NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – ORGANIZATION AND GOING CONCERN
Plastic2Oil,
Inc. (the “Company” or “P2O”) was originally incorporated as 310 Holdings, Inc. (“310”) in
the State of Nevada on April 20, 2006. 310 had no significant activity from inception through 2009. In April 2009, John Bordynuik
purchased 63% of the issued and outstanding shares of 310. During 2009, the Company changed its name to JBI, Inc. and began operations
of its main business operation, transforming waste plastics to oil and other fuel products. During 2014, the Company changed its
name to Plastic2Oil, Inc. (“P2O”). P2O is a combination of proprietary technologies and processes developed by P2O
which convert waste plastics into fuel. P2O currently, as of the date of this filing, has two processors at its Niagara Falls,
NY facility (the “Niagara Falls Facility”). Both processors are currently idle since December 2013. Our P2O business
has begun the transition from research and development to a commercial manufacturing and production business. We plan to grow
mainly from sale of processors.
Currently,
we do not have sufficient cash to operate our business which has forced us to suspend our operations until such time as we receive
a capital infusion or cash advances on the sale of our processors.
Going
Concern
These
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”), which contemplates continuation of the Company as a going concern which
assumes the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company
has experienced negative cash flows from operations since inception, has net losses from continuing operations of $2,934,327,
and $2,909,718, for the nine months ended September 30, 2016, and 2015, respectively, and has a working capital deficit of $6,355,774
and an accumulated deficit of $75,178,424 at September 30, 2016. These factors raise substantial doubt about the Company’s
ability to continue as a going concern and to operate in the normal course of business. The Company has funded its activities
to date almost exclusively from equity financings and loans from related parties.
The
Company will continue to require substantial funds to continue the expansion of its P2O business to achieve commercial productions,
and to resume sales and marketing efforts. Management’s plans in order to meet its operating cash flow requirements include
financing activities such as private placements of its common stock, issuances of debt and convertible debt instruments.
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 condensed consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be unable
to continue in existence.
NOTE
2 – SUMMARY OF ACCOUNTING POLICIES
Basis
of Consolidation
The
condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Plastic2Oil
of NY#1 Inc., Plastic2Oil (Canada) Inc., JBI CDE Inc., Plastic2Oil Re One Inc., JBI Re #1 Inc., 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. Pak-It and Javaco have also been condensed consolidated; however, as mentioned their operations
are classified as discontinued operations (see Note 12).
Interim
Disclosure
These
condensed consolidated financial statements are presented in considerably less detail than complete financial statements that
are intended to present financial position, results of operations, and cash flows in conformity with generally accepted accounting
principles. For this reason, they should be read in conjunction with the entity’s most recent complete financial statements
included in its annual report for the year ended December 31, 2015 on Form 10-K filed with the SEC on March 31, 2016 that include
all the disclosures required by generally accepted accounting principles.
Management’s
opinion that all adjustments necessary for a fair statement of the results for the interim periods have been made, and a statement
that all adjustments are of a normal recurring nature or a description of the nature and amount of any adjustments other than
normal recurring adjustments.
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.
As of September 31, 2016 and December
31, 2015, the Company had $93,740 and $18,488, respectively,
Restricted
Cash
As
of September 30, 2016 and December 31, 2015, the Company had $100,398 and $100,322, 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.
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 September 30, 2016 and December 31, 2015 was $22,994.
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 (see Note 12).
During
the period ended September, 2016 and 2015, the Company recorded impairment losses on property, plant and equipment of $1,020,349
and $0, respectively, in accordance with 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 condensed consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation.
As of September 30, 2016 and December 31, 2015, the carrying value of the asset retirement obligations was $41,923 and $41,000,
respectively. These costs include disposal of plastic and other non-hazardous waste, site closing labor and testing and sampling
of the site upon closure.
Environmental
Contingencies
The
Company records environmental liabilities at their undiscounted amounts on our balance sheets as other current or long-term liabilities
when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. These
costs may be discounted to reflect the time value of money if the timing of the cash payments is fixed or reliably determinable
and extends beyond a current period. Estimates of our liabilities are based on currently available facts, existing technology
and presently enacted laws and regulations, taking into consideration the likely effects of other societal and economic factors,
and include estimates of associated legal costs. These amounts also consider prior experience in remediating contaminated sites,
other companies’ clean-up experience and data released by the Environmental Protection Agency (EPA) or other organizations.
Our estimates are subject to revision in future periods based on actual costs or new circumstances. We capitalize costs that benefit
future periods and we recognize a current period charge in operation and maintenance expense when clean-up efforts do not benefit
future periods.
We
evaluate any amounts paid directly or reimbursed by government sponsored programs and potential recoveries or reimbursements of
remediation costs from third parties including insurance coverage separately from our liability. Recovery is evaluated based on
the creditworthiness or solvency of the third party, among other factors. When recovery is assured, we record and report an asset
separately from the associated liability on our balance sheets. No amounts for recovery have been accrued to date.
Deposits
Deposits
represent utility services deposit and payments made to vendors for fabrication of key pieces of property, plant and equipment
that have been made in accordance with the Company’s agreements to purchase such equipment. Payments are made to these vendors
as progress is made on the fabrication of the equipment, with final payments made when the equipment is delivered. Until we have
possession of the equipment, all payments made to these vendors are classified as deposits on assets. Deposits were $1,476,126
and $1,484,438 as of September 30, 2016 and December 31, 2015, 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 (see Note 5).
Lease
inducements are recognized for periods of reduced rent or for larger than usual rent escalations over the term of the lease. The
benefit of a rent free period and the cost of future rent escalations are recognized on a straight-line basis over the term of
the lease.
Revenue
Recognition
The
Company recognizes revenue when it is realized or realizable and collection is reasonably assured. The Company considers revenue
realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists,
(ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable,
and (iv) collectability is reasonably assured.
P2O
processor sales are recognized when the customer take possession of the processors since Title to the Goods and the risk of loss
transfers from P2O to Customer upon delivery. P2O fuel sales are recognized when the customers take possession of the fuel since
at that stage the customer has completed all prior testing necessary for their acceptance of the fuel. At the time of possession
they have arranged for transportation to pick it up and the sales price has either been set in their purchase contract or negotiated
prior to the time of pick up through the issuance of a purchase order. The Company negotiates the pricing of the fuel based on
the quality of the product and the type of fuel being sold (i.e. Naphtha, Fuel Oil No. 6 or Fuel Oil No. 2). The Company recognized
zero revenue for the three and nine months ended September 30, 2016.
Advertising
costs
The
Company expenses advertising costs as incurred. Advertising costs were $0 and $1,868 for the nine months ended September 30, 2016
and 2015, respectively. These expenses are included in selling, general and administrative expenses – other, in the condensed
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 nine months ended September 30, 2016 and 2015, the Company expensed $0 and $1,653, 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
condensed consolidated financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830. All monetary items have been translated
using the exchange rates in effect at the balance sheet date. All non-monetary items have been translated using the historical
exchange rates at the time of transactions. Income statement amounts have been translated using the average exchange rate for
the year. Resulting differences are immaterial to the financial statements as a whole. Foreign exchange losses of $96 and gain
of $6,425 are included as general and administrative expenses in the condensed consolidated statements of operations for the nine
months ended September 30, 2016 and 2015, 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 condensed 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 September
30, 2016 and December 31, 2015. The Company files tax returns in the U.S federal and state jurisdictions as well as a foreign
country. The years ended December 31, 2009 through December 31, 2015 are open tax years for IRS review.
Loss
Per Share
The
financial statements include basic and diluted per share information. Basic net loss per share is computed by dividing net loss
by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed
by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock
during each period. Common stock equivalents are excluded from the computation of diluted loss per share when their effect is
anti-dilutive. For the nine months ended September 30, 2016, potential dilutive common stock equivalents consisted of 14,550,000
shares underlying common stock warrants and 1,540,000 shares underlying stock options, which were not included in the calculation
of the diluted loss per share. For the nine months ended September 30, 2015, potential dilutive common stock equivalents consisted
of 11,850,000 shares underlying common stock warrants, and 5,345,334 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.
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
Recently
Issued Accounting Pronouncements
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
July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires
that an entity measure inventory at the lower of cost and net realizable value. This ASU does not apply to inventory measured
using last-in, first-out. ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016, including interim
periods within that reporting period. The Company does not expect the new standard to have a significant impact on its consolidated
financial position, results of operations or cash flows.
In
August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which
defers the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual
reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The impact
on our Financial Statements of adopting ASU 2014-09 is being assessed by management.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
NOTE
3 – PROPERTY, PLANT AND EQUIPMENT, NET
Property,
Plant and Equipment consist of the following at:
|
As
of September 30, 2016
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold
improvements
|
|
$
|
218,054
|
|
|
$
|
(29,877
|
)
|
|
$
|
188,177
|
|
|
Machinery and office equipment
|
|
|
1,881,206
|
|
|
|
(1,591,334
|
)
|
|
|
289,872
|
|
|
Furniture and fixtures
|
|
|
16,368
|
|
|
|
(16,368
|
)
|
|
|
-
|
|
|
Land
|
|
|
273,118
|
|
|
|
-
|
|
|
|
273,118
|
|
|
Asset retirement obligation
|
|
|
36,594
|
|
|
|
(6,713
|
)
|
|
|
29,881
|
|
|
Office and industrial
buildings
|
|
|
1,433,523
|
|
|
|
(297,047
|
)
|
|
|
1,136,476
|
|
|
Equipment under capital
lease
|
|
|
73,757
|
|
|
|
(53,315
|
)
|
|
|
20,442
|
|
|
Construction
in process & Spares
|
|
|
371,638
|
|
|
|
(61,011
|
)
|
|
|
310,627
|
|
|
Total
|
|
$
|
4,304,257
|
|
|
$
|
(2,055,664
|
)
|
|
$
|
2,248,593
|
|
|
December
31, 2015
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold
improvements
|
|
$
|
216,854
|
|
|
$
|
(23,096
|
)
|
|
$
|
193,758
|
|
|
Machinery and office equipment
|
|
|
4,190,838
|
|
|
|
(2,463,173
|
)
|
|
|
1,727,665
|
|
|
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
|
)
|
|
|
28,345
|
|
|
Construction in process
|
|
|
197,322
|
|
|
|
-
|
|
|
|
197,322
|
|
|
Spares
|
|
|
174,316
|
|
|
|
(34,863
|
)
|
|
|
139,453
|
|
|
Total
|
|
$
|
6,612,690
|
|
|
$
|
(2,837,163
|
)
|
|
$
|
3,775,527
|
|
For
the nine months ended September 30, 2016 and 2015, the Company recognized $506,334 and $501,543, respectively, of depreciation
expense. At September 30, 2016 and December 31, 2015, machinery and equipment with a cost of $53,257 and $73,757 and accumulated
amortization of $41,844 and $45,412, respectively, were under capital lease. During the periods ended September 30, 2016 and December
31, 2015, the Company recognized $5,706, and $7,737, respectively, of depreciation expense related to these assets under capital
lease.
As
of September 30, 2016 and 2015, we recorded impairment loss on property, plant and equipment of $1,020,349 and $0, respectively.
The charges in 2016 relates to the impairment of the reactors for Processor #2 and #3 which will be used for customer demonstration,
NOTE
4 - SECURED PROMISSORY NOTES
SECURED
PROMISSORY NOTES -RELATED PARTY
Related
Party notes payable consists of the following at periods ended:
|
|
|
As
of
September 30, 2016
|
|
|
As
of
December 31, 2015
|
|
|
Secured Demand
Promissory Note (provided by a related party) bearing interest of 4% per annum.
|
|
$
|
1,716,173
|
|
|
$
|
1,593,291
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Demand Promissory
Note (provided by a related party) bearing interest of 12% per annum.
|
|
|
564,739
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
1,209,906
|
|
|
|
1,100,961
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
3,869,763
|
|
|
|
3,392,980
|
|
|
Total
|
|
|
7,360,582
|
|
|
|
6,087,232
|
|
|
Less:
current portion
|
|
|
2,280,912
|
|
|
|
1,593,291
|
|
|
Secured
promissory notes – related party
|
|
$
|
5,079,670
|
|
|
$
|
4,493,941
|
|
|
Continuity
of Secured Promissory Notes – Related Party
|
|
As
of
September 30, 2016
|
|
|
As
of
December 31, 2015
|
|
|
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)
|
|
|
576,310
|
|
|
|
431,007
|
|
|
Interest
on secured notes payable($4,000,000 secured note payable)
|
|
|
1,472,042
|
|
|
|
1,031,616
|
|
|
Carrying
value of Secured Promissory Notes
|
|
$
|
5,079,670
|
|
|
$
|
4,493,941
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30,
|
|
Annual
Payments
|
|
|
2017
|
|
$
|
2,280,912
|
|
|
2018
|
|
|
-
|
|
|
2019
|
|
|
3,869,763
|
|
|
2020
|
|
|
1,209,906
|
|
|
2021
|
|
|
-
|
|
|
Total
|
|
$
|
7,360,582
|
|
SECURED
PROMISSORY NOTES -NON RELATED PARTY
Related
Party notes payable consists of the following at periods ended:
|
|
|
As of
September 30, 2016
|
|
|
As of
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Secured Promissory Note -$100,000 in August 10, 2016 bearing interest of 12% per
annum compounded annually, together with a five-year warrant to purchase up to one million shares of the Company’s common
stock at an exercise price of $0.12 per share, and payable upon maturity in 2021 and secured by a security interest in substantially
all of the assets of the Company and its subsidiaries.
|
|
|
100,259
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Promissory Note -$100,000 in August 24, 2016 bearing interest
of 12% per annum compounded annually, together with a five-year warrant to purchase up to one million shares of the Company’s
common stock at an exercise price of $0.12 per share, and payable upon maturity in 2021 and secured by a security interest
in substantially all of the assets of the Company and its subsidiaries.
|
|
|
100,259
|
|
|
|
-
|
|
|
Total
|
|
|
200,518
|
|
|
|
-
|
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
|
Secured promissory notes
|
|
$
|
200,518
|
|
|
$
|
-
|
|
|
Continuity of Secured Promissory Notes – Related Party
|
|
As of
September 30, 2016
|
|
|
As of
December 31, 2015
|
|
|
Face value of August 10, 2016 secured note payable
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
Face value of August 25, 2016 secured note payable
|
|
|
100,000
|
|
|
|
-
|
|
|
Total face value of promissory notes payable
|
|
|
200,000
|
|
|
|
-
|
|
|
Discount on August 10, 2016 secured notes payable ( 100,000 warrants)
|
|
|
(2,000
|
)
|
|
|
-
|
|
|
Discount on August 24, 2016 secured notes payable ( 100,000 warrants)
|
|
|
(2,000
|
)
|
|
|
-
|
|
|
Accretion of discount on secured notes payable ($200,000 secured note payable)
|
|
|
67
|
|
|
|
-
|
|
|
Interest on secured notes payable($200,000 secured note payable)
|
|
|
4,451
|
|
|
|
-
|
|
|
Carrying value of Secured Promissory Notes
|
|
$
|
200,518
|
|
|
$
|
-
|
|
The
following annual payments of principal and interest are required over the next five years in respect to these notes payable:
|
Years Ending September 30,
|
|
Annual Payments
|
|
|
2017
|
|
$
|
-
|
|
|
2018
|
|
|
-
|
|
|
2019
|
|
|
-
|
|
|
2020
|
|
|
-
|
|
|
2021
|
|
|
200,518
|
|
|
Total
|
|
$
|
200,518
|
|
NOTE
5 - MORTGAGES PAYABLE AND CAPITAL LEASES
The
Mortgages Payable and Capital Leases consists of the following at periods ending:
|
|
|
As
of
September 30, 2016
|
|
|
As
of
December 31, 2015
|
|
|
Mortgage in
the amount of $280,000 Canadian dollars, bears simple interest at 7% per annum, secured by the land and building, and matured
on June 15, 2015. Principal and interest were 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 subsequently to June 15, 2016 by the Mortgage holder. The
Company is in discussion with Mortgage holder in extending to December 15, 2016, but nothing has been formalized, and the
mortgage is currently in dafault.
|
|
$
|
213,836
|
|
|
$
|
201,880
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment capital lease,
bears interest at 5.85% per annum, secured by the equipment and matured in November 2015, repayable in monthly installments
of approximately $516.
|
|
|
-
|
|
|
|
1,032
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment capital lease
bears interest at 3.9% per annum, secured by the equipment and matures on May 10, 2016, Principal and interest were due, in
their entirety, at maturity. The maturity was extended from May 10, 2015 to May 10, 2016 by the Lessor. The Company is in
discussion with Lessor in extending to May 10, 2017, but nothing has been formalized, and the capital lease in currently in
default.
|
|
|
20,346
|
|
|
|
19,761
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage in the amount
of $110,000, bears no interest, secured by the land and building, and matures in November 2016.
|
|
|
-
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
234,182
|
|
|
|
262,673
|
|
|
Less:
current portion
|
|
|
234,182
|
|
|
|
262,673
|
|
|
Mortgages
payable and capital leases
|
|
$
|
-
|
|
|
$
|
-
|
|
The
remaining mortgage and capital lease obligations are due in the next six months.
NOTE
6 – COMMITMENTS AND CONTINGENCIES
Commitments
As
of September 30, 2016, 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 unaudited
condensed consolidated balance sheet. The Company will be required to pay approximately $495,000 upon the delivery of these assets.
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 (see Note 12). 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 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 $43,875, covering
the period from May 2016 to October 2016.
Contingencies
As
of September 30, 2016, the Company is involved in litigation and claims which arise from time to time in the normal course of
business. In the opinion of management, based upon the information and facts known to them, any liability that may arise from
such contingencies would not have a material adverse effect on the unaudited condensed consolidated financial statements of the
Company.
NOTE
7 – WARRANTS
Warrants
The
following table summarizes the activities for the period.
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
Warrants
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Exercise Price
|
|
|
Remaining Term
|
|
|
OUTSTANDING, December 31, 2015
|
|
|
14,350,000
|
|
|
$
|
0.19
|
|
|
|
1.5
|
|
|
Issued
|
|
|
200,000
|
|
|
|
0.12
|
|
|
|
4.9
|
|
|
OUTSTANDING, September 30, 2016
|
|
|
14,550,000
|
|
|
$
|
0.19
|
|
|
|
1.1
|
|
On
August 10, 2016 and August 24, 2016, the Company entered into a Subscription Agreement with two investors, pursuant to which,
the Company sold to each investor in a private placement a $100,000 principal amount 12% Secured Promissory Note due on August
10, 2021 and August 24, 2016 respectively, together with a five-year warrant to purchase up to 400,000 shares of the Company’s
common stock at an exercise price of $0.12 per share.
NOTE
8 – STOCK OPTIONS
There
were no options granted during the nine months ended September 30, 2016 and 2015, respectively. As of September 30, 2016, 1,540,000
options are fully vested.
A
summary of stock option activity for the nine months ended September 30, 2016 is as follows:
|
|
|
Outstanding
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
|
|
Stock
Options
|
|
|
Exercise
Price
|
|
|
Intrinsic
Value (1)
|
|
|
Balance
as of December 31, 2015
|
|
|
1,628,000
|
|
|
$
|
1.30
|
|
|
$
|
-
|
|
|
Expired
|
|
|
(88,000
|
)
|
|
|
0.38
|
|
|
|
-
|
|
|
Balance
as of September 30, 2016
|
|
|
1,540,000
|
|
|
$
|
1.12
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
awards available for grant, net of restricted stock (811,576) at September 30, 2016
|
|
|
7,648,424
|
|
|
|
|
|
|
|
|
|
|
(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.
|
NOTE
9 – RELATED PARTY TRANSACTIONS
From
June 2014 to September 30, 2016, Mr. Heddle, the Company’s Chief Executive Officer, made several personal loans to the company
to provide working capital. As of September 30, 2016, the current aggregate outstanding balance including accrued interest at
4% per annum was $1,716,173. (See Note 4).
On
February 11, 2016, the Company issued a promissory note in favor of Richard Heddle, the Company’s President, Chief Executive
Officer and Chairman of the Company’s board of directors, to memorialize various advances which were made by Mr. Heddle
to the Company from February 11, 2016 until March 31, 2016. As of September 30, 2016, the current aggregate outstanding balance
including accrued interest at 12% per annum was $564,739. (See Note 5).The promissory note bears interest at the rate of 12% per
annum. All principal and interest on the promissory note is due and payable in full by the Company on demand. The repayment of
promissory note will be secured by assets of the Company. The proceeds of these advances are being used for working capital purposes.
At
September 30, 2016 and 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.
NOTE
10 – SEGMENT REPORTING
For
the nine months ended September 30, 2016 and 2015 the Company had no revenue. The Company’s processors were idle for all
of 2015 and remained idle during the nine months ended September 30, 2016.
When
operating, 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
When
operating, 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.”
P2O
assets include the Company headquarters and various machinery and equipment used at the Niagara Falls Facility. At September 30,
2016, total long-lived assets of $1,892,150 and $221,787 were located in the United States and Canada, respectively. As of December
31, 2015, total long-lived assets of $3,010,831 and $258,056, were located in the United States and Canada, respectively. The
mortgage payable of $213,836 and the equipment capital lease of $20,347, both disclosed in Note 5, relate to assets held in Canada.
NOTE
11 – RISK MANAGEMENT
Concentration
of Credit Risk
The
Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Canada Deposit Insurance
Corporation and the U.S. Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and has
not experienced any collection losses with these financial institutions.
NOTE
12 – DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Regional
Recycling of Niagara
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 $43,875, covering the period from May 2016
to October 2016.
NOTE
13 – SUBSEQUENT EVENTS
On
October 18, 2016 the Company entered into a Subscription Agreement with a investors, pursuant to which, the Company sold in a
private placement a $400,000 principal amount 12% Secured Promissory Note due on October 18, 2021, together with a five-year warrant
to purchase up to 400,000 shares of the Company’s common stock at an exercise price of $0.12 per share.
On
October 25, 2016, Plastic2Oil, Inc. (the “Company”) granted to Rahoul S. Banerjea, the Company’s Chief Financial
Officer and Secretary, two awards of incentive stock options to purchase a total of 5,250,000 shares of the Company’s common
stock pursuant to the Company’s 2012 Long-Term Incentive Plan. The awards consisted of (i) an award of 2,250,000 option
shares, at an exercise price of $0.17 per share, which are fully vested on the date of the grant and (ii) an award of 3,000,000
option shares, at an exercise price of $0.5 per share (representing the closing sales price for shares of the Company’s
common stock on the OTCQB Capital Market on the date of grant), which shall vest in equally annual installments over a period
of three years beginning on March 18, 2017, subject to acceleration of certain vesting upon the occurrence of a Change in Control
or termination of employment for Good Reason or without Cause (as such terms are defined in the relevant Incentive Stock Option
Agreement).
On November 10, 2016, a purchase and sale
agreement in the amount of Canadian $510,000 was executed by Plastic2Oil (Canada), Inc. for the property housing its Canadian
headquarters at Thorold, Ontario, Canada. The property has an outstanding mortgage in the amount of Canadian $280,000. The closing
is scheduled for January 2017, upon the buyer completing their due diligence.
