Plastic2Oil, Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarter period ended September 30, 2015

or

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to              

Commission file number: 000-52444

PLASTIC2OIL, INC.

(Exact name of registrant as specified in its charter)

(716)-278-0015

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

As of November 12, 2015, there were 124,756,158 shares of the Registrant’s common stock, $0.001 par value, outstanding.

PLASTIC2OIL, INC.

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by the forward- looking statements include risks associated with general business, economic, competitive, political and social uncertainties; risks associated with changes in project parameters as plans continue to be refined; risks associated with failure of plant, equipment or processes to operate as anticipated; risks associated with accidents or labor disputes; risks associated in delays in obtaining governmental approvals or financing, or in the completion of development or construction activities; risks associated with financial leverage and the availability of capital; risks associated with the price of commodities and the inability of our Company to control commodity prices; risks associated with the regulatory environment within which our Company operates; risks associated with litigation including the availability of insurance; and risks posed by competition. These and other factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by the forward looking statements are discussed in more detail in the section entitled “Risk Factors” Part I, Item 1A of the Company’s Annual Report 10-K for the fiscal year ended December 31, 2014 as filed with the Securities and Exchange commission on March 31, 2015.

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

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

PART I - FINANCIAL INFORMATION 

Item 1. Financial Statements

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

** Less than $.01

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

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

PLASTI2OIL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - ORGANIZATION AND GOING CONCERN

Plastic2Oil, Inc. (the “Company” or “P2O”) was originally incorporated as 310 Holdings, Inc. (“310”) in the State of Nevada on April 20, 2006. 310 had no significant activity from inception through 2009. In April 2009, John Bordynuik, founder and former chief of technology, 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 (“P2O”). During 2014, the Company changed its name to Plastic2Oil, Inc. P2O is a combination of proprietary technologies and processes developed by P2O which convert waste plastics into fuel. Our P2O business has begun the transition from research and development to a commercial manufacturing and production business. These processors were idle for all of 2015. Management estimates the processors will remain idle until the first quarter of 2016, other than pilot runs to support the processor sales. There were no processor sales for all of 2015. We plan to grow mainly from sale of processors, secondarily from the sale of fuel products.

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

On September 30, 2009, the Company acquired Pak-It, LLC (“Pak-It”), and the operator of a bulk chemical processing, mixing, and packaging facility. It also has developed and patented a delivery system that packages condensed cleaners in small water-soluble packages. In February 2012, the Company sold substantially all of the assets of Pak-It and as a result, the operations of Pak-It have been classified as discontinued operations for the periods presented (Note 15).

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 $2,909,718, and $4,243,554, for the nine months ended September 30, 2015 and 2014, respectively, and has an accumulated deficit of $70,863,917 at September 30, 2015. These factors raise substantial doubt about the Company’s ability to continue as a going concern and to operate in the normal course of business. The Company has funded its activities to date almost exclusively from equity financings and related party loans.

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

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP, as promulgated by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and with the rules and regulations of the U.S Securities and Exchange Commission (“SEC”) for interim financial information. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods shown. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period. The information included in these unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis and Results of Operations contained in this report and the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Basis of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Plastic2Oil of NY#1 Inc., Plastic2Oil (Canada) Inc., JBI Re #1 Inc., Plastic2Oil Re One Inc., JBI CDE Inc., Plastic2Oil Marine, Inc., Javaco, and Pak-it. All intercompany transactions and balances have been eliminated on consolidation. Amounts in the unaudited condensed consolidated financial statements are expressed in US dollars. Recycling Center, Pak-It and Javaco have also been consolidated; however, as mentioned their operations are classified as discontinued operations (Note 15).

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 and accounts receivable exposures.

Cash and Cash Equivalents

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

Restricted Cash

At September 30, 2015 and December 31, 2014, the Company had $100,289 and $100,222 respectively, of restricted cash, which is used to secure a line of credit that secures a performance bond on behalf of the Company. The performance bond is required by the State of New York for fuel distributors in perpetuity.

Cash Held in Attorney Trust

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

Accounts Receivable

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

The allowance for uncollectible accounts reflects management’s best estimate of amounts that may not be collected based on an analysis of the age of receivables and the credit standing of individual customers. The allowance for uncollectible accounts for September 30, 2015 and December 31, 2014 was $23,059 and $23,182, respectively.

Inventories

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

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 in which they are classified. These lives are as follows:

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

Construction in Process

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

Impairment of Long-Lived Assets

The Company reviews for impairment of long-lived assets on an asset by asset basis. Impairment is recognized on properties held for use when the expected undiscounted cash flows for a property are less than its carrying amount at which time the property is written-down to fair value. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. The sale or disposal of a “component of an entity” is treated as discontinued operations. The operating properties sold by the Company typically meet the definition of a component of an entity and as such the revenues and expenses associated with sold properties are reclassified to discontinued operations for all periods presented (Note 15).

Asset Retirement Obligations

The fair value of the estimated asset retirement obligation is recognized in the consolidated balance sheets when identified and a reasonable estimate of fair value can be made. The asset retirement cost, equal to the estimated fair value of the asset retirement obligation, is capitalized as part of the cost of the related long-lived asset. The balance of the asset retirement obligation is determined through an assessment made by the Company’s engineers, of the total costs expected to be incurred by the Company when closing a facility. The total estimated cost is then discounted using the current market rates to determine the present value of the asset as of the date of this valuation. As of the date of the creation of the asset retirement obligation in the amount of $57,530, the Company determined the present value of the obligation using a discount rate equal to 2.96%. The present value of the asset retirement obligation is then capitalized on the consolidated balance sheets and is depreciated over the asset’s estimated useful life and is included in depreciation and accretion expense in the unaudited condensed consolidated statements of operations. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligations in the unaudited condensed consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation. As of September 30, 2015 and December 31, 2014, the carrying value of the asset retirement obligations were $31,917 and $31,215, respectively. These costs include disposal of plastic and other non-hazardous waste, site closing labor and testing and sampling of the site upon closure. This liability is shown as Asset Retirement Obligations on the accompanying unaudited condensed consolidated balance sheet.

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 payments made to vendors for fabrication of key pieces of property, plant and equipment that have been made in accordance with the Company’s agreements to purchase such equipment. Payments are made to these vendors as progress is made on the fabrication of the equipment, with final payments made when the equipment is delivered. Until we have possession of the equipment, all payments made to these vendors are classified as deposits on assets. As at September 30, 2015 and December 31, 2014, the carrying value of the Deposits were $1,483,987.

Leases

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

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

Revenue Recognition

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

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

Shipping and Handling Costs

The Company’s shipping and handling costs of $147 and $16,475 for the nine months ended September 30, 2015 and 2014, respectively, are included in cost of goods sold for the periods presented. Shipping and handling costs related to the purchase of inventory items are capitalized to inventory and expensed to cost of sales when the related inventory is sold for the periods presented.

Advertising costs

The Company expenses advertising costs as incurred. Advertising costs were $1,868 and $490 for the nine months ended September 30, 2015 and 2014, respectively. These expenses are included in selling, general and administrative expenses in the unaudited 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, 2015 and 2014, the Company expensed $1,653 and $20,999, respectively, towards research and development costs. Components of the processors that are fabricated or purchased with research and development plans and then used on the processor in production are capitalized into the cost of the processor and depreciated over the remaining life of the processor.

Foreign Currency Translation

The unaudited 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 dates. 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 reflected in accumulated other comprehensive income in the accompanying unaudited condensed consolidated balance sheets. Foreign exchange gain of $6,425 and loss of $3,852 for monetary items are included as general and administrative expenses in the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2015 and 2014, respectively.

Income Taxes

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

The Company adopted the accounting standards associated with uncertain tax positions as of January 1, 2007. The adoption of this standard did not have a material impact on the Company’s unaudited 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, 2015 and December 31, 2014. The Company files tax returns in the U.S federal and state jurisdictions as well as a foreign country. The years ended December 31, 2009 through December 31, 2014 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 and nine months ended September 30, 2015, potential dilutive common stock equivalents consisted of 14,350,000 shares underlying common stock warrants and 1,628,000 shares underlying stock options, which were not included in the calculation of the diluted loss per share because they would be anti-dilutive.

For the three and nine months ended September 30, 2014, 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 because they would be anti-dilutive.

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.

Fair Value of Financial Instruments

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

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

NOTE 3 – RECENTLY ISSUED ACCOUNTING STANDARDS AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Pronouncements

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

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.

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 unaudited condensed consolidated financial statements.

NOTE 4 - INVENTORIES

Inventories consist of the following:

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET

For the nine months ended September 30, 2015 and 2014, the Company recognized $501,543, and $650,252, respectively, of depreciation expense.

At September 30, 2015 and December 31, 2014, machinery and equipment with a cost of $108,317, and accumulated amortization of $59,647 and $44,173, respectively, were under capital lease. During the nine months ended September 30, 2015 and 2014, the Company recognized $11,606 of depreciation expense related to these assets under capital lease. During the three months ended September 30, 2015 and 2014, the Company recognized $3,869 of depreciation expense related to these assets under capital lease.

NOTE 6 - RELATED PARTY NOTES PAYABLE

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

NOTE 7 - MORTGAGES PAYABLE AND CAPITAL LEASES

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

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Commitments

Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract in 2010 with a company owned by Mr. Heddle, who later (in 2014) became the Company’s Chief Executive Officer. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At September 30, 2015, there were no currently installed marine vessel processors pursuant to the contract.

As of September 30, 2015, the Company has committed to purchase certain pieces of key machinery from vendors related to the future expansion of our operations. In addition to the payments made to these vendors, which are classified as deposits and included in assets on our unaudited condensed consolidated balance sheets, the Company will be required to pay approximately $495,000 upon the delivery of these assets which is expected to occur with the delivery of processor #4 and processor #5.

The Company leases premises in Thorold, Ontario, Canada which was previously used in the operation of Plastic2Oil (Canada), Inc. and doing business as Regional Recycling of Niagara (“RRON”). As at September 30, 2013, the remaining lease term was almost 17 years. During the third quarter of 2013, the Company determined that it would shut down the operations of RRON (Note 15). 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. In measuring the liability, the Company calculated all remaining contracted lease payments, being $1,381,299 (CDN$1,749,000), and performed a present value calculation using a discount rate of 20%. The total accrued lease liability expense was reduced by $68,818 of the deferred rent liability which was being amortized over the period of the lease. At September 30, 2015, the present value calculation resulted in an accrued lease liability of $309,660, of which $94,636 is due within the next 12 months and has been presented as a current liability. The total expense included in loss from discontinued operations in the unaudited condensed consolidated statements of operations was $34,413 for the nine months ended September 30, 2015 (Note 15).

All future payments required under the operating lease agreement is summarized below:

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

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

As of September 30, 2015, the Company is involved in litigation and claims in addition to the above mentioned legal claims, which arise from time to time in the normal course of business. In the opinion of management, based upon the information and facts known to them, any liability that may arise from such contingencies would not have a material adverse effect on the unaudited condensed consolidated financial statements of the Company.

NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIENCY)

Common Stock and Additional Paid in Capital

2015

On February 18, 2015, the Company issued 250,000 shares of restricted common stock in satisfaction of $30,003, of unpaid fees owed to two vendors.

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

On April 7, 2015, the Company issued 1, 000,000 shares of restricted common stock pursuant to the February 19, 2014 consulting agreement to the respective Consulting firms. In conjunction with this transaction, the Company retired 250,000 shares of restricted common stock issued in 2014 pursuant to the February 19, 2014 consulting agreement.

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

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

Warrants

NOTE 10 - STOCK-BASED COMPENSATION PLANS AND AWARDS

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

Valuation of Awards

Stock Options

There were no options granted during the three months and nine months ended September 30, 2015. For the nine months ended September 30, 2015 and 2014, the Company recorded stock-based compensation expense (included in selling, general and administrative expense) of $959 and $168,237, respectively, related to stock options. As of September 30, 2015, 1,598,000 options are vested (1,040,000 at $1.50 per share, 508,000 at $0.38 per share, and 50,000 at $.005 per share). A summary of stock option activity for the nine months ended September 30, 2015 is as follows:

Restricted Stock

The fair value of the restricted stock granted as compensation is expensed ratably over the vesting period. During the nine months ended September 30, 2015, 126,000 options and 634,626 shares of restricted stock vested and no stock options were exercised. The expenses related to the 634,626 restricted shares were accrued at December 31, 2014.

NOTE 11 - RETIREMENT PLAN

The Company adopted a defined contribution benefit plan (the “Defined Contribution Plan”) for our U.S. employees which complies with section 401(k) of the Internal Revenue Code. The Company does not currently match any of the employee contributions.

NOTE 12 - RELATED PARTY TRANSACTIONS AND BALANCES

From June 2014 to September 30, 2015, Mr. Heddle, the Company’s Chief Executive Officer, made several personal loans to the company to provide working capital. As of September 30, 2015, the current aggregate outstanding balance including accrued interest at 4% per annum was $1,311,832. (See Note 7).

At September 30, 2015, the company’s accounts payable included a $75,218 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.

Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract in 2010 with a company owned by Mr. Heddle, who later (in 2014) became the Company’s Chief Executive Officer. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At September 30, 2015, there were no currently installed marine vessel processors pursuant to the contract.

NOTE 13 - SEGMENT REPORTING

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

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

Nine Months Ended September 30, 2015

Nine Months Ended September 30, 2014

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

NOTE 14 - RISK MANAGEMENT

Concentration of Credit Risk

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

During the nine months ended September 30, 2015 and 2014, 100.0% of total net revenues were generated from a single, and four customers respectively. As of September 30, 2015 and 2014, one and three customers, respectively, accounted for 100.0% of accounts receivable.

During the nine months ended September 30, 2015 and 2014 five suppliers accounted for 30.9% and 50.8% of accounts payable, respectively.

NOTE 15 - DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

Regional Recycling of Niagara

During the third quarter of 2013, the Company determined that due to the significant losses incurred by Regional Recycling of Niagara, and the continuous need to fund its operations through the Company’s Plastic2Oil operations, it would shut down the operations of the facility. The decision to do this was based on the following factors:

The results of operations from Regional Recycling of Niagara for the nine months ended September 30, 2015 and 2014 have been classified as discontinued operations and are as follows:

Condensed Statements of Operations

Sale of Pak-It

On February 14, 2013, the Company completed the sale of substantially all of the assets of Pak-It, LLC and Dickler Chemical Company, Inc. (collectively “Pak-It”).

The Company sold Pak-It for $900,000, in exchange for $400,000 cash at the closing of the sale and entry into a note receivable for $500,000 due on July 1, 2013. In the third quarter of 2013, the Company’s assessed the collectability of the note receivable from the buyer of Pak-It. It was determined that due to the lack of a payment within forty days of the due date, that the collectability was not assured and the Company reserved for the full amount of the note receivable. The company settled for $200,000 on February 10, 2014.

The Company’s statements of operations from discontinued operations related to Pak-it for the nine months ended September 30, 2015 and 2014 are as follows:

Condensed Statements of Operations of Pak-It

NOTE 16 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events occurring after the balance sheet date and has identified the following:

From September 30, 2015 to November 10, 2015, Mr. Heddle, the Company’s Chief Executive Officer, made three additional personal loans in the amount of $222,838 to the Company to provide working capital at a rate of 4% per annum.

On October 1, 2015, the Company issued 510,000 shares of restricted common stock in satisfaction of unpaid fees owed to three consultants.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Business Overview

For financial reporting purposes, we operate in two business segments, (i) our P2O® solution business, which manufactures and sells the fuel produced through our two operating P2O processors and (ii) data storage and recovery (the “Data Business”). Previously, we operated a recycling facility for waste paper fiber processing, a chemical processing and cleaning business, known as Pak-It, and a retail and wholesale distribution business, known as Javaco, Inc. As of September 30, 2015, we had exited all of these businesses and their results in all periods presented are classified as discontinued operations (Note 15).

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, and secondarily from the sale of fuel products.

We anticipate that this segment will account for substantially all of our revenues in 2015 and beyond. Historically, however, our revenues have been derived primarily from our other segments and products, including those noted above as discontinued operations.

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

Plastic2Oil Business

Our business focus is to sell processors. We will operate our processors to test potential customer’s feedstock. We manufacture processors that produce fuel products mainly from unsorted, unwashed waste plastics for distribution across a number of markets. We continue to execute on our business strategy with the goal of becoming a leading North American company that transforms waste plastic into ultra- clean, ultra-low sulphur fuel.

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

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

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

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

2015 update

On November 6, 2015, the Company entered into a third amendment of the four related agreements with EcoNavigation, LLC (“EcoNavigation”). The sole purpose of the Third Amendment was to extend the term of the pilot program from 300 days to 390 days through January 26, 2016. Two prior amendments extended the pilot program from 120 days to 300 days. This project has required significant attention from the P2O, EcoNavigation, and O’Brien & Gere project opportunity team and the extension was necessary to allow the team to complete its work.

On January 2, 2015, P2O announced that P2O had contracted to sell up to six processors to EcoNavigation LLC upon the completion of a pilot study. Shortly afterward, EcoNavigation presented P2O with several promising opportunities and currently P2O and EcoNavigation are involved in multiple, complex negotiations for the potential sale and implementation of P2O processors.

We and EcoNavigation began discussions with a firm in the southern U.S. regarding a development project that has the potential for the deployment of more than 30 processors over the proposed project development period. However, this project is currently on hold, as the firm and its lender have not come to agreement on the financial structure. We remain hopeful that work on this project will resume, but there can be no assurance.

In addition to the above, a third opportunity for a three processor site, located in one of the northern US states, is being worked on by the above mentioned project opportunity team. EcoNavigation continues final negotiations and work on structuring and financing.

There can be no assurance that our current negotiations will result in definitive agreements or successful sales.

We intend to engage O’Brien & Gere (www.OBG.com), one of the leading EPC consulting firms, for these upcoming opportunities. O’Brien & Gere’s Advanced Manufacturing business should provide P2O the capability to scale-up our technology and integrate it into a fully operational manufacturing facility. In addition, its full-service engineering capabilities, project management and control system integration round out our capabilities to deliver efficient and cost-effective solutions to our customers.

Data Recovery & Migration Business

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

Listing on the OTCQB

As of September 30, 2015, we had 117,399,157 shares of common stock issued and outstanding. Our common stock is currently trading on the OTCQB marketplace in the United States of America under the stock ticker symbol “PTOI.” On November 11, 2015, the last trading day prior to the date of this filing, the closing price of the common stock on the OTCQB was $0.05.

Sources of Revenues and Expenses

Revenues

We currently plan to derive revenues from two defined business segments: (1) P2O, through the manufacture of processor and from the sale of Fuel Oil No. 2, Naphtha and Fuel Oil No. 6; and (2) Data Business, through the reading and interpretation of magnetic tape data. The Company has not derived any revenues from its Plastic2Oil business during the three and nine months ended September 30, 2015. The Company did not derive any revenues from the operations of Recycling Center, Javaco and Pak-It during the year; because those operations were discontinued in prior years.

Cost of Sales

Costs of Sales for P2O consist of the following:

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

Operating Expenses

Operating expenses consist primarily of the following:

Results of Operations – Nine months ended September 30, 2015 compared to Nine months ended September 30, 2014

Revenue

Revenue was derived from our P2O business through the sale of our fuels and processed waste paper fiber in 2014. As we only recently shifted our business strategy to selling fuel processors, we did not derive any revenue from processor sales in 2015 or 2014. Additionally, we supplement our operations with revenue from our Data Business through reading and interpreting magnetic tape media. The following table shows a breakdown of our revenues from these sources.

There was no production in the nine months ended September 30, 2015. Consequently, there was neither fuel shipment nor fuel revenue. The decrease in fuel revenue for the nine months ended September 30, 2015 as compared to September 30, 2014, was mainly due to management’s decision to shut down its production in the fourth quarter of 2013 due to the severe cold weather that caused damage to condensers and other components of our processors. The damage requires substantial working capital for general repairs and replacement of damaged condensers. These processors were idle for all of 2014 and are currently idle. Fuel shipment from inventory stock accounts for the 2014 fuel revenue. Management estimates the processors will remain idle until the first quarter of 2016, other than pilot runs to support processor sales.

There was no production in the three months ended September 30, 2015. Consequently, there was neither fuel shipment nor fuel revenue. The decrease in fuel revenue for the three months ended September 30, 2015 as compared to September 30, 2014 was mainly due to management’s decision to shut down its production in the fourth quarter of 2013 due to the severe cold weather that caused damage to condensers and other components of our processors as noted above. Fuel shipment from inventory stock accounts for the 2014 fuel revenue.

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

Cost of Goods Sold

There were no fuel shipments for the nine months ended September 30, 2015. The following tables are a breakdown of the costs of goods sold:

There were no fuel shipments for the three months ended September 30, 2015 and September 30, 2014 as noted above. The cost of goods sold related to the Data Business relate to the direct labor incurred in the reading and interpreting of the magnetic tape data.

Operating Expenses

We incurred operating expenses of $2,467,521 during the nine months ended September 30, 2015, compared to $3,927,283 for the nine months ended September 30, 2014. This $1,459,762 decrease was driven by a $677,128 decrease in professional fees from elimination of outside consultants in 2015, $423,312 decrease in compensation expenses, mostly amortization of the Company’s 2012 Long Term Incentive Plan (LTIP) expenses and $198,354 net decrease in other operating expenses from tighter spending controls. The September 2015 operating expenses include $366,120 of expenses related to the class action suit settlement (Note 8). A breakdown of the components of operating expenses for the nine months ended September 30, 2015 and 2014, are as follows:

We incurred operating expenses of $677,131 during the three months ended September 30, 2015, compared to $1,227,430 for the three months ended September 30, 2014. This $550,299 decrease was driven by a $61,412 decrease in professional fees from elimination of outside consultants in 2015, $419,901 decrease in compensation expenses, mostly amortization of LTIP expense and $20,554 decrease in other operating expenses. A breakdown of the components of operating expenses for the nine months ended September 30, 2015 and 2014, are as follows:

Non-Operating Expenses

Interest Expenses

For the nine months ended September 30, 2015, we incurred net interest expense of $447,669 as compared to $306,107 for the nine months ended September 30, 2014, mainly from the interest payments on the mortgage on our facility in Canada, interest payments on our capital leases, and interest accrued on our related party promissory notes.

Income Tax Expenses

For the nine months ended September 30, 2015, and 2014, we had no federal taxable income due to net losses and recorded a deferred tax asset and a valuation allowance to the extent that those assets are attributable to net operating losses. We recognized the valuation allowance because we are unsure as to the ability to use these assets in the near future due to continued operating losses.

For the nine months ended September 30, 2015 and 2014, we recorded no income tax expense or future income tax expenses from continuing operations.

Net Loss

We incurred a net loss of $2,944,131 in the nine months ended September 30, 2015 as compared to a net loss of $4,182,085 in the nine months ended September 30, 2014. These losses consisted of losses from continuing operations of $2,909,718 and $4,243,554 for the nine months ended September 30, 2015 and 2014, respectively, and loss from discontinued operations of $34,413 for the nine months ended September 30, 2015 and a gain of $61,469 for the nine months ended September 30, 2014. The decrease in net loss for the nine months ended September 30, 2015 was driven mainly by the idle plant and reductions in operating expenses we realized in the current year, as discussed previously.

Liquidity and Capital Resources

At September 30, 2015, we had a cash balance of $40,508. Our principal source of liquidity in 2015 was borrowing under a related party short-term note. As discussed earlier in this MD&A, our processors are currently idle and, thus, we are not producing fuel or generating fuel sales. Furthermore, we have shifted our business strategy to focus on processor sales, rather than fuel sales. Our current cash levels are not sufficient to enable us to make the required repairs to our processors or to execute our business strategy as described in this Report. As a result, we intend to seek significant additional capital through the sale of our equity and debt securities and other financing methods to enable us to make the repairs, to meet ongoing operating costs and reduce existing current liabilities. We also intend to seek cash advances or deposits under any new processor sale agreements and/or related technology licenses. Management currently anticipates that the processors will remain idle until at least the first quarter of 2016, other than running pilot runs for sale of processors. Due to the many factors and uncertainties involved in capital markets transactions, there can be no assurance that we will raise sufficient capital to allow us to resume operations in 2015, or at all. In the interim, we anticipate that our level of operations will continue to be nominal, although we plan to continue to market our P2O processors with the intention of making P2O processor sales and technology licenses.

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

The following table provides a comparative summary of our cash flows for the nine months ended September 30, 2015 and 2014.

Cash Flow from Operations

Cash used in operations was $1,406,243 and $1,127,629 for the nine months ended September 30, 2015 and 2014, respectively. For the nine months ended September 30, 2015 and 2014, cash was mainly used to pay down balance sheet obligations, and to continue funding operating costs, including professional fees.

Cash Flow from Investing Activities

Cash used and provided in investing activities was $38,148 and $27,665, respectively, for the nine months ended September 30, 2015 and 2014. For the nine months ended September 30, 2105 and 2014, cash was mainly used to fund the Regional Recycling Center lease, which is included in discontinued operations.

Cash Flow from Financing Activities

Cash flow from financing activities was $1,305,247 and $916,406, for the nine months ended September 30, 2015 and 2014, respectively. For both nine months ended September 30, 2015 and 2014, these amounts represented proceeds received from the issuance of shares common stock and funds provided under a related party short-term note agreement.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements in the nine months ended September 30, 2015 and 2014, other than operating leases, as discussed in Note 7.

Transactions with Related Parties

At September 30, 2015, the company’s accounts payable included a $75,218 outstanding balance 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 by Heddle Marine on behalf of our 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.

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

From June 2014 to November 6, 2015, Mr. Heddle, the Company’s Chief Executive Officer, made several personal loans to the company to provide working capital. As of November 10, 2015, the current aggregate outstanding balance was $1,462,000

Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract in 2010 with a company owned by Mr. Heddle, who later (in 2014) became our CEO. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At September 30, 2015, there were no installed marine vessel processors as per the terms of the contract.

Critical Accounting Policies

The Company believes the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the financial condition and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

The Company has disclosed its accounting policies in “NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the Notes to the Condensed Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Additionally, Note 2 to the unaudited condensed consolidated financial statements included in the report provides additional updates to our Significant Accounting Policies. The following accounting policies provide an update to those included under the same captions in the Company’s Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosures About Market Risk

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

Currency Fluctuations and Foreign Currency Risk

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

Interest Rate Risk

We do not feel that we are subject to significant interest rate risk. We deposit surplus funds with banks earning daily interest at fixed rates and we do not invest in any instruments for trading purposes. Additionally, all of our outstanding debt instruments (our mortgage and capital leases) carry fixed rates of interest. We are exposed to opportunity risk should interest rates decrease. The amount of interest bearing short- term related party debt outstanding as of September 30, 2015 and December 31, 2014 was $1,311,832 and $8,850, respectively.

Credit Risk

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

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

During the nine months ended September 30, 2015 and 2014, 100.0% of total net revenues were generated from a single, and four customers respectively. As of September 30, 2015 and 2014, one and three customers, respectively, accounted for 100.0% of accounts receivable.

During the nine months ended September 30, 2015 and 2014 five suppliers accounted for 30.9% and 50.8% of accounts payable, respectively.

Inflation Risk

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer (CEO) and chief financial officer (CFO), we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2014. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures are ineffective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The following matters were deemed to be material weaknesses in the Company’s internal Controls:

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management has reported to the Board of Directors material weaknesses described under the heading Management’s Report on Internal Control over Financial Reporting” in Section 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 5. Other Information

On November 6, 2015, we entered into a third amendment (the “Third Amendment”) of our four related agreements with EcoNavigation, LLC, as described in the Company’s Current Report on Form 8-K dated January 2, 2015. The sole purpose of the Amendment was to extend the term of the pilot program from 300 days to 390 days (until January 27, 2016).

The foregoing description of the Third Amendment does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of such agreements, copies of which are filed herewith as Exhibits 10.1, 10.2, 10.3 and 10.4 and are incorporated by reference herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings affecting the Company, see the information in Footnote 8, “Commitments and Contingencies”, to the financial statements, included in Part I of this Report.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits required by this item are listed on the Exhibit Index attached hereto.

(a) Exhibits

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report has been signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.