NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – ORGANIZATION AND GOING CONCERN
Plastic2Oil,
Inc. (the “Company” or “P2O”) was originally incorporated as 310 Holdings, Inc. (“310”) in
the State of Nevada on April 20, 2006. 310 had no significant activity from inception through 2009. On April 24, 2009, the company’s
founder, former CEO and Chief of Technology, John Bordynuik, purchased 63% of the issued and outstanding shares of 310. During
2009, the Company changed its name to JBI, Inc. and began operations of its main business operation, transforming waste plastics
to oil and other fuel products During 2014, the Company changed its name to Plastic2Oil, Inc. (“P2O”). 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 $403,306, and
$669,550, for the three months ended March 31, 2017, and 2016, respectively, and has a working capital deficit of $6,430,910 and
an accumulated deficit of $78,347,438 at March 31, 2017. 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 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, 2016 on Form 10-K filed with the SEC on April 7, 2017 that include
all the disclosures required by generally accepted accounting principles.
Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these
estimates. Significant estimates include amounts for impairment of long-lived assets, share based compensation, asset retirement
obligations, inventory obsolescence, accrued liabilities, accounts receivable exposures and valuation of options and warrants.
Restricted
Cash
As
of March 31, 2017 and December 31, 2016, the Company had $100,448 and $100,423, 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 March 31, 2017 and December 31, 2016 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.
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 March 31, 2017 and 2016, the Company recorded impairment losses on property, plant and equipment of $13,158 and
$0, 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 in the condensed consolidated balance sheets and is depreciated over the asset’s estimated
useful life and is included in depreciation and accretion expense in the condensed consolidated statements of operations.
Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement
obligations in the condensed consolidated statements of operations. Actual expenditures incurred are charged against the accumulated
obligation. As of March 31, 2017 and December 31, 2016, the carrying value of the asset retirement obligations was $64,480 and
$64,000, 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 $26,889 and
$27,662 as of March 31, 2017 and December 31, 2016, 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).
Data
storage and recovery sales are recognized when the product has been shipped or the services have been rendered to the customer.
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 $1 and gain
of $51 are included as general and administrative expenses in the condensed consolidated statements of operations for the three
months ended March 31, 2017 and 2016, 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 March 31,
2017 and December 31, 2016. The Company files tax returns in the U.S federal and state jurisdictions as well as a foreign country.
The years ended December 31, 2010 through December 31, 2016 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 three months ended March 31, 2017, potential dilutive common stock equivalents consisted 6,800,000 shares
underlying common stock warrants and 7,330,000 shares underlying stock options, which were not included in the calculation of
the diluted loss per share. For the three months ended March 31, 2016, potential dilutive common stock equivalents 14,350,000
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.
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
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under this ASU and subsequently issued
amendments, revenues are recognized at the time when goods or services are transferred to a customer in an amount that reflects
the consideration it expects to receive in exchange for those goods or services. Companies may use either a full retrospective
or a modified retrospective approach to adopt this ASU. Based on our continuing assessment of the potential impact of this standard,
we believe the adoption of this standard may impact the following:
|
|
●
|
Engagements
that contain performance-based arrangements, in which the company will earn a success or completion fee when and if certain
predefined outcomes occur;
|
|
|
|
|
|
|
●
|
Engagements
with fixed-fees that have multiple performance obligations; and
|
|
|
|
|
|
|
●
|
Engagements
that include discounting arrangements.
|
The
Company has not completed the assessment and has not yet determined whether the impact of the adoption of this standard on the
company’s consolidated financial statements will be material. The Company will adopt this standard on January 1, 2018 but
have not yet concluded on a transition approach. The Company expects to complete their assessment, including selecting a transition
method for adoption during the second half of 2017.
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 Company does not expect the new standard to have a significant impact
on its consolidated financial position, results of operations or cash flows.
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 Company
does not expect the new standard to have a significant impact on its consolidated financial position, results of operations or
cash flows.
In
October 2016, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which removes the prohibition against
immediate recognition of current and deferred income tax effects on intra-entity transfers of assets other than inventory. This
standard is effective January 1, 2019, although early adoption is permitted as early as January 1, 2017. The Company has not yet
determined the impact that the adoption of this guidance will have on our consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments, which clarifies how cash receipts and cash payments are classified in the statement of cash flows. This standard is
effective January 1, 2018, although early adoption is permitted. The Company does not expect the adoption of this guidance to
have a material impact on our consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments, which clarifies how cash receipts and cash payments are classified in the statement of cash flows. This standard is
effective January 1, 2018, although early adoption is permitted. The Company does not expect the adoption of this guidance to
have a material impact on our consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting. This standard makes several modifications to Topic 718, including the accounting for forfeitures, employer tax withholding
on share-based compensation, income tax consequences, and clarifies the statement of cash flows presentation for certain components
of share-based awards, all of which are intended to simplify various aspects of the accounting for share-based compensation. The
ASU will require that the difference between the actual tax benefit realized upon option exercise or restricted share or restricted
stock unit release and the tax benefit recorded based on the fair value of the stock award at the time of grant (the “excess
tax benefits”) to be reflected as a reduction of the current period provision for income taxes with any shortfall recorded
as an increase in the tax provision rather than as a component of changes to additional paid-in capital. The ASU will also require
the excess tax benefit or detriment realized to be reflected as operating cash flows rather than financing cash flows. The standard
is effective beginning January 1, 2017. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), that replaces existing
lease guidance. Under this ASU, leases will be required to record right-of-use assets and corresponding lease liabilities on the
balance sheet. This guidance is effective beginning January 1, 2019. The new standard is required to be applied with a modified
retrospective approach to each prior reporting period presented. The Company has not yet determined the impact that the adoption
of this guidance will have on our consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
NOTE
3 – PROPERTY, PLANT AND EQUIPMENT, NET
Property,
Plant and Equipment consist of the following at:
|
As of March 31, 2017
|
|
Cost
|
|
|
Accumulated Depreciation
|
|
|
Net Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
218,054
|
|
|
$
|
(34,180
|
)
|
|
$
|
183,874
|
|
|
Machinery and office equipment
|
|
|
1,626,379
|
|
|
|
(1,300,455
|
)
|
|
|
325,924
|
|
|
Furniture and fixtures
|
|
|
16,368
|
|
|
|
(16,368
|
)
|
|
|
-
|
|
|
Land
|
|
|
243,859
|
|
|
|
-
|
|
|
|
243,859
|
|
|
Asset retirement obligation
|
|
|
58,363
|
|
|
|
(7,776
|
)
|
|
|
50,587
|
|
|
Office and industrial buildings
|
|
|
1,084,899
|
|
|
|
(234,533
|
)
|
|
|
850,366
|
|
|
Equipment under capital lease
|
|
|
53,257
|
|
|
|
(45,650
|
)
|
|
|
7,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,301,179
|
|
|
$
|
(1,638,962
|
)
|
|
$
|
1,662,217
|
|
|
As of December 31, 2016
|
|
|
Cost
|
|
|
|
Accumulated Depreciation
|
|
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
218,054
|
|
|
$
|
(32,029
|
)
|
|
$
|
186,025
|
|
|
Machinery and office equipment
|
|
|
1,738,414
|
|
|
|
(1,539,203
|
)
|
|
|
199,211
|
|
|
Furniture and fixtures
|
|
|
16,368
|
|
|
|
(16,368
|
)
|
|
|
-
|
|
|
Land
|
|
|
273,118
|
|
|
|
-
|
|
|
|
273,118
|
|
|
Asset retirement obligation
|
|
|
58,363
|
|
|
|
(7,101
|
)
|
|
|
51,262
|
|
|
Office and industrial buildings
|
|
|
1,433,523
|
|
|
|
(312,912
|
)
|
|
|
1,120,611
|
|
|
Equipment under capital lease
|
|
|
53,257
|
|
|
|
(43,747
|
)
|
|
|
9,510
|
|
|
Total
|
|
$
|
3,791,097
|
|
|
$
|
(1,951,360
|
)
|
|
$
|
1,839,737
|
|
For
the three months ended March 31, 2017 and 2016, the Company recognized $55,447 and $171,201, respectively of depreciation expense.
At March 31, 2017 and December 31, 2016, machinery and equipment with a cost of $53,257 and accumulated amortization of $45,649
and $43,747 respectively, were under capital lease. During the periods ended March 31, 2017 and December 31, 2016, the Company
recognized $1,902, and $7,608, respectively, of depreciation expense related to these assets under capital lease.
On March 31, 2017,
the Company sold its land and building located at 1783 Allanport Road, Thorold, Ontario, for a gain of approximately $254,000.
The proceeds were used towards repayment of the outstanding mortgage, real estate taxes and closing costs. The Company reviews
for impairment of long-lived assets on an asset by asset basis, which resulted in an impairment booking of $13,158 for the
period ending March 31, 2017.
NOTE
4 - SECURED PROMISSORY NOTES
SECURED
PROMISSORY NOTES -RELATED PARTY
Related
Party notes payable consists of the following at periods ended:
|
|
|
As of
March 31, 2017
|
|
|
As of
December 31, 2016
|
|
|
Secured Demand Promissory Note (provided by a related party) bearing interest of 4% per annum.
|
|
$
|
1,726,884
|
|
|
$
|
1,695,926
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Demand Promissory Note (provided by a related party) bearing interest of 12% per annum.
|
|
|
596,502
|
|
|
|
567,402
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
1,289,219
|
|
|
|
1,248,894
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
4,213,710
|
|
|
|
4,041,737
|
|
|
Total
|
|
|
7,826,315
|
|
|
|
7,553,959
|
|
|
Less: current portion
|
|
|
2,323,386
|
|
|
|
2,263,328
|
|
|
Secured promissory notes – related party
|
|
$
|
5,502,929
|
|
|
$
|
5,290,631
|
|
|
Continuity of Secured Promissory Notes – Related Party
|
|
|
As
of
March 31, 2017
|
|
|
|
As
of
December 31, 2016
|
|
|
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)
|
|
|
673,178
|
|
|
|
624,744
|
|
|
Interest on secured notes payable($4,000,000 secured note payable)
|
|
|
1,798,434
|
|
|
|
1,634,570
|
|
|
Carrying value of Secured Promissory Notes
|
|
$
|
5,502,929
|
|
|
$
|
5,290,631
|
|
The
following annual payments of principal and interest are required over the next five years in respect to these related party
secured notes payables:
|
Years Ending December 31,
|
|
|
Annual Payments
|
|
|
2017
|
|
|
$
|
2,323,386
|
|
|
2018
|
|
|
|
4,213,710
|
|
|
2019
|
|
|
|
1,289,219
|
|
|
2020
|
|
|
|
-
|
|
|
2021
|
|
|
|
-
|
|
|
Total
|
|
|
$
|
7,826,315
|
|
SECURED
PROMISSORY NOTES
Secured
notes payable consists of the following at periods ended:
|
|
|
As of
March 31, 2017
|
|
|
As of
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
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 hundred thousand 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.
|
|
|
105,958
|
|
|
|
102,838
|
|
|
|
|
|
|
|
|
|
|
|
|
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 hundred
thousand 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.
|
|
|
105,475
|
|
|
|
102,368
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Promissory Note -$400,000 in October 18, 2016 bearing interest
of 12% per annum compounded annually, together with a five-year warrant to purchase up to four hundred thousand 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.
|
|
|
403,292
|
|
|
|
389,847
|
|
|
Total
|
|
|
614,725
|
|
|
|
595,053
|
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
|
Secured promissory notes
|
|
$
|
614,725
|
|
|
$
|
595,053
|
|
|
Continuity of Secured Promissory Notes
|
|
|
As
of
March 31, 2017
|
|
|
|
As
of
December 31, 2016
|
|
|
Face value of August 10, 2016 secured note payable
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
Face value of August 25, 2016 secured note payable
|
|
|
100,000
|
|
|
|
100,000
|
|
|
Face value of October 18, 2016 secured note payable
|
|
|
400,000
|
|
|
|
400,000
|
|
|
Total face value of promissory notes payable
|
|
|
600,000
|
|
|
|
600,000
|
|
|
Discount on August 10, 2016 secured notes payable ( 100,000 warrants)
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
|
Discount on August 24, 2016 secured notes payable ( 100,000 warrants)
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
|
Discount on October 18, 2016 secured notes payable ( 400,000 warrants)
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
|
Accretion of discount on secured notes payable ($600,000 secured note payable)
|
|
|
2,133
|
|
|
|
533
|
|
|
Interest on secured notes payable($600,000 secured note payable)
|
|
|
36,592
|
|
|
|
18,520
|
|
|
Carrying value of Secured Promissory Notes
|
|
$
|
614,725
|
|
|
$
|
595,053
|
|
The following annual payments of principal and interest are required over the next five years in respect to these secured notes payable:
|
Years Ending December 31,
|
|
|
Annual Payments
|
|
|
2017
|
|
|
$
|
-
|
|
|
2018
|
|
|
|
-
|
|
|
2019
|
|
|
|
-
|
|
|
2020
|
|
|
|
-
|
|
|
2021
|
|
|
|
614,725
|
|
|
Total
|
|
|
$
|
614,725
|
|
NOTE
5 - MORTGAGES PAYABLE AND CAPITAL LEASES
The
Mortgages Payable and Capital Leases consists of the following at periods ending:
|
|
|
As of
March 31, 2017
|
|
|
As of
December 31, 2016
|
|
|
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. As of December 31, 2016 the mortgage was in default (See Note 17).
|
|
$
|
-
|
|
|
$
|
206,910
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Equipment capital lease bears interest at 3.9% per annum, secured by the equipment and matured on May 10, 2016, Principal and interest were due, in their entirety, at maturity. The maturity was extended to May 10, 2016 by the Lessor. The capital lease is in default.
|
|
|
20,747
|
(2)
|
|
|
20,546
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,747
|
|
|
|
227,455
|
|
|
Less: current portion
|
|
|
20,747
|
|
|
|
227,455
|
|
|
Mortgages payable and capital leases
|
|
$
|
-
|
|
|
$
|
-
|
|
|
(1)
|
Based on $280,000 Canadian dollars converted
to U.S. Dollars using the conversion rate on December 31, 2016.
|
|
|
|
|
(2)
|
Includes
accrued interest.
|
NOTE
6 – COMMITMENTS AND CONTINGENCIES
Commitments
As
of March 31, 2017, the Company has committed to purchase certain pieces of key machinery from vendors related to the future expansion
of its operations. At December 31, 2016, we recorded impairment loss $1,448,464 on the deposits 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 will be required to pay approximately $235,000 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 2013, 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 $66,335 covering
the period from May 2016 to October 2016.
Contingencies
As
of March 31, 2017, 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, 2016
|
|
|
|
14,950,000
|
|
|
$
|
0.18
|
|
|
|
0.9
|
|
|
Expired
|
|
|
|
(8,150,000
|
)
|
|
|
(0.07
|
)
|
|
|
|
|
|
OUTSTANDING, March 31, 2017
|
|
|
|
6,800,000
|
|
|
$
|
0.32
|
|
|
|
1.6
|
|
There
were no warrants issued during the three months ended March 31, 2017 and 2016, respectively.
NOTE
8 – STOCK OPTIONS
2012
Plan
There were no options
granted during the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, 2,330,000 options were outstanding
and are fully vested.
A summary of stock option activity for the three months ended March 31, 2017 is as follows:
|
|
|
Outstanding
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
Intrinsic Value (1)
|
|
|
Balance as of December 31, 2016
|
|
|
4,390,000
|
|
|
$
|
1.12
|
|
|
$
|
-
|
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Expired
|
|
|
(60,000
|
)
|
|
|
0.38
|
|
|
|
-
|
|
|
Balance as of March 31, 2017
|
|
|
4,330,000
|
|
|
$
|
0.42
|
|
|
$
|
-
|
|
|
Exercisable
as of March 31, 2017
|
|
|
2,330,000
|
|
|
$
|
0.73
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards available for grant, net of restricted stock (811,576) at March 31, 2017
|
|
|
4,858,424
|
|
|
|
|
|
|
|
|
|
|
(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.
|
2016
Incentive Plan
There were no options
granted during the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, 2,250,000 options were outstanding and are fully vested.
A summary of stock option activity for the three months
ended March 31, 2017 is as follows:
|
|
|
|
Outstanding
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
|
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
Intrinsic Value (1)
|
|
|
Balance as of December 31, 2016
|
|
|
|
2,250,000
|
|
|
$
|
0.17
|
|
|
$
|
-
|
|
|
Balance as of March 31, 2017
|
|
|
|
2,250,000
|
|
|
$
|
0.17
|
|
|
$
|
-
|
|
|
Exercisable as of March 31, 2017
|
|
|
|
2,250,000
|
|
|
$
|
0.17
|
|
|
$
|
|
|
NOTE
9 – RELATED PARTY TRANSACTIONS
From
June 2014 to March 31, 2017, Mr. Heddle, the Company’s Chief Executive Officer, or his affiliated companies made several
personal loans to the company to provide working capital. As of March 31, 2017, the current aggregate outstanding balance, including
accrued interest at 4% per annum, due and owing to Mr. Heddle was $1,726,884. (See Note 6).
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 December 31, 2016, the current aggregate outstanding balance
including accrued interest at 12% per annum was $596,502. (See Note 6).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 March 31, 2017 and December 31, 2016, the
company’s accounts payable and accrued expenses included $132,218 and $132,218, 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. In addition,
in 2016, $12,500 was paid for feedstock analysis to a business in which Mr. Richard Heddle holds a material financial
interest.
NOTE
10 – SEGMENT REPORTING
For
the three months ended March 31, 2017 and 2016 the Company had no revenue. The company’s processors were idle for all of
2016 and remained idle during the three months ended March 31, 2017.
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 March 31, 2017, total long-lived assets of $1,451,619
and $210,608 were located in the United States and Canada, respectively. As of December 31, 2016, total long-lived assets of $1,832,078
and $344,671, were located in the United States and Canada, respectively. At March 31, 2017 and December 31, 2016, the
mortgage payable of $0 and $206,910, respectively and the equipment capital lease of $20,747 and $20,546, respectively, 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 $66,335, covering the period from May 2016
to October 2016.
NOTE
13 – SUBSEQUENT EVENTS
In April, 2017, Glenny and Maskell
(Canadian insurance broker) settled on a lawsuit filed by the Company, on May 25, 2012 at the Ontario Superior Court
of Justice, seeking damages consisting of the costs of defense and any damages that may be awarded against the Company, our
former CEO John Bordynuik, and former CFO Ron Baldwin in the Class Action and in the SEC Action. The Ontario Superior
Court of Justice issued the dismissal order dated May 9, 2017. The case was settled in the U.S. with ACE
(Insurance carrier) in or about May 2013, pursuant to what is known as a “Mary Carter” (confidential)
settlement.
