Plastic2Oil, Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended

September 30, 2019

or

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)

(716)-278-0015

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

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

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

As of December 16, 2019, there were 124,756,158 shares of the Registrant’s common stock, $0.001 par value, outstanding.

PLASTIC2OIL, INC.

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

These statements are based on and were developed using a number of factors and assumptions including, but not limited to: stability in the U.S. and other foreign economies; stability in the availability and pricing of raw materials, energy and supplies; stability in the competitive environment; 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.

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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Nine Months Ended September 30, 2018

(Unaudited)

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Nine Months Ended September 30, 2019

(Unaudited)

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30,

(Unaudited)

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

PLASTIC2OIL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ORGANIZATION AND GOING CONCERN

Plastic2Oil, Inc. (the “Company” or “P2O”) was originally incorporated as 310 Holdings, Inc. (“310”) in the State of Nevada on April 20, 2006. 310 had no significant activity from inception through 2009. On April 24, 2009, the Company’s founder, former CEO and Chief of Technology, John Bordynuik, purchased 63% of the issued and outstanding shares of 310. During 2009, the Company changed its name to JBI, Inc. and began operations of its main business operation, transforming waste plastics to oil and other fuel products. During 2014, the Company changed its name to Plastic2Oil, Inc. P2O is a combination of proprietary technologies and processes developed by P2O, which convert waste plastics into fuel. P2O currently, as of the date of this filing, has two processors at its Niagara Falls, NY facility (the “Niagara Falls Facility”). Both processors are currently idle, and have been, since December 2013. Our P2O business has begun the transition from research and development to a commercial manufacturing and production business. In the short term, we plan to grow mainly by attempting to re-initiate production by processing fuel, selling processors with a royalty arrangement, licensing technology, and or searching out other revenue generating activities related to the use of our proprietary technology. Longer term, we plan to search out other opportunistic options to fully utilize all of the underlying assets of the Company.

Going Concern

Currently, we do not have sufficient cash to operate our business, which has forced us to suspend our operations until we receive a capital infusion or cash advances on the sale of our processors. We are currently attempting to raise capital through the sale of assets and or through other means including the use of debt and or equity and equity equivalents that will allow us to re start the production of fuel and provide working capital for the Company.

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates continuation of the Company as a going concern, which assumes the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has experienced net losses from continuing operations of $1,406,087, and $1,624,896, for the nine months ended September 30, 2019, and 2018, respectively. At September 30, 2019, the Company had a net working capital deficit of $16,001,931, and an accumulated deficit of $83,601,716. These factors raise substantial doubt about the Company’s ability to continue as a going concern and to operate in the normal course of business. The Company has funded its activities to date almost exclusively from equity financings and loans from related parties. For the years ended December 31, 2018 and 2017, the Company’s auditors included a going concern opinion in its report on the Company’s audited financial statements for such periods.

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

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue in existence.

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES

Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Plastic2Oil of NY#1 Inc., Plastic2Oil (Canada) Inc., JBI CDE Inc., Plastic2Oil Re One Inc., JBI Re #1 Inc.. The following companies are inactive- Plastic2Oil Marine Inc., Javaco, and Pak-it. All intercompany transactions and balances have been eliminated in consolidation. Amounts in the consolidated financial statements are expressed in US dollars.

Interim Disclosure

In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, which are considered necessary for a fair presentation of the results for the periods presented. These condensed consolidated financial statements are presented in considerably less detail than complete financial statements that are intended to present financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. For this reason, they should be read in conjunction with the entity’s most recent complete financial statements included in its annual report for the year ended December 31, 2018 on Form 10-K filed with the Securities and Exchange Commission (the SEC) on June 4, 2019 that include all the disclosures required by generally accepted accounting principles.

Estimates

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

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. The Company held no cash equivalents at September 30, 2019 or December 31, 2018.

Property, Plant and Equipment

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

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

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.

During the nine months ended September 30, 2019 and 2018, the Company did not record any impairment losses on property, plant and equipment.

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 $58,363, the Company determined the present value of the obligation using a discount rate equal to 2.96%. The present value of the asset retirement obligation is then capitalized in the condensed consolidated balance sheets and is depreciated over the asset’s estimated useful life and is included in depreciation and accretion expense in the condensed consolidated statements of operations. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligations in the condensed consolidated statements of operations. Actual expenditures incurred are charged against the accumulated obligation. As of September 30, 2019 and December 31, 2018, the carrying value of the asset retirement obligations was $69,424 and $67,897, respectively. These costs include disposal of plastic and other non-hazardous waste, site closing labor, testing, and sampling of the site upon closure.

Environmental Contingencies

The Company records environmental liabilities at their undiscounted amounts on its 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. The company 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, the company records and reports an asset separately from the associated liability on our balance sheets. No amounts for recovery have been accrued to date.

Foreign Currency Translation

The condensed consolidated financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830. All monetary items have been translated using the exchange rates in effect at the balance sheet date. All non-monetary items have been translated using the historical exchange rates at the time of transactions. Income statement amounts have been translated using the average exchange rate for the year. There were no material foreign exchange gains or losses that are included in the condensed consolidated statements of operations for the nine months ended September 30, 2019 and 2018, respectively.

Income Taxes

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

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. To date, the Company has not been assessed, nor paid, any interest or penalties.

Stock-Based Compensation

Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation,” which requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. Additionally, the Company has elected to recognize forfeitures as they occur as prescribed by ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company adopted ASU No. 2018-07 during the three-month period ended September 30, 2019 when it issued options to nonemployees (see Note 10).

Loss Per Share

The financial statements include basic and diluted per share information. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. Common stock equivalents are excluded from the computation of diluted loss per share when their effect is anti-dilutive. For the three and nine months ended September 30, 2019, potential dilutive common stock equivalents consisted 1,600,000 shares underlying common stock warrants and 3,720,000 shares underlying stock options, which were not included in the calculation of the diluted loss per share because their effect was anti-dilutive. For the three and nine months ended September 30, 2018, potential dilutive common stock equivalents consisted 4,600,000 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 their effect was anti-dilutive.

Concentrations and Credit Risk

Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of operating demand deposit accounts and accounts receivable. The Company’s policy is to place our operating demand deposit accounts with high credit quality financial institutions that are insured by the FDIC, however, account balances may at times exceed insured limits.

Fair Value of Financial Instruments

The carrying amounts of cash, accounts payable, accrued expenses, capital leases, and promissory notes, approximate fair value because of the short-term nature of these items, or prevailing interest rates.

Reclassification

Certain reclassifications have been made in the prior period’s consolidated financial statements to conform to the current period’s presentation. Such reclassifications had no effect on stockholders’ deficit or net loss.

Recently Issued Accounting Pronouncements

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

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET

Property, Plant and Equipment consist of the following at:

For the nine months ended September 30, 2019 and 2018, the Company recognized $22,120 and $275,231, and for the three months ended September 30, 2019 and 2018, $7,373 and $87,663, respectively, of depreciation expense. At September 30, 2019 and 2018, machinery and equipment with a cost of $53,257 and accumulated amortization of $53,257 and $53,257, respectively, were under capital lease.

During the year ended December 31, 2018, we recorded an impairment loss on property, plant and equipment of $635,770 in accordance with ASC 360-10-50-2 due to the carrying amount exceeding the estimated long-lived assets fair value. This impairment loss was primarily attributable to the write down of equipment and office and industrial buildings. Management’s assessment was triggered by the minimal operations of the business. Management estimated the undiscounted cash flows that may be generated from the long-lived assets by estimating their fair value less estimated costs.

NOTE 4 - PROPERTY HELD FOR SALE

The Company has offered for sale its land and building of its blending site located in Thorold, Ontario. Canada. The Company no longer requires the land or building as part of its plans to, either assemble and or manufacture, or license its technology. The land and building are currently listed for sale and the Company anticipates a sale in less than twelve (12) months. Accordingly, these assets have been reclassified from property, plant and equipment to property held for sale. The Company has determined the fair value of its property held for sale exceeds its carrying value and no valuation allowance is necessary. The net book value of the land and building of $180,237 has been presented in the accompanying balance sheet as property held for sale at September 30, 2019 and December 31, 2018.

NOTE 5 – SECURED PROMISSORY NOTES - RELATED PARTIES

Related Party Secured Promissory Notes, including accrued interest, consists of the following at periods ended:

The following annual payments of principal and interest are required over the next three years in respect to these short term and long term secured promissory notes with related parties:

NOTE 6 – SECURED PROMISSORY NOTE

Secured promissory note consists of the following at periods ended:

The following annual payments of principal and interest are required in respect to these secured notes payable:

NOTE 7 - CAPITAL LEASE

The Capital Lease consists of the following at periods ending:

(1) Includes accrued interest.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Commitments

Plastic2Oil Marine, Inc., one of the Company’s subsidiaries, which is currently not operating and presently is inactive, entered into a consulting service contract in 2010 with a company owned by the Company’s chief executive officer. The contract provides the related company with a share of the operating income earned from Plastic2Oil technology installed on marine vessels which are owned by the related company. The contract provides a minimum future payment equal to fifty percent of the operating income generated from the operations of two of the most profitable marine vessel processors and 10% from all other marine vessel processors. As of September 30, 2019 and December 31, 2018, there were no currently installed marine vessel processors pursuant to the contract.

Contingencies.

As of September 30, 2019, the Company is involved in litigation and claims, which arise from time to time in the normal course of business. In the opinion of management, based upon the information and facts known to them, any liability that may arise from such contingencies would not have a material adverse effect on the unaudited condensed consolidated financial statements of the Company.

NOTE 9 - WARRANTS

The following table summarizes the activities for the period.

Warrants

The following table summarizes the activities for the quarter ended September 30, 2019 and year ended December 31, 2018:

There were no warrants issued or expired during the three or nine months ended September 30, 2019.

NOTE 10 – STOCK-BASED COMPENSATION PLANS AND AWARDS

Employee Incentive Plan

The Company’s stock incentive plan is administered by the Board of Directors that authorizes the grant or award of incentive stock options, non-qualified stock options (NQSO), restricted stock awards (RSA), stock appreciation rights, dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the exercise of stock options. Any shares associated with options forfeited are added back to the number of shares that underlie stock options to be granted under the stock incentive plan. The Company made available 10,000,000 common shares that were registered, approved, and filed on November 17, 2012 for issuance under the plan. The Company has issued non-qualified stock option awards as described below.

The Company estimates the fair value of nonqualified stock awards using a Black-Scholes Option Pricing model (“Black-Scholes model”). The fair value of each stock award is estimated on the date of grant using the Black-Scholes model, which requires an assumption of dividend yield, risk free interest rates, volatility, forfeiture rates and expected option life. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatilities are based on the historical volatility of our common stock over the expected option term. The expected term of options granted is based on a review of historical employee termination rates and option exercises.

There were 3,500,000 options granted during the three and nine months ended September 30, 2019. Options were granted to employees, a consultant of the Company, the Company’s CEO, and two Directors. As of September 30, 2019, 3,720,000 options were outstanding, of which 220,000 are fully vested and 3,500,000 are not vested. There are 6,280,000 options available for grant as of September 30, 2019.

The stock awards were valued using a Black-Scholes model on the date of grant and the follow assumptions: expected term of 5 years, a risk free rate of 2.82%, volatility of 355.41%, and no assumed dividend yield.

A summary of stock option activity as of September 30, 2019 and 2018, and changes during the nine month periods ended September 30, 2019 and 2018 are set forth below:

A summary of stock options not yet vested as of September 30, 2019 is set forth below: