Plastic2Oil, Inc. - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

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

For the fiscal year ended December 31, 2017

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)

20 Iroquois Street
Niagara Falls, NY 14303

(Address of Principal Executive Offices) (Zip Code)

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

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

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

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

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

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

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

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

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $2.5million as of June 30, 2017 based upon the closing price of $0.02 per share on June 30, 2017.

As of April 2, 2018, there were 124,756,158 shares of the Registrant’s common stock, $0.001 par value, outstanding.

Documents Incorporated by Reference

None

PLASTIC2OIL, INC.

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

GLOSSARY OF TECHNICAL TERMS

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

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

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

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

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

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

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

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

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

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

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

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

PART I

ITEM 1. BUSINESS

Overview

We are a technology development and licensing company. We have developed technology that converts waste plastic into ultra-clean, ultra-low sulphur fuel products through our proprietary plastic-to-oil, or P20, process. We have constructed several fully operational P2O processors to demonstrate our technology and process to potential customers. Previously, our business model was the sale of fuel produced from our own P2O processors and subsequently we sought to manufacture P2O processors for sale to commercial customers. These prior experiences allowed the Company to hone and solidify its technology, however, the attendant capital requirements management were significant. For this and other reasons, management shifted its business strategy to technology development and licensing model. We no longer produce and market fuel for sale and no longer manufacture processors ourselves, instead we rely on third party manufactures. Under our current business model, we seek to license our technology to companies that generate significant waste plastics and desire to have a P2O processor on site to convert the plastics to useable fuel for their operations. We charge our customer for the P2O processor and related equipment, a royalty fee based on the amount of fuel generated, a license fee for the use of our proprietary catalyst, and a set up and service fee.

We 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 are able to 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 are able to use this waste plastic as feedstock to produce Fuel Oil No. 2, Naphtha, and Fuel Oil No. 6 for various uses by our customers. The fuels that our P2O processors produce can be sold through two main distribution channels, fuel wholesalers and directly to commercial and industrial end-users.

At April 2, 2018, we had three fully-permitted, P2O processors at our Niagara Falls, NY facility and have the capability to produce and store the fuels at, and ship from, such facility. However, it is our strategy to license our P2O technology and know-how to license partners for their use in producing fuel for their own operations directly from the waste plastics that such licensees generate from their own operations.

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

For financial reporting purposes, we operate in two business segments, (i) our P2O business, which manufactures and sells processors, and sells fuel produced by our processors and (ii) data storage and recovery (the “Data Business”). As part of our P2O business segment, we began to offer for sale built-to-order P2O processors for use at a customer’s site. Previously, we operated a chemical processing and cleaning business, known as Pak-It and a retail and wholesale distribution business known as Javaco, Inc. As of December 31, 2012, we had exited both of these businesses and their results in all periods presented are classified as discontinued operations. As of March 2, 2018, we exited the Data Business. We anticipate that our P2O business will account for a majority of our revenues in 2018 and periods thereafter. In the year ended December 31, 2017, we had no sales. In the year ended December 31, 2016, we had total sales of approximately $21,950, of which $0 were derived from our P2O business and $21,950 were derived from our Data Business.

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

Organizational History

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

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

On August 24, 2009, the Company acquired Javaco, Inc. (“Javaco”), a distributor of electronic components, including home theater and audio video products. On July 9, 2012, we announced the closure of our Javaco operations and sold substantially all of its assets to an unrelated third party. In July 2012, the Company closed Javaco and sold substantially all its inventory and fixed assets. There were no operations in Javaco during 2016 and the remaining liabilities have been classified as discontinued operations for all periods presented (See Note 16).

In September 2009, the Company acquired Pak-It, LLC (“Pak-It”). Pak-It operated a bulk chemical processing, mixing, and packaging facility. It also developed and patented a delivery system that packages condensed cleaners in small water-soluble packages. . On February 10, 2012, we sold substantially all the assets of Pak-It. There were no operations in Pak-It during 2016, and the remaining liabilities were classified as discontinued operations for all periods presented (See Note 16).

In December 2010, the Company entered into a twenty year lease for a recycling facility in Thorold, Ontario. During the period ended December 31, 2013, the Company determined that it would no longer operate the facility and shut down all operations. The assets and operations related to the recycling facility have been reclassified as discontinued operations for all periods presented (See Note 16 to the Consolidated Financial Statements included herein). The property was vacated on November 10, 2015 and the lease was terminated on January 15, 2016 effective October 31, 2015.

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

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

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

Organizational Chart

The following chart outlines our corporate structure, as of April 2, 2018, and identifies the jurisdiction of organization of each of our material subsidiaries. Each material subsidiary is wholly-owned by the company.

P2O Overview 

We are a technology development and licensing company. We have developed technology that converts waste plastic into ultra-clean, ultra-low sulphur fuel products through our proprietary plastic-to-oil, or P20, process. We have constructed several fully operational P2O processors to demonstrate our technology and process to potential customers. Previously, our business model was the sale of fuel produced from our own P2O processors and subsequently we sought to manufacture P2O processors for sale to commercial customers. These prior experiences allowed the Company to hone and solidify its technology, however, the attendant capital requirements management were significant. For this and other reasons, management shifted its business strategy to technology development and licensing model. We no longer produce and market fuel for sale and no longer manufacture processors ourselves, instead we rely on third party manufactures. Under our current business model, we seek to license our technology to companies that generate significant waste plastics and desire to have a P2O processor on site to convert the plastics to useable fuel for their operations. We charge the company for the P2O equipment, a royalty fee based on the amount of fuel generated, a license fee for the use of our proprietary catalyst, and a set up and service fee.

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 are able to 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 are able to use this waste plastic as feedstock to produce Fuel Oil No. 2, Naphtha, and Fuel Oil No. 6 for various uses by our customers. Fuels our P2O processors produce can be sold through two main distribution channels, fuel wholesalers and directly to commercial and industrial end-users.

During the years ended December 31, 2017 and 2016, neither manufacturing nor sales activity took place. We plan to grow mainly from sale of P2O equipment, a royalty fee based on the amount of fuel generated, a license fee for the use of our proprietary catalyst, and a set up and service fee. We continue seeking opportunities to execute on our business strategy with the goal of becoming a leading North American company whose technology transforms waste plastic into ultra-clean, ultra-low sulphur fuel. We have years of operating data and have solved numerous challenges that vexed the plastics-to-oil industry. Since inception we have produced approximately 670,000 gallons of fuel. Our P2O processors have evolved into a modular solution with the completion of our third P2O processor in 2013. We use third party contract manufacturers to supply us with many of the key modular components of our processors, including the kilns, distillation towers and other key components that require specialized machining and fabrication.

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

We shut down our fuel production late in the fourth quarter of 2013 due to severe cold weather that caused damage to condensers and other components of our processors and we have not resumed fuel production due to the repair costs as well as our shift in strategy toward manufacturing processors for sale, as opposed to producing and selling fuel products. Management estimates that the repair of the processors will require the expenditure of between $275,000 and $300,000. An additional $500,000 of startup working capital will be required to resume operations mainly for hiring operational personnel and incremental overhead expenses. At April 2, 2018, we lacked the working capital or access to bank credit to make these repairs. We are reviewing our financing options, including the sale of shares of our common stock or other securities, in order to allow us to obtain sufficient funds to make the required repairs and resume pilot operation of our processors to support processor sales. These processors were idle for all of 2017 and 2016. Management currently anticipates that the processors will remain idle other than pilot, or demo runs to support processor sales. During the idle period, we have significantly reduced our headcount by furloughing our operations personnel but retained a small team to perform general repairs and maintenance on the processors. Once the processors are fully operational, we expect a small increase in our headcount in order to resume fuel production for pilot or demo purposes.

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

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

P2O Process and Operations

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

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

Processor Input

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

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

Processor Output

We are currently permitted to feed two tons, or 4,000 pounds, of waste plastic per hour into each processor by a continuous conveyor belt where it is heated by a burner that mainly burns off-gases produced from the P2O process. Plastic hydrocarbons are cracked into various shorter hydrocarbon chains and exit in a gaseous state. Any residue, metals and or non-usable substances remain in the reactor and are periodically removed. Through our proprietary process, Fuel Oil No. 6, Fuel Oil No. 2, and Naphtha are condensed from the reactor through the remainder of the process. The fuel output is then transferred to storage tanks automatically by the system. Our process is mainly operated by an automated computer system that controls the conveyor feed rate, system temperatures, off-gas systems and the pumping out of newly created fuel to storage tanks. The plastic to liquid fuel conversion is approximately 86% by weight. Therefore, twenty tons of plastic can be processed into approximately 4,100 gallons of fuel. At April 2, 2018, we had three processors at our Niagara Falls, NY facility. One processor was dedicated to research and development and all three processors remained idle due to maintenance and repair issues.

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

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

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

Feedstock

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

Fuel Products

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

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

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

P2O Facilities

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

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

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

Sales and Distribution

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

Historically, we have sold our fuel products through two main channels: fuel brokers and direct to end-users. During the years ended December 31, 2017 and 2016, we had no fuel sales.

Suppliers

The principal goods that we require for our P2O business are the waste plastic that we use as feedstock for production of our fuels. We collect waste plastics from commercial and industrial businesses that generate large amounts of this waste stream. As of April 2, 2018, we had approximately 327,000 pounds of waste plastic and approximately 10,000 gallons of heat transfer fluid available in inventory as feedstock for operations once operations are resumed.

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

During the years ended December 31, 2017 and 2016, two and four suppliers, respectively, accounted for 34.3% and 28.3% of accounts payable, respectively.

Licenses, Permits and Testing

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

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

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

¹ “ppm” means parts per million

Industry Background

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

Competition

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

Business Model

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

Business Strategy

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

Marketing Strategy

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

Manufacturing and Procurement Strategy

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

Competitive Strengths

We believe that our competitive strengths are as follows:

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

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

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

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

Lower emissions

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

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

Validation of repeatability and scalability of P2O processors.

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

Other Businesses

Data Recovery & Migration

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

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

The process for data recovery was developed and is very highly dependent on the services of Mr. Bordynuik. The Data Business’s reliance on Mr. Bordynuik was a key driver to achieving revenue in 2016. On March 2, 2018 the Data Business including the U.S. patent related to our Data Business was sold to 2335524Ontario Inc., a company owned by Mr. Bordynuik. (See note 17)

Intellectual Property

To ensure the protection of our proprietary technology, we have applied for patent protection for both the P2O process and P2O processor. As of April 2, 2018, we have pending two United States and one Canadian applications. A lack of patent protection could have a material adverse effect on our ability to gain a competitive advantage for our process and processors, since it is possible that our competitors may be able to duplicate the P2O process for their own purposes. We also rely on our trade secrets to provide protection from portions of our process and proprietary catalyst.

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

We also hold three United States trade marks and are as follows:

(1) The standard character mark P2O®

(2) Miscellaneous design

(3) The standard character mark Plastic2Oil®

Research and Development

Given our strategic focus on developing our P2O business, we anticipate that our research and development activities related to our P2O processors and the construction, operation and systems management of those processors will decrease. Specifically, we will seek to increase the operational capabilities and performance of our P2O processors as opportunities arise. Research and development expenditures was $0 in 2017 and 2016.

Employees

As of April 2, 2018, we employed three and one half persons on a full-time equivalent basis, of which one were executive management, one and one half were in finance and administration, one were in operations. None of our employees are subject to a collective bargaining agreement and we believe that our labor relations are good.

Environmental and Other Regulatory Matters

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

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

Company Information

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

ITEM 1A. RISK FACTORS

Not Applicable

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable

ITEM 2. PROPERTIES

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

1. Corporate Office and Niagara Falls, NY facility

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

2. Fuel Blending Facility

We own approximately six acres of land in Thorold, Ontario, Canada where we have the capability to operate our fuel blending tanks facility with a 250,000 gallon capacity. When active, the idle fuel-blending facility gives us the capability to store, blend,analyze and self-certify the fuels produced from the P2O process. The facility was not in use during 2017 and 2016. We own the property and have no mortgage debt outstanding in relation to this facility.

3. Thorold, Ontario, Canada Office Building

We owned approximately 21,000 square feet in Thorold, Ontario, consisting of 5,000 square feet of office space and 16,000 square feet of warehousing and storage space, which serves as storage for our company as well as offsite IT operations. This property has a mortgage securing approximately $206,910 of debt. On March 31, 2017, the Company sold this land and building located at 1783 Allanport Road, Thorold, Ontario for a gain of approximately $254,000. The proceeds were used towards repayment of the outstanding mortgage, real estate taxes and closing costs. This asset was classified as property plant and equipment, net- held for sale in the consolidated balance sheet at December 31, 2016.

ITEM 3. LEGAL PROCEEDINGS

As of December 31, 2017, the Company was involved in litigation and claims which arise from time to time in the normal course of business. In the opinion of management, based upon the information and facts known to them, any liability that may arise from such contingencies would not have a material adverse effect on the consolidated financial statements of the Company.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

PART II

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

Market Information

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

Holders

The last sales price of our common stock as reported by the OTC Market on March 29, 2018 was $0.03 per share.

On April 2, 2018, there were 450 holders of record of our common stock, $0.001 par value per share.

As of April 2, 2018, we had issued and outstanding 124,756,158 shares of common stock, $0.001 par value per share.

Dividend Policy

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

Recent Sales of Unregistered Securities

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

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth certain information as of December 31, 2017 with respect to equity compensation plans under which the Company’s common stock may be issued.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

ITEM 6. SELECTED FINANCIAL DATA

Not Applicable.

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

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

Business Overview

For the twelve months ended December 31, 2017 and 2016, the Company has no P2O revenue. The Company’s P2O processors were idle for all of 2016 and 2017. The Company’s data storage and recovery business was idle during the twelve months ended December 31, 2017 and had revenue of $21,950 for the twelve months ended December 31, 2016.

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

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 P2O processors and (ii) data storage and recovery (the “Data Business”). On March 2, 2018, we exited the Data Business; it was sold to 2335524 Ontario Inc. As of this filing date of the report, all three of our fully-permitted P2O processors were idle and not producing fuel products. In light of the change in our business model, management has determined that it only requires an operational processor to demonstrate the Company’s technology. Thus, our processors are likely to remain idle or incomplete, as applicable. 

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

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

Plastic2Oil Business

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

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

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

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

In 2017, we substantially reduced the Company’s monthly cash burn rate as a result of actions taken in 2015 and 2016, which resulted in a $281,582 reduction of operating expenses for the twelve months ended December 31, 2017. We continue to monitor our operating expenses closely and exploring every avenue, including the March 31, 2017 sale of vacant land and building we own in Thorold, Canada and also seeking to rent the idle blending facility to a qualified independent operator.

Our 2017 and 2016 financing activities came from cash raised through short-term loans from our CEO, related party strategic investors and non-related party strategic investors. Some of these investors have experience in systems integration and we believe that their engineering and operations experience will be instrumental towards delivery, set-up and sale of the P2O processors through commercials partnerships.

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

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

On December 21, 2017, we executed a Master Agreement (the “Master Agreement”) with Veridisyn Technologies, LLC, a company engaged in processing waste plastics (the “Customer”), pursuant to which the Customer agreed to purchase all of its requirements for the catalyst and processors for its plastic-to-oil (P2O) operations from the Company and to license from the Company certain related P2O technology. The Master Agreement was executed pursuant to the Company’s previously disclosed Memorandum of Understanding with a then un-disclosed party.

Under the Master Agreement, the Customer agreed to submit purchase orders for six processors during the first three years of the Master Agreement, two of which shall be ordered within the first one hundred twenty days of executing the Master Agreement. The purchase price of the P2O processors will be $2 million for each of the initial two processors and $3 million for each subsequent processor. In connection with the sale of processors, the Company agreed to provide certain monitoring and technical support services. In addition, as consideration for the non-exclusive license of certain P2O technology, The Customer agreed to pay the Company a royalty fee of 5% of gross sales of fuel products by the Customer or its customers. The Company granted the Customer a right of first refusal to purchase P2O processors for facilities to be developed in certain southern U.S. States. This could lead to purchase of two processors in 2018, although there can be no assurance as negotiations remain ongoing.

Through years of testing and refinement in conjunction with our outside engineering firm, we are considering bringing our flagship processor #3 back online in late 2018. It will be important to be able to demonstrate the commercial viability of this processor by regular (pilot) operations at our Niagara Falls plant to potential customers. Of primary influence to our decision to expand our sales efforts and to bring the flagship processor #3 back on line is our view based on analysis and consultation that oil prices have reached a bottom and could rise and stay above $50 a barrel by the end of the 2018.

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

Internal Changes

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

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

2. Plastics2Oil owns a fully permitted fuel blending facility in Thorold, Canada. Regional demand justifies bringing the facility back on line with intentions to lease or sell the idle blending facility to a qualified independent operator.

3. P2O will continue to draw support from our loyal shareholder base that includes individuals with impressive business credentials, experience and acumen. In 2016 P2O raised secured debt financing from investors with systems integration and operations experience who can partner with P2O in the delivery, set-up and sale of P2O Processors. Valuable strategic suggestions have been offered and are being evaluated. P2O is also considering making important additions to support the 2018 sales and marketing initiatives. This will require a project management team and P2O may also require an ancillary advisory board.

Data Recovery & Migration Business

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

Listing on the OTCQB

On April 2, 2018, we had 124,756,158 shares of common stock issued and outstanding. Our common stock is currently trading on the OTCQB marketplace in the United States of America under the stock ticker symbol “PTOI.” On March 30, 2018, the last trading day prior to the date of this filing, the closing price of the common stock on the OTCQB was $0.0X.

Sources of Revenues and Expenses

Revenues

In 2017, we did not derive revenue from our either P2O business or Data Business.

Cost of Sales

We did not incur cost of sales in 2017 or 2016. Costs of Sales for P2O when operating 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:

Other Income (Expense)

In 2017, other income of $87,771 consisted mainly of $935,902 of interest expenses on short-term loans and secured debt,$13,1580 impairment loss of property plant and equipment, $255,676 gain on disposable of the 1783 Allanport Road land and building and $779,287 income from the Glenny and Maskell settlement.

In 2016, other expense of $3,870,189 consisted mainly of our $3,088,314 impairment of deposits, property, plant and equipment, and interest expenses on short term loans and secured debt of $780,675.

Results of Operations – Year ended December 31, 2017 compared to Year ended December 31, 2016

Revenue

As we only recently shifted our business strategy to selling fuel processors, we did not derive any revenue from processor sales in 2017 or 2016. However, we earned 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 fuel production in the year ended December 31, 2017 and 2016. Consequently, there was neither fuel shipment nor fuel revenue. The lack of fuel revenue for these years was mainly due to management’s decision to shut down its production in the fourth quarter of 2013 due to the severe cold weather that caused damage to condensers and other components of our processors and the lack of operating cash. The damage requires substantial working capital for general repairs and replacement of damaged condensers. These processors were idle for all of 2017 and 2016, and are currently idle.

Cost of Goods Sold & Total Gross Profit

As indicated earlier, we had no fuel produced in 2017 and 2016. The following tables are a breakdown of the costs of goods sold and Total Gross Profit:

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

Operating Expenses

We incurred operating expenses of $1,561,776 during the year ended December 31, 2017, compared to $1,843,358 for the year ended December 31, 2016. This $281,582 decrease was driven by a $215,958 increase in professional fees (from legal fees incurred in the recovery of $779,287 from the Glenny & Maskell class action suit ), a $30,330 reduction in wages from less full-time equivalent (FTE) employees, $84,923 reduction of additional operational expenses from cost management and $382,287 from reduction in depreciation and accretion expenses. For the years ended December 31, 2017 and 2016 compensation expense includes $163,170 and $120,667 for shares of common stock issued for services. A breakdown of the components of operating expenses for the fiscal years ended December 31, 2017 and 2016, are as follows:

Non-Operating Expenses

Interest Expenses

For the year ended December 31, 2017, we incurred net interest expense of $935,902 as compared to $780,675 for the year ended December 31, 2016.

Income Tax Expenses

For the years ended December 31, 2017, and 2016, we had no federal taxable income due to net losses and recorded a deferred tax asset and a valuation allowance to the extent that those assets are attributable to net operating losses. We recognized the valuation allowance because we are unsure as to the ability to use these assets in the near future due to continued operating losses.

For the years ended December 31, 2017 and 2016, we incurred $0 current income tax or future income tax expenses from continuing operations.

Net Loss

We incurred a net loss of $1,474,005 for the year ended December 31, 2017 as compared to a net loss of $5,700,035 for the year ended December 31, 2016. The primary reason for the decrease in net loss were from a $215,958 increase in professional fees (from legal fees incurred in the recovery of $779,287 from the Glenny & Maskell class action suit ), a $30,330 reduction in wages from less full-time equivalent (FTE) employees, $84,923 reduction of additional operational expenses from cost management ,$382,287 from reduction in depreciation and accretion expenses and $$3,075,157 decrease in impairment loss. In 2017, other income of $87,771 consisted mainly of $935,902 of interest expenses on short-term loans and secured debt, a $13,158 impairment loss of property plant and equipment. A $255,676 gain from sale of land and building and a $779,287 income from the settlement of the class action suit. In 2016, other expense of $3,870,189 consisted mainly of our $3,088,314 impairment of deposits, property, plant and equipment, and interest expenses on short term loans and secured debt $780,675.

Liquidity and Capital Resources

We do not have sufficient cash to operate our business which has forced us to suspend our operations until such time as we receive a capital infusion or cash advances on the sale of our processors. We intend to source additional capital through the sale of our equity and debt securities and other financing methods. We plan to use the cash proceeds from any financing to complete the repairs on Processors #3 to resume production of fuels for pilot runs and customer demonstrations. At December 31, 2017, we had a cash balance of $172,286. Our principal sources of liquidity in 2017 was from the sale of the property located at 1783 Allanport Road, Thorold, Ontario, Canada and proceeds from the settlement of the Glenny and Maskell (Canadian Insurance Broker) lawsuit. Our principal sources of liquidity in 2016 were the proceeds from the related party short-term loans from our chief executive officer, and proceeds from the sale of related –party and non-related party secured long –term debt.

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

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

The following table provides a comparative summary of our cash flows for the fiscal years ended December 31, 2017 and 2016.

Cash Flow from Operations

Cash used in operations was $184,424 and $830,480 for the years ended December 31, 2017 and 2016, respectively. In 2017 and 2016 cash was mainly used to continue funding the minimum operating costs. In 2017, the Glenny and Maskell settlement provided cash in the amount of $524,010, net of legal expenses.

Cash Flow from Investing Activities

Cash used in investing was $101 for the years ended December 31, 2017 and 2016 and was attributable to restricted cash.

Cash Flow from Financing Activities

Cash flow from financing activities was $85,913, and $1,082,991, for the years ended December 31, 2017 and 2016, respectively. For 2017 and 2016, these amounts were mainly driven by the proceeds sale of property in Ontario, Canada, Glenny Maskell settlement and amounts received from short-term notes from related parties

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements in the years ended December 31, 2017 and 2016, other than operating leases, as discussed in Note 8.

Transactions with Related Parties

From June 2014 to December 31, 2017, Mr. Richard Heddle, the Company’s President and Chief Executive Officer, made several personal loans to the company to provide working capital. As of December 31, 2017 and December 31, 2016, the aggregate outstanding balance, including accrued interest at 4% per annum, was 1,969,121 and $1,695,926, respectively. (See Note 6).

From January 2016 to December 31, 2017, Mr. Heddle made several personal loans to the company to provide working capital. At December 31, 2017 and December 31, 2016, the aggregate outstanding balance, including accrued interest at 12% per annum, was $588,651 and $567,402, respectively. (See Note 6).

At December 31, 2017 the Company’s accounts payable and accrued expenses included a $132,217 (adjusted for currency fluctuation) outstanding balance due to Heddle Marine Services, a business controlled by Mr. Heddle. The amounts payable arose from payments made in 2014 by Heddle Marine on behalf of the company to a logistics company to transport fuel from the Niagara Falls site to the blending tanks at our facility in Thorold, Ontario, as well as for labor and material provided by Heddle Marine towards upkeep of our Canadian facilities including 2015 cleanup costs incurred in order to terminate the lease with Avondale properties on the discontinued RRON Operation. In addition, in 2016, $12,500 was paid for feedstock analysis to a business in which Mr. Heddle holds a material financial interest.

On August 24, 2016, the Company issued to Hilander Limited, a business controlled by Mr. Jason Aspin, presently one of the Company’s directors, a $100,000 Secured Promissory Note 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. On October 12, 2017, Mr. Aspin was appointed a Board member of the Company. As of December 31, 2017 and December 31, 2016, the aggregate outstanding balance, including accrued interest at 12% per annum, was 115,276 and $102,368, respectively. (See Note 6).

On October 18, 2016. the Company issued to Atlantic Advances Power Technologies, a business controlled by Mr. Aspin, a $400,000 Secured Promissory Note 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. Mr. Aspin was appointed a Board member of Plastic2Oil, Inc. As of December 31, 2017 and December 31, 2016, the aggregate outstanding balance, including accrued interest at 12% per annum, was $443,757 and $389,847, respectively. (See Note 6).

Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating, entered into a consulting service contract in 2010 with a company owned by Mr. Heddle, who later (in 2014) became the Company’s Chief Executive Officer. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. At December 31, 2017, there were no installed marine vessel processors pursuant to the contract.

Critical Accounting Policies

Basis of Consolidation

The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, Plastic2Oil (Canada) Inc., JBI CDE Inc., Plastic2OilI Re One Inc., and JBI Re #1 Inc., Plastic2Oil of NY #1, and Plastic2Oil Marine Inc. The results of Javaco and Pak-It are consolidated and classified as discontinued operations for all periods presented. (Note 16) All of our intercompany transactions and balances have been eliminated on consolidation. Amounts in the consolidated financial statements are expressed in U.S. dollars.

Estimates

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

Cash and Cash Equivalents

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

Restricted Cash

At December 31, 2017 and December 31, 2016 the Company had $100,524 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 invoices up to ninety days, depending on the customer. Accounts receivable are non-interest bearing and are stated at the amounts billed to the customer net of an allowance for uncollectible accounts. Customer balances with invoices over 90 days old are considered delinquent. Payments of accounts receivable are applied to the specific invoices identified on the customer remittance, or if unspecified, are applied to the earliest unpaid invoice.

The allowance for uncollectible accounts reflects management’s best estimate of amounts that may not be collected based on an analysis of the age of receivables and the credit standing of individual customers. The allowance for uncollectible accounts for December 31, 2017 and December 31, 2016 was $0 and $23,785, respectively.

Inventories

Inventories, which consist primarily of plastics, costs to process the plastic and processed fuel are stated at the lower of cost or market. We use an average costing method in determining cost. Inventories are periodically reviewed for use and obsolescence, and adjusted as necessary. As of December 31, 2017 and 2016, reserves for obsolescence were $412,128.

Property Plant and Equipment

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

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

Construction in Process

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

Impairment of Long-Lived Assets

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

As of December 31, 2017 and 2016, we recorded impairment losses of $13,158 and $3,088,314, respectively. The charge in 2017 relates specifically to the sale of the property at 1783 Allanport Road, Thorold, Ontario, Canada. The charge in 2016 relates specifically to Deposits for Processor #4 and #5, Processor #3 and construction in process parts and spare parts used in Processor #3 and #2 respectively.

Asset Retirement Obligations

The fair value of the estimated asset retirement obligation is recognized in the consolidated balance sheets when identified and a reasonable estimate of fair value can be made. The asset retirement cost, equal to the estimated fair value of the asset retirement obligation, is capitalized as part of the cost of the related long-lived asset. The balance of the asset retirement obligation is determined through an assessment made by the Company’s engineers, of the total costs expected to be incurred by the Company when closing a facility. The total estimated cost is then discounted using the current market rates to determine the present value of the asset as of the date of this valuation. As of the date of the creation of the asset retirement obligation in the amount of $57,530, the Company determined the present value of the obligation using a discount rate equal to 2.96%. The present value of the asset retirement obligation is then capitalized on the consolidated balance sheets and is depreciated over the asset’s estimated useful life and is included in depreciation and accretion expense in the unaudited condensed consolidated statements of operations. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligations in the unaudited condensed consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation. The December 31, 2017 and 2016 assessment, amounted to a net increase of $0 and $23,000, respectively. As of December 31, 2017 and December 31, 2016, both the carrying value of the asset retirement obligations were $64,000.These costs include disposal of plastic and other non-hazardous waste, site closing labor and testing and sampling of the site upon closure. This liability is included in other long-term liabilities.

Environmental Contingencies

The Company records environmental liabilities at their undiscounted amounts on our consolidated balance sheets as other current or long-term liabilities when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. These costs may be discounted to reflect the time value of money if the timing of the cash payments is fixed or reliably determinable and extends beyond a current period. Estimates of our liabilities are based on currently available facts, existing technology and presently enacted laws and regulations, taking into consideration the likely effects of other societal and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediating contaminated sites, other companies’ clean-up experience and data released by the Environmental Protection Agency (EPA) or other organizations. Our estimates are subject to revision in future periods based on actual costs or new circumstances. We capitalize costs that benefit future periods and we recognize a current period charge in operation and maintenance expense when clean-up efforts do not benefit future periods.

We evaluate any amounts paid directly or reimbursed by government sponsored programs and potential recoveries or reimbursements of remediation costs from third parties including insurance coverage separately from our liability. Recovery is evaluated based on the creditworthiness or solvency of the third party, among other factors. When recovery is assured, we record and report an asset separately from the associated liability on our balance sheet. No amounts for recovery have been accrued to date.

Deposits

Deposits represent utility services deposit and payments made to vendors for fabrication of key pieces of property, plant and equipment that have been made in accordance with the Company’s agreements to purchase such equipment. Payments are made to these vendors as progress is made on the fabrication of the equipment, with final payments made when the equipment is delivered. Until we have possession of the equipment, all payments made to these vendors are classified as deposits on assets. As at December 31, 2017 and December 31, 2016, the carrying value of the deposits were $10,000 and $27,662 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.

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

Shipping and Handling Costs

The Company’s shipping and handling costs of $0 and $0 for the years ended December 31, 2017 and 2016, 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 $0 and $0 for the years ended December 31, 2017 and 2016, respectively. These expenses are included in selling, general and administrative expenses in the consolidated statements of operations.

Research and Development

Research and development costs are charged as operating expense of the Company as incurred. For the years ended December 31, 2017, and 2016, the Company did not expense any research and development costs.

Foreign Currency Translation

The consolidated financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830. All monetary items have been translated using the exchange rates in effect at the balance sheet date. All non-monetary items have been translated using the historical exchange rates at the time of transactions. Income statement amounts have been translated using the average exchange rate for the year. Foreign exchange gain of $57,301 and loss of $100 for monetary items are included as general and administrative expenses in the condensed consolidated statements of operations for the twelve months ended December 31, 2017 and 2016, respectively. The 2017 foreign exchange gain results from the payoff of the 1783 Allanport property mortgage. Resulting differences are reflected in accumulated other comprehensive income in the accompanying consolidated balance sheets.

Income Taxes

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

The Company adopted the accounting standards associated with uncertain tax positions as of January 1, 2007. The adoption of this standard did not have a material impact on the Company’s consolidated statements of operations or financial position. Upon adoption, the Company had no unrecognized tax benefits. Furthermore, the Company had no unrecognized tax benefits at December 31, 2017 and 2016. The Company files tax returns in the U.S. federal and state jurisdictions as well as a foreign country. The years ending December 31, 2013 through December 31, 2017 are open tax years for IRS review.

Loss Per Share

The financial statements include basic and diluted per share information. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Common stock equivalents are excluded from the computation of diluted loss per share when their effect is anti-dilutive. For the year ended December 31, 2017, potential dilutive common stock equivalents consisted of 4,850,000 shares underlying common stock warrants and 6,580,000 shares underlying stock options, which were not included in the calculation of the diluted loss per share because they would be antidilutive. For the year ended December 31, 2016, potential dilutive common stock equivalents consisted of 14,950,000 shares underlying common stock warrants and 6,650,000 shares underlying stock options, which were not included in the calculation of the diluted loss per share because they would be antidilutive.

Segment Reporting

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

Concentrations and Credit Risk

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

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

There were no revenue and accounts receivable for the year ended December 31, 2017. During the years ended December 31, 2016, 100% of total net revenues were generated from a single customer and segment, Data Business. As of December 31, 2016, one customer and segment, Data Business, accounted for 100.0% of accounts receivable.

During the years ended December 31, 2017 and 2016 two and four suppliers, respectively, accounted for 34.3% and 28.4% of accounts payable, respectively.

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

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have experienced negative cash flows from operations since inception, have a history of net losses from continuing operations of $51,474,005 and $5,700,035 for the years ended December 31, 2017 and 2016, respectively, and have an accumulated deficit of $79,418,137 at December 31, 2017. These factors raise substantial doubt about our ability to continue to operate in the normal course of business. We have funded our activities to date almost exclusively from equity financings and issuance of secured long-term debt.

Financial Instruments and Other Instruments

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

Disclosure of Outstanding Securities

As of April 2, 2018, we had 124,756,158 shares of common stock issued and outstanding.

In conjunction with the Company’s 2012 Long Term Incentive Plan, options to purchase 1,040,000 shares of common stock with the exercise price of $1.50, 240,000 shares of common stock with the exercise price of $0.38, 3,100,000 shares of common stock with the exercise price of $0.05 have been issued and outstanding at December 31, 2017.2,380,000 shares are vested at December 31, 2017.

In conjunction with the Company’s 2016 Incentive Plan (Rahoul S Banerjea) , options to purchase 2,250,000 shares of common stock with the exercise price of $0.17. 2,250,000 of the shares are vested at December 31, 2016.

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosures About Market Risk

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

Currency Fluctuations and Foreign Currency Risk

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

Interest Rate Risk

We do not feel that we are subject to significant interest rate risk. We deposit surplus funds with banks earning daily interest at fixed rates and we do not invest in any instruments for trading purposes. Additionally, all of our outstanding debt instruments (our mortgage and capital leases) carry fixed rates of interests. We are exposed to opportunity risk should interest rates decrease. The amount of interest bearing short-term debt outstanding as of December 31, 2017 and 2016 was $2,557,772 and $2,263,328 respectively.

Credit Risk

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

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

There were no revenue and accounts receivable for the year ended December 31, 2017. During the years ended December 31, 2016, 100% of total net revenues were generated from a single customer and segment, Data Business. As of December 31, 2016, one customer and segment, Data Business, accounted for 100.0% of accounts receivable.

During the years ended December 31, 2017 and 2016 two and four suppliers, respectively, accounted for 34.3% and 28.4% 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Plastic2Oil, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Plastic2Oil, Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes to the consolidated financial statements (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two- year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 7 to the consolidated financial statements, the Company has incurred operating losses, has incurred negative cash flows from operations and has a working capital deficit. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 7 to the financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

D. Brooks and Associates CPA’s, P.A.

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

Palm Beach Gardens, Florida

April 2, 2018

D. Brooks and Associates CPA’s, P.A. 4440 PGA Boulevard Suite 104, Palm Beach Gardens, FL 33410 – (561) 429-6225

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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

Plastic2Oil, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

Years Ended December 31, 2017, and 2016

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

(Continued next page)

Plastic2Oil, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

Years Ended December 31, 2017, and 2016