6)   1,593,291    8,850 
Mortgages payable and capital leases – current portion (Note 7)   262,673    326,763 
TOTAL CURRENT LIABILITIES   5,777,110    4,215,888 
           
LONG-TERM LIABILITIES          
Asset retirement obligations (Note 2)   41,000    31,215 
Accrued lease obligation, net of current portion and discounts (Note 15)   -    314,938 
Secured promissory notes – related party (Note 6)   4,493,941    3,753,956 
Mortgages payable and capital leases, net of current portion and disconts (Note 6)   -    45,000 
TOTAL LONG-TERM LIABILITIES   4,534,941    4,145,109 
           
TOTAL LIABILITIES   10,312,051    8,360,997 
           
Commitments and contingencies ( Note 8)          
           
STOCKHOLDERS’ DEFICIT          
Common stock, par $0.001; 250,000,000 authorized, 124,756,158 and 109,917,529 shares issued and outstanding, respectively.   124,756    109,918 
Common stock to be issued, 0 as of December 31, 2015 and 8,097,001 December 31, 2014, respectively.   -    8,097 
Additional paid in capital   66,969,154    66,371,906 
Accumulated other comprehensive income   231,954    57,956 
Accumulated deficit   (72,244,097)   (67,919,786)
TOTAL STOCKHOLDERS’ DEFICIT   (4,918,233)   (1,371,909)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $5,393,818   $6,989,088 

 

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

 

 F-2 
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31,

 

   2015   2014 
           
SALES          
P2O  $-   $46,111 
Other   16,728    12,906 
TOTAL SALES   16,728    59,017 
           
COST OF SALES          
P2O   -    92,500 
Other   6,435    5,206 
TOTAL COST OF SALES   6,435    97,706 
           
GROSS PROFIT (LOSS)   10,293    (38,689)
           
OPERATING EXPENSES          
Selling general and administrative expenses          
Professional Fees   614,330    1,368,295 
Compensation   886,965    1,215,293 
Other   805,547    1,656,649 
Depreciation of property, plant and equipment and accretion of long-term liability   928,533    1,045,220 
Manufacturing expenses -Other   85,602    - 
Research and development expenses   1,653    20,999 
TOTAL OPERATING EXPENSES   3,322,630    5,306,456 
           
LOSS FROM OPERATIONS   (3,312,337)   (5,345,145)
           
OTHER EXPENSES          
Impairment loss - property, plant and equipment   (593,060)   (927,163)
Loss from disposal of assets   -    (75,052)
Interest expense,net   (618,278)   (438,992)
Other expense, net   (87)   (6,447)
TOTAL OTHER EXPENSES   (1,211,425)   (1,447,654)
           
LOSS BEFORE INCOME TAXES   (4,523,762)   (6,792,799)
           
Current and future income tax expense   -    - 
           
    (4,523,762)   (6,792,799)
Net income (loss) from discontinued operations (Note 16)   199,452    (8,720)
           
NET LOSS  $(4,324,310)  $(6,801,519)
           
Deemed Dividends   -    (1,713,117)
Net loss attributable to common shareholders  $(4,324,310)  $(8,514,636)
           
Earnings (loss) per share          
Basic and dilute - from continuing operations  $(0.04)  $(0.08)
Basic and dilute - from discontinued operations    **      **  
Total basic and diluted net loss per share  $(0.04)  $(0.08)
           
Weighted average number of shares outstanding          
           
Basic and dilute (Note 2)   120,826,786    105,729,120 

 

** Less than $.01

 

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

 

 F-3 
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Years Ended December 31,

 

   2015   2014 
         
NET LOSS  $(4,324,310)  $(6,801,519)
           
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX          
Foreign currency items   173,998    57,956 
COMPREHENSIVE LOSS  $(4,150,312)  $(6,743,563)

 

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

 

 F-4 
 

 

Plastic2Oil, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

Years Ended December 31, 2015, and 2014

 

   Common Stock $0.001
Par Value
   Common Stock to be
issued
   Additional
Paid in
Capital
   Accumulated
Deficit
   Other
Comprehensive
Income
   Total
Stockholder
Deficit
 
   Shares   Amount   Shares   Amount   Amount   Amount   Amount   Amount 
BALANCES - DECEMBER 31, 2014   109,917,529   $109,918   $8,097,001   $8,097   $66,371,906   $(67,919,786)  $57,956   $(1,371,909)
                                         
Common stock issued for services, $0.05 per share   634,626    634    -    -    33,349    -    -    33,983 
                                         
Common Stock, issued for Preferred Series B conversion 2015   7,444,003    7,444    (6,847,001)   (6,847)   (401)   (1)   -    196 
                                         
Common Stock, subscribed during 2015 (net of issue costs)   250,000    250    -    -    24,750    -    -    25,000 
                                         
Common Stock, issued during 2015 (net of issue costs)   1,250,000    1,250    (1,250,000)   (1,250)   -    -    -    - 
                                         
Common stock issued for AP settlement, $0.08 per share   250,000    250    -    -    18,950    -    -    19,200 
                                         
Common stock issued for Class Action Suit settlement, $0.08 per share   3,000,000    3,000    -    -    237,000    -    -    240,000 
                                         
Common stock issued for services, $0.21 per share   1,750,000    1,750    -    -    207,700   -    -    209,450
                                         
Common stock issued for services, $0.07 per share   510,000    510    -    -    74,690    -    -    75,200 
                                         
Common stock retired and reissued for services in 2015, $0.21 per share   (250,000)   (250)   -    -    250    -    -    - 
                                         
To book Stock compensation expense related to granting of stock options.                       960    -    -    960 
                                         
Foreign currency adjustment        -    -    -    -    -    173,998    173,998 
    -                                    
Net loss        -    -    -    -    (4,324,310)   -    (4,324,310)
                                         
BALANCES - DECEMBER 31, 2015   124,756,158   $124,756   $-   $-   $66,969,154   $(72,244,097)  $231,954   $(4,918,233)

 

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

 

 F-5 
 

 

Plastic2Oil, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)

Years Ended December 31, 2014, and 2013

 

   Common Stock $0.001 Par Value   Common Stock to be issued   Preferred Stock Series A
$0.001 Par Value
   Preferred Stock Series B
$0.001 Par Value
   Additional
Paid in
Capital
   Accumulated
Deficit
   Other
Comprehensive
Income
   Total
Stockholder
Equity (Deficit)
 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Amount   Amount   Amount   Amount 
BALANCE – DECEMBER 31, 2013   90,692,243   $90,692    -   $-    1,000,000   $1,000    2,204,100   $2,204   $64,872,659   $(61,118,267)  $-   $3,848,288 
                                                             
Common stock issued for services in 2014   3,090,589    3,091    -    -    -    -    -    -    698,057    -    -    701,147 
                                                             
Common stock issued for Accounts Payable in 2014   -    -    -    -    -    -    -    -    21,540    -    -    21,540 
                                                             
Common Stock and warrants, subscribed during 2014 (net of issue costs)   6,750,000    6,750    1,250,000    1,250    -    -    -    -    657,095    -    -    665,095 
                                                             
Preferred Stock - Series A - retired during 2014   -    -    -    -    (1,000,000)   (1,000)   -    -    1,000    -    -    - 
                                                             
Common stock issued for warrants exercised in 2014   400,000    400    -    -    -    -    -    -    39,600    -    -    40,000 
                                                             
Preferred stock – Series B – conversion to common stock 6.30.14   7,984,697    7,986    6,847,001    6,847    -    -    (2,204,100)   (2,204)   (12,629)   -    -    - 
                                                             
Common stock issued for settlement in 2014   1,000,000    1,000    -    -    -    -    -    -    84,000    -    -    85,000 
                                                             
Warrants issued with 12% Secured note   -    -    -    -    -    -    -    -    54,894    -    -    54,894 
                                                             
Stock compensation expense related to granting of stock options.   -    -    -    -    -    -    -    -    (44,310)   -    -    (44,310)
                                                             
Foreign currency adjustment   -    -    -    -    -    -    -    -    -    -    57,956    57,956 
                                                             
Net loss   -    -    -    -    -    -    -    -    -    (6,801,519)   -    (6,801,519)
                                                             
BALANCES - DECEMBER 31, 2014   109,917,529   $109,919    8,097,001   $8,097    -   $-    -    -   $66,371,906   $(67,919,786)  $57,956   $(1,371,909)

 

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

 

 F-6 
 

 

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

 

   2015   2014 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss from continuing operations  $(4,523,762)  $(6,792,799)
Net income (loss) from discontinued operations   199,452    (8,720)
NET LOSS   (4,324,310)   (6,801,519)
Items not affecting cash:          
Depreciation of property plant and equipment   734,797    861,509 
Accreation of long-term liability   193,737    184,620 
Impairment loss - property, plant and equipment   593,060    927,163 
Accrued interest expense   575,823    380,428 
Stock issued for Class Action suit settlement   240,000    - 
Stock issued for Services   320,994    821,974 
Gain in stock and warrants revaluation   (1,400)   - 
Stock issued in reduction of Accounts Payable   19,200    - 
Write-off of Inventory   86,053    - 
Write-off of Property plant and equipment   18,907    193,913 
Other   102    (276)
Working capital changes:          
Cash held in attorney trust   2,003    10,634 
Accounts receivable   1,091    50,258 
Inventories   -    61,067 
Prepaid expenses   8,531    56,076 
Accounts payable   58,876    372,855 
Accrued expenses   134,119    1,076,828 
Other liabilities   9,860    74,883 
Changes attributable to discontinued operations   (416,852)   (83,466)
           
NET CASH USED IN OPERATING ACTIVITIES   (1,745,409)   (1,813,053)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Proceeds from sale of assets   -    102,374 
Property, plant and equipment additions   -    (13,775)
Increase in restricted cash   (100)   - 
Increase in deposit   (452)   - 
NET CASH USED IN INVESTING ACTIVITIES   (552)   88,599 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Stock issuance proceeds, net   25,000    665,095 
Proceeds from exercise of warrants   -    40,000 
Proceeds from short-term loans – related party   1,634,095    464,318 
Repayment of short-term loans - related party   -    (469,256)
Repayment of Mortgages and Capital Leases   (74,298)     
Proceeds from long-term notes payable - related party   -    1,000,000 
NET CASH PROVIDED BY FINANCING ACTIVITIES   1,584,797    1,700,157 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (161,164)   (24,297)
           
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR   179,652    203,949 
           
CASH AND CASH EQUIVALENTS AT END OF YEAR  $18,488   $179,652 
           
Supplemental disclosure of cash flow information          
Cash paid for income taxes  $-   $- 
Cash paid for interest  $16,001   $26,574 
           
Schedule of non-cash Investing and Financing activities          
Accounts payable settled with stock  $30,003   $21,540 
Class action suit settlement with stock  $240,000   $- 

 

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, operates two processors at its Niagara Falls, NY facility (the “Niagara Falls Facility”). Our P2O business has begun the transition from research and development to a commercial manufacturing and production business. We plan to grow mainly from sale of processors are secondarily from the sale of fuel products.

 

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

 

On August 24, 2009, the Company acquired Javaco, Inc. (“Javaco”), a distributor of electronic components, including home theater and audio video products. In July 2012, the Company closed Javaco and sold substantially all of the inventory and fixed assets of Javaco. The operations of Javaco have been classified as discontinued operations for the years presented (Note 16).

 

On September 30, 2009, the Company acquired Pak-It, LLC (“Pak-It”), and the operator of a bulk chemical processing, mixing, and packaging facility. It also has developed and patented a delivery system that packages condensed cleaners in small water-soluble packages. In February 2012, the Company sold substantially all of the assets of Pak-It and as a result, the operations of Pak-It have been classified as discontinued operations for the years presented (Note 17).

 

Going Concern

 

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplates continuation of the Company as a going concern which assumes the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has experienced negative cash flows from operations since inception, has net losses from continuing operations of $ 4,523,762, and $6,792,799, for the years ended December 31, 2015, and 2014, respectively, and has a working capital deficit of $383,292 and an accumulated deficit of $72,244,097, at December 31, 2015. These factors raise substantial doubt about the Company’s ability to continue as a going concern and to operate in the normal course of business. The Company has funded its activities to date almost exclusively from equity financings.

 

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

 

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

 

 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 on consolidation. Amounts in the consolidated financial statements are expressed in US dollars. Recycling Center, Pak-It and Javaco have also been consolidated; however, as mentioned their operations are classified as discontinued operations (Note 16).

 

Estimates

 

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

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

 

Restricted Cash

 

As of December 31, 2015 and 2014, the Company had $100,322 and $100,222, respectively, of restricted cash, which is used to secure a line of credit that secures a performance bond on behalf of the Company. The performance bond is required by the State of New York for fuel distributors in perpetuity.

 

Cash Held in Attorney Trust

 

The amount held in trust represents retainer payments the Company have made to law firms which were being held on our behalf for the payment of future services.

 

Accounts Receivable

 

Accounts receivable represent unsecured obligations due from customers under terms requesting payments upon receipt of invoice up to ninety days, depending on the customer. Accounts receivable are non-interest bearing and are stated at the amounts billed to the customer net of an allowance for uncollectible accounts. Customer balances with invoices over 90 days old are considered delinquent. Payments of accounts receivable are applied to the specific invoices identified on the customer remittance, or if unspecified, are applied to the earliest unpaid invoice.

 

The allowance for uncollectible accounts reflects management’s best estimate of amounts that may not be collected based on an analysis of the age of receivables and the credit standing of individual customers. The allowance for uncollectible accounts as of December 31, 2015 and 2014 was $22,994 and $23,182, respectively.

 

 F-9 
 

 

Inventories

 

Inventories, which consist primarily of plastics, costs to process the plastic and processed fuel are stated at the lower of cost or market. We use an average costing method in determining cost. Inventories are periodically reviewed for use and obsolescence, and adjusted as necessary.

 

Property, Plant and Equipment

 

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

 

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

 

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

 

Construction in Process

 

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

 

Impairment of Long-Lived Assets

 

The Company reviews for impairment of long-lived assets on an asset by asset basis. Impairment is recognized on properties held for use when the expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down to fair value. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. The sale or disposal of a “component of an entity” is treated as discontinued operations. The operating properties sold by the Company typically meet the definition of a component of an entity and as such the revenues and expenses associated with sold properties are reclassified to discontinued operations for all periods presented (Note 16).

 

During the year ended December 31, 2015 and 2014, the Company recorded impairment losses on property, plant and equipment of $593,060 and $927,163, respectively, in accordance to ASC 360-10-50-2 where an impairment loss will be recognized only if the carrying amount of the long-lived assets are not recoverable and exceeds its fair value. The Company estimates the fair value of equipment for impairment purposes using a discounted cash flow method.

 

Asset Retirement Obligations

 

The fair value of the estimated asset retirement obligation is recognized in the consolidated balance sheets when identified and a reasonable estimate of fair value can be made. The asset retirement cost, equal to the estimated fair value of the asset retirement obligation, is capitalized as part of the cost of the related long-lived asset. The balance of the asset retirement obligation is determined through an assessment made by the Company’s engineers, of the total costs expected to be incurred by the Company when closing a facility. The total estimated cost is then discounted using the current market rates to determine the present value of the asset as of the date of this valuation. As of the date of the creation of the asset retirement obligation in the amount of $57,530, the Company determined the present value of the obligation using a discount rate equal to 2.96%. The present value of the asset retirement obligation is then capitalized on the consolidated balance sheets and is depreciated over the asset’s estimated useful life and is included in depreciation and accretion expense in the consolidated statements of operations. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligations in the consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation. As of December 31, 2015 and December 31, 2014, the carrying value of the asset retirement obligations were $41,000 and $31,215, respectively. These costs include disposal of plastic and other non-hazardous waste, site closing labor and testing and sampling of the site upon closure.

 

 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.

 

Deposits

 

Deposits represent utility services deposit and payments made to vendors for fabrication of key pieces of property, plant and equipment that have been made in accordance with the Company’s agreements to purchase such equipment. Payments are made to these vendors as progress is made on the fabrication of the equipment, with final payments made when the equipment is delivered. Until we have possession of the equipment, all payments made to these vendors are classified as deposits on assets. Deposits were $1,484,438 and $1,483,987 as of December 31, 2015 and 2014, respectively.

 

Leases

 

The Company has entered into various leases for buildings and equipment. At the inception of a lease, the Company evaluates whether it is operating or capital in nature. Operating leases are recorded as expense in the appropriate periods of the lease. Capital leases are classified as property, plant and equipment and the related depreciation is recorded on the assets. Also, the debt related to the capital lease is included in the Company’s short- and long-term debt obligations, in accordance with the lease agreement (Note 7).

 

Lease inducements are recognized for periods of reduced rent or for larger than usual rent escalations over the term of the lease. The benefit of a rent free period and the cost of future rent escalations are recognized on a straight-line basis over the term of the lease.

 

Revenue Recognition

 

The Company recognizes revenue when it is realized or realizable and collection is reasonably assured. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

 F-11 
 

 

P2O processor sales are recognized when the customer take possession of the processors since Title to the Goods and the risk of loss transfers from P2O to Customer upon delivery. P2O fuel sales are recognized when the customers take possession of the fuel since at that stage the customer has completed all prior testing necessary for their acceptance of the fuel. At the time of possession they have arranged for transportation to pick it up and the sales price has either been set in their purchase contract or negotiated prior to the time of pick up through the issuance of a purchase order. The Company negotiates the pricing of the fuel based on the quality of the product and the type of fuel being sold (i.e. Naphtha, Fuel Oil No. 6 or Fuel Oil No. 2).

 

Shipping and Handling Costs

 

The Company’s shipping and handling costs of $147 and $18,639 for the years ended December 31, 2015 and 2014, respectively, are included in cost of goods sold for the years presented. Shipping and handling costs are capitalized to inventory and expensed to cost of sales when the related inventory is sold for the years presented.

 

Advertising costs

 

The Company expenses advertising costs as incurred. Advertising costs were $1,868 and $2,245 for the years ended December 31, 2015 and 2014, respectively. These expenses are included in selling, general and administrative expenses – other, in the consolidated statements of operations.

 

Research and Development

 

The Company is engaged in research and development activities. Research and development costs are charged as operating expense of the Company as incurred. For the years ended December 31, 2015 and 2014, the Company expensed $1,653 and $20,999, respectively, towards research and development costs. Components of the processors that are fabricated or purchased with research and development plans and then used on the processor in production are capitalized into the cost of the processor and depreciated over the remaining life of the processor.

 

Foreign Currency Translation

 

The consolidated financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830. All monetary items have been translated using the exchange rates in effect at the balance sheet date. All non-monetary items have been translated using the historical exchange rates at the time of transactions. Income statement amounts have been translated using the average exchange rate for the year. Resulting differences are immaterial to the financial statements as a whole. Foreign exchange gain of $7,320 and losses of $2,330 are included as general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2015 and 2014, respectively.

 

Income Taxes

 

The Company utilizes the asset and liability method to measure and record deferred income tax assets and liabilities. Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The Company adopted the accounting standards associated with uncertain tax positions as of January 1, 2007. The adoption of this standard did not have a material impact on the Company’s consolidated statements of operations or financial position. Upon adoption, the Company had no unrecognized tax benefits. Furthermore, the Company had no unrecognized tax benefits at December 31, 2015 and 2014. The Company files tax returns in the U.S federal and state jurisdictions as well as a foreign country. The years ended December 31, 2009 through December 31, 2015 are open tax years for IRS review.

 

 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, 2015, potential dilutive common stock equivalents consisted 14,350,000 shares underlying common stock warrants and 1,628,000 shares underlying stock options, which were not included in the calculation of the diluted loss per share. For the year ended December 31, 2014, potential dilutive common stock equivalents 14,100,000 shares underlying common stock warrants, and 5,303,334 shares underlying stock options, which were not included in the calculation of the diluted loss per share.

 

Segment Reporting

 

The Company operates in two reportable segments. ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, establishes standards for the way that public business enterprises report information about operating segments in their annual consolidated financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our operating segments include plastic to oil conversion (Plastic2Oil), which includes processor sales as well as fuel sales and Data Recovery and Migration, our magnetic tape reading segment. Our Chief Operating Decision Maker is the Company’s Chief Executive Officer.

 

Concentrations and Credit Risk

 

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

 

During the years ended December 31, 2015 and 2014, 100.0%, and 89% of total net revenues were generated from a single, and two customers respectively. As of December 31, 2015 and 2014, one and two customers, respectively, accounted for 100.0% of accounts receivable.

 

Fair Value of Financial Instruments

 

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, leases, promissory notes, long-term debt and mortgage payable approximate fair value because of the short-term nature of these items

 

Changes in Accounting Policies Including Initial Adoption

 

There are no recently adopted accounting pronouncements that impact the Company’s consolidated financial statements.

 

Recently Issued Accounting Pronouncements

 

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”). ASU 2014-08 limits the requirement to report discontinued operations to disposals of components of an entity that represents strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The amendments also require expanded disclosures concerning discontinued operations and disclosures of certain financial results attributable to a disposal of a significant components of an entity that does not qualify for discontinued operations reporting. The amendments in this ASU are effective prospectively for reporting periods beginning on or after December 15, 2014, with early adoption permitted. The impact on our Financial Statements of adopting ASU 2014-08 was not significant.

 

 F-13 
 

 

On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. The impact on our Financial Statements of adopting ASU 2014-09 is being assessed by management.

 

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. This update requires an entity to classify deferred tax liabilities and assets as noncurrent within a classified statement of financial position. ASU 2015-17 is effective for annual and interim reporting periods beginning after December 15, 2016. This update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early application is permitted as of the beginning of the interim or annual reporting period. The impact on our Financial Statements of adopting ASU 2014-09 is being assessed by management.

 

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), as part of the initiative to reduce complexity in accounting standards. The update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for annual periods beginning after December 15, 2015 and for interim periods within those fiscal years. The impact on our Financial Statements of adopting ASU 2014-09 is being assessed by management.

 

In July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires that an entity measure inventory at the lower of cost and net realizable value. This ASU does not apply to inventory measured using last-in, first-out. ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company does not expect the new standard to have a significant impact on its consolidated financial position, results of operations or cash flows.

 

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which defers the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The impact on our Financial Statements of adopting ASU 2014-09 is being assessed by management.

 

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

 

 F-14 
 

 

NOTE 3 - INVENTORIES

 

Inventories consist of the following at December 31,:

 

   December 31, 2015   December 31,2014 
Raw materials  $410,089   $410,540 
Finished goods   2,039    2,039 
Obsolescence reserve   (412,128)   (326,526)
           
Total inventories  $-   $86,053 

 

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

 

Property, Plant and Equipment consist of the following at December 31,:

 

December 31, 2015  Cost   Accumulated Depreciation   Net Book Value 
             
Leasehold improvements  $216,854   $(23,096)  $193,757 
Machinery and office equipment   4,190,838    (2,463,172)   1,727,666 
Furniture and fixtures   16,368    (16,068)   300 
Land   273,118    -    273,118 
Asset retirement obligation   36,594    (5,549)   31,045 
Office and industrial buildings   1,433,523    (249,001)   1,184,522 
Equipment under capital lease   73,757    (45,412)   28,344 
Construction in process   197,322    -    197,322 
Spares   174,316    (34,863)   139,453 
Total  $6,612,688   $(2,837,162)  $3,775,527 

 

December 31, 2014  Cost   Accumulated Depreciation   Net Book Value 
             
Leasehold improvements  $218,054   $(12,519)  $205,535 
Machinery and office equipment   4,246,882    (1,913,102)   2,333,780 
Furniture and fixtures   16,368    (14,782)   1,586 
Land   273,118    -    273,118 
Asset retirement obligation   27,745    (4,439)   23,306 
Office and industrial buildings   1,433,523    (176,909)   1,256,614 
Equipment under capital lease   108,317    (48,041)   60,276 
Construction in process   958,291    -    958,291 
Total  $7,282,298   $(2,169,792)  $5,112,506 

 

At December 31, 2015 and 2014, machinery and equipment with a cost of $73,757 and $108,317, and accumulated amortization of $45,412 and $48,041, respectively, were under capital lease. During the years ended December 31, 2015 and 2014, the Company recognized $10,636, and $15,447, respectively, of depreciation expense related to these assets under capital lease.

 

As of December 31, 2015 and 2014, the Company recorded impairment losses on property, plant and equipment of $593,060 and $927,163 respectively, in accordance to ASC 360-10-50-2 where an impairment loss will be recognized only if the carrying amount of the long-lived assets are not recoverable and exceeds its fair value. The charge in 2015 relates specifically to construction in process parts and spare parts used in Processor #3 and #2 respectively. The 2014 charge related specifically to the impairment of processor #3 as it takes on with processor #2 in pilot runs to support potential sale of processors.

 

 F-15 
 

 

NOTE 5 - INCOME TAXES

 

The following table summarizes the activities for the year ended December 31,:

 

   2015   2014 
Statutory tax rate:          
U.S.   34%   34%
Foreign   26.5%   26.5%
           
Loss from operations before recovery of income taxes:          
U.S.  $(4,312,121)  $(6,327,215)
Foreign   (12,189)   (474,304)
    (4,324,310)  $(6,801,519)
           
Expected income tax recovery   (1,449,550)  $(2,385,209)
           
Permanent differences   10,557    8,417 
Tax rate changes and other adjustments   (345,834)   (363,546)
Increase in valuation allowance   1,784,827    2,740,338 
           
Income tax recovery from continuing operations   -   $- 

 

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

 

The Company’s deferred tax assets and liabilities as at December 31, 2015 and 2014 are as follows:

 

   2015    2014  
Deferred Tax Assets        
Non-capital losses  $17,908,732   $16,315,501 
Reserve – Contingency   171,410    237,944 
Property, plant and equipment   335,475    282,503 
Accounts receivable   237,944    191,172 
Accrued expenses   514    514 
Fees and Payroll in Stocks and Options   319,528    318,325 
Impairment Reserve   455,190    385,116 
Other   2,032    - 
    19,430,825    17,731,075 
Deferred Tax Liabilities          
Property, plant and equipment   (408,602)   (493,679)
           
Less: Valuation allowance   (19,022,223)   (17,237,396)
   $-   $- 

 

The Company’s non-capital income tax losses expire as follows:

 

U.S.  2029  $526,411 
   2030   6,080,091 
   2031   9,240,965 
   2032   10,853,750 
   2033   10,436,738 
   2034   5,929,097 
   2035   1,717,918 
      $44,784,970 
         
Foreign  2030  $1,224,680 
   2031   1,818,894 
   2032   1,284,807 
   2033   607,349 
   2034   670,890 
   2035   66,909 
      $5,673,529 

 

 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, 2015 and 2014, the Company calculated its estimated annualized effective tax rate at 0% and 0%, respectively, for both the United States and Canada. The Company had no income tax expense on its $4,098,856 and $6,792,799 losses from continuing operations and $199,452 and $8,720 gain and loss, respectively, from discontinued operations for the years ended December 31, 2015 and 2014, respectively.

 

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest accrued on uncertain tax positions as well as interest received from favorable tax settlements within interest expense. The Company recognizes penalties accrued on unrecognized tax benefits within selling, general and administrative expenses. As of December 31, 2015 and 2014, the Company had no uncertain tax positions.

 

The Company does not anticipate any significant changes to the total amounts of unrecognized tax benefits in the next twelve months. The years ended December 31, 2009 through December 31, 2015 are open tax years.

 

 F-17 
 

 

NOTE 6 - RELATED PARTY NOTES PAYABLE

 

Related Party notes payable consists of the following at December 31,:

 

   2015   2014 
Unsecured Demand Promissory Note (provided by a related party) bearing interest of 4% per annum.  $1,593,291   $8,850 
           
Secured Promissory Notes (provided by a related party -$1,000,000 in November 19, 2014) bearing interest of 12% per annum compounded annually, together with a five-year warrant to purchase up to one million shares of the Company’s common stock at an exercise price of $0.12 per share,and payable upon maturity in 2019 and secured by a security interest in substantially all of the assets of the Company and its subsidiaries.   1,100,961    959,736 
           
Secured Promissory Notes (provided by a related party - $1,000,000 in August 29, 2013 and $2,000,000 in September 31, 2014) bearing interest of 12% per annum compounded annually, together with a five-year warrant to purchase up to three million shares of the Company’s common stock at an exercise price of $0.54 per share and payable upon maturity in 2018 and secured by a security interest in substantially all of the assets of the Company and its subsidiaries.   3,392,980    2,794,220 
Total   6,087,232    3,762,806 
Less: current portion   1,593,291    8,850 
Secured promissory notes – related party  $4,493,941   $3,753,956 

 

   2015   2014 
Continuity of Secured Promissory Notes – Related Party          
Face value of November 19, 2014 secured note payable  $1,000,000   $1,000,000 
Face value of August 29, 2013 secured note payable   1,000,000    1,000,000 
Face value of September 30, 2013 secured note payable   2,000,000    2,000,000 
Total face value of promissory notes payable   4,000,000    4,000,000 
Discount on November 19, 2014 secured notes payable ( 1,000,000 warrants)   (58,082)   (58,082)
Discount on August 29, 2013 secured note payable (1,000,000 warrants)   (310,200)   (310,200)
Discount on September 30, 2013 secured note payable (2,000,000 warrants)   (600,400)   (600,400)
Accretion of discount on secured notes payable ($4,000,000 secured note payable)   431,007    234,413 
Interest on secured notes payable($4,000,000 secured note payable)   1,031,616    488,225 
Carrying value of Secured Promissory Notes  $4,493,941   $3,753,956 

 

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

 

Years Ending December 31,  Annual Payments 
2016  $1,593,291 
2017   - 
2018   3,392,980 
2019   1,100,961 
2020   - 
Total  $6,087,232 

 

 F-18 
 

 

NOTE 7 - MORTGAGES PAYABLE AND CAPITAL LEASES

 

The Mortgages Payable and Capital Leases consists of the following at December 31,:

 

   December 31, 2015   December 31, 2014 
Mortgage in the amount of $280,000 Canadian dollars, bears simple interest at 7% per annum, secured by the land and building, and mature on June 15, 2015. Principal and interest are due, in their entirety, at maturity. In consideration for 10,000 shares, the maturity was extended from June 15, 2015 to December 15, 2015 and subsquently to June 15, 2016 by the Mortgage holder.  $201,880   $240,819 
           
Equipment capital lease bears interest at 5.0% per annum, secured by the equipment and mature in April 2015, repayable in monthly installments of approximately $360.   -    1,424 
           
Equipment capital lease, bears interest at 5.85% per annum, secured by the equipment and mature in November 2015, repayable in monthly installments of approximately $516.   1,032    5,514 
           
Equipment capital lease bears interest at 3.9% per annum, secured by the equipment and matures on May 10, 2016, Principal and interest are due, in their entirety, at maturity. The maturity was extended from May 10, 2015 to May 10, 2016 by the Lessor.   19,761    19,006 
           
Mortgage in the amount of $110,000, bears no interest, secured by the land and building, and matures in November 2016.   40,000    105,000 
           
Total   262,673    371,763 
Less: current portion   -    45,000 
Mortgages payable and capital leases  $262,673   $326,763 

 

The following annual payments of principal are required over the next two years in respect of these mortgages and capital leases:

 

Years Ending December 31,  Annual Payments 
2016  $262,673 
2017   - 
Total repayments  $262,673 

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

Commitments

 

Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which currently not operating, entered into a consulting service contract in 2010 with a company owned by the Company’s chief executive officer. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At December 31, 2015, there were no currently installed marine vessel processors pursuant to the contract.

 

 F-19 
 

 

As of December 31, 2015, the Company has committed to purchase certain pieces of key machinery from vendors related to the future expansion of its operations. In addition to the payments made to these vendors classified as deposits on the accompanying consolidated balance sheet.. The Company will be required to pay approximately $495,000 upon the delivery of these assets which is expected occur with the delivery of processor #4 and processor #5.

 

The Company leased premises in Thorold, Ontario, Canada which was previously used in the operation Plastic2Oil (Canada), Inc. doing business as Regional Recycling of Niagara (“RRON”). During the third quarter of 2013, the Company determined that it would shut down the operations of RRON (Note 16). The employees of RRON were given notice of the shut down in the first week of September, after which point the Company approached the landlord about terminating the lease; however, there was no formal termination as an agreement to terminate the lease was not reached. During September 2013, the Company was assessing its options with the facility, including potential sublease, but determined that a sublease of the facility was not permitted by the lease and officially decided to cease use of the premises as of September 30, 2013. Accordingly, the Company has applied September 30, 2013 as the cease-use-date in recognizing the liability for the contract termination costs. The total expense included in loss from discontinued operations in the consolidated statements of operations is $188,343 for the year ended December 31, 2015 (Note 16). The property was vacated on November 10, 2015. On January 15, 2016, the Company entered into a Surrender of Lease agreement which terminated its lease, dated December 1, 2010, between Avondale Store Limited Properties and JBI, (Canada) Inc. relating to the Company’s premises located at 1786 Allanport Road, Thorold, Canada. The effective date of the termination was October 31, 2015. The premises was the site of the Company’s Regional Recycling Center, which was part of a business line that was discontinued by the Company in 2013. The Company anticipates the termination will save approximately $1,161,360 in lease payments over the original life of the lease which had a term ending on December 1, 2030. The Company will remain liable for unpaid rent of approximately $49,180, covering the period from May 2016 to October 2016.

 

Contingencies

 

On August 9, 2013, a purported shareholder derivative suit was filed in the United States District Court for the District of Massachusetts against John Bordynuik, former Chief Executive Officer of the Company and a former member of the Company’s Board of Directors, and Ronald C. Baldwin, former Chief Financial Officer of the Company. The Complaint was filed by Erwin Grampp, allegedly acting on behalf of the Company, and it names the Company as a nominal defendant. This is the second purported shareholder derivative suit that Mr. Grampp has filed in which the Company has been named as a nominal defendant. As previously reported, the first such suit by Mr. Grampp was dismissed by the court. This recent Complaint (“Grampp II”) alleges, inter alia, that defendants Bordynuik and Baldwin breached fiduciary duties owed to the Company by causing the Company to erroneously book certain media credits in 2009. Grampp II alleges that this conduct resulted in two lawsuits against the Company, one an action brought by the Securities and Exchange Commission (the “SEC Action”) and the other a purported class action by Ellisa Pancoe and Howard Howell (the “Class Action”). Grampp II alleges that the Company has settled the SEC Action, and that the Company is in the process of settling the Class Action, but that the Company has been damaged as a result of these two lawsuits. Grampp II seeks to recover damages on behalf of the Company from defendants Bordynuik and Baldwin in an unspecified amount. It also seeks unspecified equitable relief, and costs and attorneys’ fees incurred in the action. On October 11, 2013, defendants Bordynuik and Baldwin filed a motion to dismiss this action. Thereafter, the Court granted plaintiff leave to amend his complaint, and defendants Bordynuik and Baldwin renewed their motion to dismiss. On September 22, 2015, the Court issued its Order denying that motion without prejudice and ordering the parties to conduct limited discovery regarding the issue of whether plaintiff Grampp is an adequate shareholder representative. The Court further ordered that upon completion of that discovery, the parties were to report to the Court by December 10, 2015, whether they had reached an agreement to resolve the case, and if not, whether either party believed it had a basis for filing a meritorious motion for summary judgment regarding whether plaintiff Grampp is an adequate shareholder representative. On October 30, 2015, the plaintiff filed an unopposed motion to dismiss the case, and on November 16, 2015, the court granted that motion and ordered that the case be dismissed with prejudice. Thus, the matter is concluded.

 

 F-20 
 

 

On August 14, 2013, John Bordynuik, Inc., a Company not affiliated with Mr. John Bordynuik, former Chief of Technology, brought suit against the Company in the United States District Court for the District of Nevada, alleging damages for breach of contract, conversion, fraud and fraud in the inducement in connection with an alleged 2009 Asset Purchase Agreement. In September 2013 and October 2013, the Company brought motions to dismiss the complaint and for summary judgment. On January 13, 2015, the Court issued its Order denying those motions, and on January 30, 2015, the Company filed its Answer to the Complaint, denying the material allegations of the Complaint and raising a number of affirmative defenses. On December 7, 2015, the parties filed with the Court a stipulation to dismiss the case, and on or about December 8, 2015, the Court ordered the matter dismissed with prejudice.

 

As of December 31, 2015, the Company is involved in litigation and claims in addition to the above mentioned legal claims, which arise from time to time in the normal course of business. In the opinion of management, based upon the information and facts known to them, any liability that may arise from such contingencies would not have a material adverse effect on the audited consolidated financial statements of the Company.

 

NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIENCY)

 

(a) Common Stock and Additional Paid in Capital

 

2015

 

On February 18, 2015, the Company issued 250,000 shares of restricted common stock in satisfaction of unpaid fees owed to two vendors. This liability was previously valued at $30,003 and the settlement price per share was $0.08, which is based on the trading price of our common stock on the settlement date.

 

On March 6, 2014 the Company entered into a Subscription Agreement with one investor in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchaser 250,000 shares of its common stock and Warrants to purchase up to an additional 250,000 shares of its common stock. The purchase price per share was $0.10 and the gross proceeds to the Company were $25,000. The Warrants have a three year term, and an exercise price of $0.15 per share of common stock. These shares were issued on January 21, 2015.

 

On January 21, 2015, the Company issued 750,000 shares of restricted common stock pursuant to a February 19, 2014 consulting extension agreement to the respective Consulting firms. The settlement price per share was $0.07, which is based on the trading price of our common stock on February 19, 2014.

 

On April 7, 2015, the Company issued 1,000,000 shares of restricted common stock pursuant to a February 19, 2014 consulting extension agreement to the respective Consulting firms. In conjunction with this transaction, the Company retired 250,000 shares of restricted common stock issued in 2014 pursuant to the February 19, 2014 consulting agreement The settlement price per share was $0.21, which is based on the trading price of our common stock on February 19, 2014.

 

On April 17, 2015, The Company issued 250,000 of restricted common stock pursuant to a March 6, 2015, Subscription Agreement with one investor in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchaser 250,000 shares of its common stock and Warrants to purchase up to an additional 250,000 shares of its common stock. The purchase price per share was $0.10 and the gross proceeds to the Company were $25,000. The Warrants have a three year term, and an exercise price of $0.15 per share of common stock.

 

On August 13, 2015, pursuant to the Final Judgment of the Class Action Lawsuit, the Company issued 3 million shares of its stock to the Class through a Settlement Fund. This liability was previously valued at $0.08 per share or $240,000, which is based on the trading price of our common stock on the settlement date.

 

On August 13, 2015, pursuant to the Final Judgment of the Class Action Lawsuit, the Company issued 3 million shares of its stock to the Class through a Settlement Fund. This liability was previously valued at $0.08 per share or $240,000, which is based on the trading price of our common stock on the settlement date.

 

On October 1, 2015, the Company issued 510,000 shares of restricted common stock in satisfaction of unpaid fees owed to three consultants. This liability was previously valued at $75,000 and the settlement price per share was $0.07, which is based on the trading price of our common stock on the settlement date.

 

 F-21 
 

 

2014

 

On February 19, 2014, the Company entered into Subscription Agreements with three investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchasers an aggregate of 2.4 million shares of its common stock and warrants to purchase up to an additional 2.4 million shares of its common stock. The closings occurred between February 19 and 24, 2014. The purchase price per share was $0.05 and the gross proceeds to the Company were $120,000. The warrants have a three year term, and an exercise price of $0.10 per share of common stock. Concurrent with these subscriptions the Company entered into a consulting agreement with the investors and a fourth arm’s length party under which the Company would issue 1,500,000 shares upon commencement of the contract, and 1,000,000 shares on each of May 15, 2014, August 15, 2014 and January 15, 2015, respectively, for a total of 4,000,000 shares. Along with each of the forgoing share issuances, the Company is required to issue a commensurate number of warrants with a three year term and an exercise price of $0.10. Additionally, under the terms of the consulting agreement the Company is committed to issue 1,000,000 additional shares if the Company becomes listed on the AMEX division of the New York Stock Exchange or NASDAQ. The consulting agreement also specifies contingent fees of 5% of the gross transaction amount for introducing a merger or acquisition candidate and 3% of fees earned from the introduction of a strategic or business partner.

 

On March 13, 2014, the Company issued 60,000 shares of restricted common stock in satisfaction of $21,540, comprised of accrued and unpaid fees owed to a former consultant.

 

On March 26, 2014, the Company entered into Subscription Agreements with fourteen investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchasers an aggregate of 4.2 million shares of its common stock and warrants to purchase up to an additional 4.2 million shares of its common stock. The closings occurred between March 17 and April 8, 2014. The purchase price per share was $0.10 and the gross proceeds of $420,000 to the Company were received as of June 30, 2014. The warrants have a three-year term and an exercise price of $0.15 per share of common stock.

 

On May 15, 2014 the Company issued 500,000 shares, 125,000 shares and 125,000 shares of restricted common stock pursuant to the February 19, 2014 consulting agreement to the respective Consulting firms.

 

On May 16, 2014, the Company’s board of directors and certain stockholders holding a majority of the voting power of our outstanding common stock and preferred stock approved resolutions authorizing an amendment to its Articles of Incorporation to (i) change its name to “Plastic2Oil, Inc.” and (ii) increase the total number of authorized shares of common stock, par value $0.001 per share, of our Company from 150,000,000 shares to 250,000,000 shares. A charter amendment to increase the authorized shares of common stock was filed in the State of Nevada on June 24, 2014. The charter amendment to effect the name change was filed on July 31, 2014.

 

On June 30, 2014, a total of 2,204,100 Shares Series B Convertible Preferred Stock was automatically converted into an aggregate of 15,428,700 shares of Common Stock.

 

On July 11, 2014, the Company issued 25,000 shares of restricted common stock pursuant to the exercise of warrants to purchase 250,000 shares of common stock. The exercise price of the warrants was $0.10 and the Company received $25,000.

 

 F-22 
 

 

On August 14, 2014 the Company issued 500,000 shares, 125,000 shares and 125,000 shares of restricted common stock pursuant to the February 19, 2014 consulting agreement to the respective consulting firms.

 

On August 20, 2014, the Company issued 15,000 shares of restricted common stock pursuant to the exercise of warrants to purchase 150,000 shares of common stock. The exercise price of the warrants was $0.10 and the Company received $15,000.

 

On August 26, 2014, the Company issued 17,300 shares of restricted common stock in satisfaction of $2,565, of accrued and unpaid fees owed to a former officer of the Company.

 

On August 26, 2014, the Company issued 13,289 shares of restricted common stock in satisfaction of $1,196, of accrued and unpaid fees owed to a vendor.

 

On October 28, 2014, the Company entered into Subscription Agreements with two investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchasers an aggregate of 1.250 million shares of its common stock and warrants to purchase up to an additional 1.250 million shares of its common stock. The purchase price per share was $0.10 and the gross proceeds were $125,000. The warrants have a three-year term and an exercise price of $0.15 per share of common stock.

 

Warrants

 

The following table summarizes the activities for the year ended December 31, 2014 and 2015:

 

       Weighted   Weighted 
   Warrants   Average   Average 
   Number   Exercise Price   Remaining Term 
OUTSTANDING, DECEMBER 31, 2013   3,143,500   $0.61    3.8 
Issued   11,500,000    0.19    2.8 
Expired   (143,500)   -    - 
Exercised   (400,000)   0.10    - 
OUTSTANDING, December 31, 2014   14,100,000   $0.61    2.8 
Issued   250,000    0.15    2.2 
OUTSTANDING, December 31, 2015   14,350,000   $0.19    1.8 

 

On February 19, 2014, and March 26, 2014, the Company entered into Subscription Agreements and Consulting Agreements with three investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase in aggregate 4.9 million shares of common stock at $0.10. On March 26, 2014, the Company entered into Subscription Agreements with eleven investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase in aggregate 4.350 million shares of common stock at $0.15 On October 28, 2014, the Company entered into Subscription Agreements with two investors in connection with a private placement of shares of the Company’s common stock and warrants to purchase in aggregate 1.250 million shares of common stock at $0.15.

 

On March 6, 2014 the Company entered into a Subscription Agreement with one investor in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchaser 250,000 shares of its common stock and Warrants to purchase up to an additional 250,000 shares of its common stock. The purchase price per share was $0.10 and the gross proceeds to the Company were $25,000. The Warrants have a three year term, and an exercise price of $0.15 per share of common stock. These shares were issued on January 21, 2015.

 

 F-23 
 

 

Pursuant to a secured debt issuances on November 19, 2014, the Company issued 1,000,000 warrants, to purchase shares of common stock for $0.12 per share to the holder of the secured debt . The warrants have a five year term from the date of issuance, as such the corresponding expiry dates are November 19, 2019. The Company allocated $54,894 of the proceeds to the warrants based on their fair value. Such amount was recorded as a discount against the debt and in being amortized in to interest expense through the maturity date of the debt.

 

The 11,500,000 warrants issued in December 2014  totaled a fair value of $950,650. The Company determined this valuation through use of a binomial pricing model. The assumptions in valuing these Warrants consisted of:

 

Volatility – between 185.54,% and 234.98%, based on the Company’s historical stock price
   
Risk Free Rate – between 0.02% and0.05% based on the long-term US Treasury rate

 

On July 11, 2014, the Company issued 25,000 shares of restricted common stock pursuant to the exercise of warrants to purchase 250,000 shares of common stock. The exercise price of the warrants was $0.10 and the Company received $25,000.

 

On August 20, 2014, the Company issued 150,000 shares of restricted common stock pursuant to the exercise of warrants to purchase 150,000 shares of common stock. The exercise price of the warrants was $0.10 and the Company received $15,000.

 

Pursuant to a private placement that took place between December 30, 2011 and January 6, 2012, the Company issued 1,997,500 warrants to purchase shares of common stock for $2.00 to the subscribers of the December 2011/ January 2012 private placements. The warrants have an eighteen month term from the date of issuance, such issuance dates ranged from January 6, 2012 through August 29, 2012. As of December 31, 2013, 1,854,000 warrants had expired. The remaining 143,500 outstanding warrants expired on February, 26, 2014.

 

On March 6, 2014 the Company entered into a Subscription Agreement with one investor in connection with a private placement of shares of the Company’s common stock and warrants to purchase shares of common stock. The Company agreed to sell and issue to the Purchaser 250,000 shares of its common stock and Warrants to purchase up to an additional 250,000 shares of its common stock. The purchase price per share was $0.10 and the gross proceeds to the Company were $25,000. The Warrants have a three year term, and an exercise price of $0.15 per share of common stock. These shares were issued on January 21, 2015.

 

Preferred Stock

 

Series B Preferred Stock

 

On June 30, 2014 the Series B Preferred Shares were converted at the rate of one (1) share of Series B Preferred Stock to seven (7) shares of common stock. A total of 2,204,100 Shares Series B Convertible Preferred Stock was automatically converted into an aggregate of 15,428,700 shares of Common Stock during the year ended December 31, 2014.

 

The Series B Preferred Stock was created pursuant to the Certificate of Designation setting forth the powers, designations, preferences, rights, qualifications, limitations and restrictions of the Series B Convertible Preferred Stock filed with the Secretary of State of the State of Nevada on December 24, 2012 (the “Series B Designation”). Pursuant to the Series B Designation, the Series B Preferred Stock were convertible at the election of the holder into shares of common stock, par value $0.001 per share, of the Company (“Common Stock”), at the rate of seven (7) shares of Common Stock for each share of Series B Preferred Stock, subject to proportional adjustment for stock splits, combinations, consolidations, stock dividends, stock distributions, recapitalizations, reorganizations, reclassifications and other similar events. Upon any conversion, a holder of shares of Series B Preferred Stock must convert all shares of Series B Preferred Stock then held by such holder. All shares of Series B Preferred Stock that remain outstanding on June 30, 2014 were automatically converted into Common Stock.

 

 F-24 
 

 

Pursuant to the Series B Designation, in the event of the liquidation, dissolution or winding up of the Company, the holders of the Series B Preferred Stock were be entitled to receive out of assets of the Company available for distribution to stockholders of the Company, prior and in preference to any distribution to the holders of any other capital stock of the Company, an amount per share of Series B Preferred Stock equal to the original purchase price for such shares of Series B Preferred Stock. The holders of the Series B Preferred Stock will vote together with the Common Stock and not as a separate class, except as otherwise required by law. Each share of Series B Preferred Stock will have a number of votes equal to the number of shares of Common Stock then issuable upon conversion of such share of Series B Preferred Stock. The approval of the holders of a majority of the Series B Preferred Stock were required to amend the Certificate of Designation or to alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock in a manner that adversely affects such shares.

 

The holders of the Series B Preferred Stock were not entitled to receive dividends on the Series B Preferred Stock; provided, however, in the event the Board of Directors of the Company (the “Board”) declare and a dividend in respect of any Common Stock, then the Board shall declare and pay to the holders of the Series B Preferred Stock in an amount per share of Series B Preferred Stock equal to the number of shares of Common Stock into which the Series B Preferred Stock is convertible on the record date established by the Board or under applicable law for such dividend multiplied by the per share amount declared and paid in respect of each share of Common Stock.

 

NOTE 10 – STOCK-BASED COMPENSATION PLANS AND AWARDS

 

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

 

Valuation of Awards

 

The per-share fair value of each stock option granted during the year ended December 31, 2014 was determined on the date of grant using the Black-Scholes option pricing model using the following assumptions:

 

   2015 
Expected life (in years)   7.00 
Risk-free interest rate   0.02%
Expected volatility   193.57 
Expected dividend yield   0%

 

Stock Options

 

There were no options granted during the year ended December 31, 2015. For years ended December 31, 2015 and 2014, the Company recorded stock-based compensation expense, net of estimated forfeitures, (included in selling, general and administrative expense) of $959 and $44,310, respectively, related to stock options. As of December 31, 2015, 1,628,000 options are vested (1,040,000 at $1.50 per share, 538,000 at $0.38 per share, and 50,000 at $.005 per share.

 

For year ended December 31, 2014, 650,000 options at an exercise price of $1.50 were cancelled and 902,666 options at $0.38 expired. For year ended December and 3,210,000 options at an exercise price of $1.50 and 465,334 options at $0.38 expired and were cancelled.

 

 F-25 
 

 

A summary of stock option activity for the years ended December 31, 2015 and 2014 is as follows:

 

   Outstanding   Weighted-Average   Aggregate 
   Stock Options   Exercise Price   Intrinsic Value (1) 
Balance as of December 31, 2013   6,806,000   $1.21   $- 
Cancelled   (650,000)   1.50    - 
Granted   50,000    0.05    2,000.00 
Exercised   -    -    - 
Expired   (902,666)   0.38    - 
Balance as of December 31, 2014   5,303,334   $1.30   $- 
Expired   (3,675,334)   0.74    - 
Balance as of December 31, 2015   1,628,000   $1.09   $- 
                
Equity awards available for grant, net of restricted stock (811,576) at December 31, 2015   7,560,424           

 

(1)  Amounts represent the difference between the exercise price and the fair value of common stock at period end for all in the money options outstanding based on the fair value per share of common stock. As of December 31, 2014, 50,000 options that had been granted were “in the money.”

 

Restricted Stock

 

The fair value of the restricted stock is expensed ratably over the vesting period. During the years ended December 31, 2015 and 2014, the Company recorded stock-based compensation expense related to restricted stock of approximately $0 and $33,983, respectively. During the years ended December 31, 2015 634,626 shares of restricted stock vested and the expenses related to the 634,626 restricted shares were accrued at December 31, 2014.

 

NOTE 11 – RETIREMENT PLAN

 

The Company adopted a defined contribution benefit plan (the “Defined Contribution Plan”) for r U.S. employees which complies with section 401(k) of the Internal Revenue Code. The Company does not currently match any of the employee contributions. Employees are not required to make contributions into the fund. Total administrative expense under this plan was $3,541, and $3,602 for the years ended December 31, 2015, and 2014 respectively.

 

NOTE 12 – RELATED PARTY TRANSACTIONS AND BALANCES

 

From June 2014 to December 31, 2015, Mr. Heddle, the Company’s Chief Executive Officer, made several personal loans to the company to provide working capital. As of December 31, 2015, the current aggregate outstanding balance including accrued interest at 4% per annum was $1,593,291. (See Note 7).

 

At December 31, 2015 and 2014, the company’s accounts payable and accrued expenses included a $132,218 and $75,218, respectively, outstanding balance due to Heddle Marine Services, a business controlled by Mr. Richard Heddle, the company’s Chief Executive Officer and member of the Company’s board of directors. The amounts payable arose from payments made in 2014 by Heddle Marine on behalf of the company to a logistics company to transport fuel from the Niagara Falls site to the blending tanks at our facility in Thorold, Ontario, as well as for labor and material provided by Heddle Marine towards upkeep of our Canadian facilities including 2015 cleanup costs incurred in order to terminate the lease with Avondale properties on the discontinued (RRON) Operation.

 

 F-26 
 

 

In November 19, 2014, the Companyentered into a Subscription Agreement with Heddle Marine Services, , pursuant to which we issued to Heddle Marine a $1 million principal amount 12% Secured Promissory Note, together with a five-year warrant to purchase up to one million shares of the Company’s common stock at an exercise price of $0.12 per share.

 

Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract in 2010 with a company owned by Mr. Heddle, who later (in 2014) became the Company’s Chief Executive Officer. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At December 31, 2015, there were no currently installed marine vessel processors pursuant to the contract.

 

NOTE 13 – SEGMENT REPORTING

 

During 2014, the Company had two principal operating segments, Plastic2Oil and the Data Business. These operating segments were determined based on the nature of the products and services offered. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer has been identified as the chief operating decision maker, and directs the allocation of resources to operating segments based on the profitability and cash flows of each respective segment

 

The Company evaluates performance based on several factors, of which the primary financial measure is net income. The accounting policies of the business segments are the same as those described in “Note 2: Summary of Accounting Policies.” The following tables show the operations of the Company’s reportable segments:

 

 F-27 
 

 

Years Ended December 31, 2015

 

   Data Recovery & Migration   P2O   Other   Total 
                 
Sales  $16,728   $-   $-   $16,728 
Cost of Sales  $6,435   $-   $-   $6,435 
Total Operating Expenses  $-   $1,653,335   $1,669,295   $3,322,630 
(Loss) from Operations  $10,293   $(1,653,335)  $(1,669,295)  $(3,312,337)
Other Income (Expenses)  $-   $(644,412)  $(567,013)  $(1,211,425)
Net(Loss) from Continuing Operations  $10,293   $(2,297,747)  $(2,236,308)  $(4,523,762)
Net(Loss) from Discontinued Operations  $-   $-   $199,452   $199,452 
Net Loss  $10,293   $(2,297,747)