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EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT - Plastic2Oil, Inc.f10q0611ex32i_jbi.htm
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - Plastic2Oil, Inc.f10q0611ex31ii_jbi.htm
EX-32.2 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT - Plastic2Oil, Inc.f10q0611ex32ii_jbi.htm
EXCEL - IDEA: XBRL DOCUMENT - Plastic2Oil, Inc.Financial_Report.xls
EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - Plastic2Oil, Inc.f10q0611ex31i_jbi.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
 
or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to ______________
 
Commission File Number: 000-52444 

JBI, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
20-4924000
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
 
1783 Allanport Road
Thorold Ontario L0S 1K0
(Address of principal executive offices)

Registrant’s telephone number, including area code: (905) 384-4383

N/A
(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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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 o      
 
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
 
Large accelerated filer  o
Non-accelerated filer    o
(Do not check if smaller reporting company)
 
Accelerated filer                      o
Smaller Reporting Company  x
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No x
 
As of August 19, 2011 there were 67,681,327 shares of Common Stock, $0.001 par value, per share issued and outstanding.
 
 
 
 


 
 
JBI Inc.
 
 Index 
 Page
 
 Part I     Financial Information
 
 
 Item 1
 Financial Statements
4
   
 Condensed Consolidated Balance Sheets – June 30, 2011 (Unaudited) and December 31, 2010 
 4
   
 Condensed Consolidated Statements of Operations – Three Month Periods Ended June 30, 2011 and 2010 (Unaudited)
 5
   
 Condensed Consolidated Statements of Changes in Shareholders’ Equity – Six Month Period Ended June 30, 2011 (Unaudited)
 6
   
 Condensed Consolidated Statements of Cash Flows Six Month Periods Ended June 30, 2011 and 2010 (Unaudited) 
 7
   
 Notes to Condensed Consolidated Financial Statements (Unaudited) 
 8
 
 Item 2 
 Management’s Discussion and Analysis of Financial Condition and Results of Operations
 23
 
 Item 3
 Quantitative and Qualitative Disclosures about Market Risk
 31
 
 Item 4  
 Controls and Procedures
 31
       
 Part II   Other Information
 
 
 Item 1 
 Legal Proceedings
 32
 
 Item 1A
 Risk Factors
 33
 
 Item 2 
 Unregistered Sales of Equity Securities and Use of Proceeds
33
 
 Item 3  
 Defaults Upon Senior Securities
34
 
 Item 4
 (Removed and Reserved)
 34
 
 Item 5 
 Other Information
 34
 
 Item 6 
 Exhibits
 34
       
 Signatures
 
 
 
2

 
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Form 10-Q (“Report”) contains “forward looking information” within the meaning of applicable securities laws.  Such statements include, but are not limited to, statements with respect to the Company’s beliefs, plans, strategies, objectives, goals and expectations, including expectations about the future financial or operating performance of the 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 information. 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 the 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 the 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 the 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 information 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 labour 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 the Company to control commodity prices; risks associated with the regulatory environment within which the Company operates; risks associated with litigation including the availability of insurance; and risks posed by competition. These and other factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by the forward looking information are discussed in more detail in the section entitled in this Report and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Some of the forward-looking information 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 the Plastic2Oil business. These financial outlooks may not be appropriate for other purposes and readers should not assume they will be achieved.
 
The Company does not intend to, and the Company disclaims any obligation to, update any forward-looking information (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 registration statement to “JBI” the “Company,” “we,” “our” or “us” means JBI, Inc., a Nevada corporation. 
 
 
3

 
 
PART I – FINANCIAL INFORMATION
 
Item 1
Financial Statements
 
JBI, Inc. and Subsidiaries
 
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
   
June 30,
2011
(Unaudited)
   
December 31,
2010
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
 
$
4,094,201
   
$
724,156
 
Cash held in attorney trust (Note 2)
   
100,000
     
264,467
 
Restricted cash (Note 2)
   
-
     
144,500
 
Accounts receivable, net of allowance for doubtful accounts of $310,050 (2010 - $391,251) (Note 2)
   
594,618
     
828,664
 
Inventories, net of reserve of $125,000 (2010 - $115,000) (Note 5)
   
286,404
     
303,065
 
Prepaid expenses
   
148,551
     
151,637
 
Assets held for sale (Note 16 )
   
1,264,425
     
2,790,292
 
 
 TOTAL CURRENT ASSETS
   
6,488,199
     
5,206,781
 
                 
PROPERTY, PLANT AND EQUIPMENT, NET (Note 6)
   
2,883,799
     
2,239,277
 
OTHER ASSETS
               
Intangible assets, net (Note 7)
   
-
     
382,651
 
Deposits
   
3,878
     
2,693
 
                 
TOTAL OTHER ASSETS
   
3,878
     
385,344
 
TOTAL ASSETS
 
$
9,375,876
   
$
7,831,402
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES
               
Accounts payable
 
$
1,501,763
   
$
1,083,589
 
Accrued expenses
   
601,970
     
822,520
 
Short-term loans (Notes 8(a) and 13)
   
339,420
     
365,601
 
Notes payable (Note 8(b))
   
75,000
     
112,500
 
Current portion of long term debt (Note 10)
   
229,401
     
-
 
Income taxes payable
   
1,249
     
7,030
 
                 
TOTAL CURRENT LIABILITIES
   
2,748,803
     
2,391,240
 
                 
LONG-TERM LIABILITIES
               
Deferred income taxes (Note 9)
   
-
     
126,221
 
Long term debt (Note 10)
   
328,107
     
280,561
 
                 
TOTAL LIABILITIES
   
3,076,910
     
2,798,022 
 
Commitments and Contingencies (Note 11)
               
SHAREHOLDERS' EQUITY (Notes 12)
               
Common Stock, par $0.001; 150,000,000 authorized 57,645,982 shares at
      June 30, 2011 and 51,241,926 shares at December 31, 2010
   
57,654
     
51,243
 
Common Stock Subscribed, 8,831,099 shares at cost at June 30, 2011
    and 2,653,334 shares at cost at December 31, 2010
   
7,044,086
     
1,334,167
 
Stock subscription receivable
   
(21,534)
     
-
 
Preferred stock, par $0.001; 5,000,000 authorized, 1,000,000 shares
    issued and outstanding at June 30, 2011 and December 31, 2010
   
1,000
     
1,000
 
Additional paid in capital
   
24,767,890
     
19,933,211
 
Accumulated deficit
   
(25,550,130)
     
(16,286,241
)
TOTAL SHAREHOLDERS' EQUITY
   
6,298,966
     
5,033,380
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
9,375,876
   
$
7,831,402
 
 The accompanying notes are an integral part of the interim condensed consolidated financial statements. 
 
 
4

 
 
JBI, Inc. and Subsidiaries
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six and Three Month Periods Ended June 30,
(Unaudited)
     
   
Six Months 
Ended June 30,
2011
   
Restated as
per Note 4      
Six Months   
Ended June 30,
2010
   
Three Months
Ended June 30,
2011
   
Restated as
per Note 4
Three Months
Ended June 30,
2010
 
SALES
                       
JBI Canada
  $ 4,914     $ -     $ 4,914     $ -  
Javaco
    1,030,485       4,054,095       448,831       2,059,522  
P2O
    81,101       -       81,101       -  
Other
    -       36,985       -       10,865  
NET SALES
    1,116,500       4,091,080       534,846       2,070,387  
COST OF SALES
                               
JBI Canada
    ( 187 )     -       ( 187 )     -  
Javaco
    898,050       3,566,738       380,242       1,845,731  
P2O
    57,721       -       57,721       -  
Other
    -       27,499       -       22,316  
COST OF SALES
    955,584       3,594,237       437,776       1,868,047  
GROSS PROFIT
    160,916       496,843       97,070       202,340  
OPERATING EXPENSES
                               
Selling, General and Administrative
 expenses
    6,310,445       4,598,406       4,330,071       1,692,251  
                                 
Depreciation of property, plant and
equipment
    169,603       123,300       96,447       82,315  
 
Amortization of intangible assets
    27,781       55,106       -       28,299  
Research and development expenses
    508,417       -       220,462       -  
Impairment loss (Note 2)
    354,870       -       -       -  
TOTAL OPERATING EXPENSE
    7,371,116       4,776,812       4,646,980       1,802,865  
LOSS FROM OPERATIONS
    (7,210,200 )     (4,279,969 )     (4,549,910 )     (1,600,525 )
OTHER INCOME (EXPENSE)
                               
Interest expense, net
    (11,519 )     1,615       (6,047 )     3,440  
Other income, net
    38,225       -       13,760       (2,125 )
      26,706       1,615       7,713       1,315  
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    (7,183,494 )     (4,278,354 )     (4,542,197 )     (1,599,210 )
INCOME TAXES FROM CONTINUING OPERATIONS
(Note 9)
                               
Future income tax recovery
    -       (60,903 )     -       -  
NET LOSS FROM CONTINUING OPERATIONS
    (7,183,494 )     (4,217,451 )     (4,542,197 )     (1,599,210 )
 
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX (Note 16)
    (2,080,395 )     (896,254 )     (1,961,755 )     (334,655 )
NET LOSS
  $ (9,263,889 )   $ (5,113,705 )   $ (6,503,952 )   $ (1,933,865 )
Basic & diluted loss per share for continuing operations
  $ (0.13 )   $ (0.07 )   $ (0.08 )   $ (0.03 )
 
Basic & diluted loss per share for discontinued operation
  $ (0.04 )   $ (0.02 )   $ (0.04 )   $ (0.01 )
Weighted average number of common shares outstanding
    54,412,979       57,033,294       55,208,659       50,466,344  
 
The accompanying notes are an integral part of the interim condensed consolidated financial statements

 
5

 

JBI, Inc. and Subsidiaries

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six Month Period Ended June 30, 2011 (Unaudited)
 
   
Common Stock
$0.001 Par Value
   
Common Stock
Subscribed
   
Stock
Subscriptions
   
Preferred Stock $0.001 Par Value
   
Additional 
paid in
   
Accumulated
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Receivable
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
                                                             
BALANCE,
    DECEMBER 31, 2010
   
51,241,926
   
$
51,243
     
2,653,334
   
$
1,334,167
   
$
-
     
1,000,000
   
$
1,000
   
$
19,933,211
   
$
(16,286,241
)
 
$
5,033,380
 
                                                                                 
Common stock issued in
connection with private
placement, $0.50 per share,
closed in the prior
year, net  of issuance costs
of $26,000
   
2,430,000
     
2,430
     
(2,430,000
 )
   
(1,189,000
 )
   
-
     
-
     
-
     
1,186,570 
     
-
     
-
 
                                                                                 
Common stock issued for
service provided in the
prior year, valued at $0.65
    per share
   
223,334
     
223
     
(223,334
 )
   
(145,167
 )
   
-
     
-
     
-
     
144,944
     
-
     
-
 
                                                                                 
Common stock issued for
severance, $0.82 per share
   
100,000
     
100
     
-
     
-
     
-
     
-
     
-
     
81,900
     
-
     
82,000
 
                                                                                 
Common stock issued for
services, $0.80 per share
   
375,000
     
375
     
-
     
-
     
-
     
-
     
-
     
299,625
     
-
     
300,000
 
                                                                                 
Common stock issued for
services, $0.80 per share
   
240,924
     
241
     
-
     
-
     
-
     
-
     
-
     
192,498
     
-
     
192,739
 
                                                                                 
Common stock issued for
    purchase of building
   
44,964
     
45
     
-
     
-
     
-
     
-
     
-
     
26,934
     
-
     
26,979
 
                                                                                 
Common stock issued in
connection with private
    placement, $0.70 per share
   
2,010,484
     
2,010
     
-
     
-
     
-
     
-
     
-
     
1,405,328 
     
-
     
1,407,338
 
                                                                                 
Common stock issued for
services, $2.12 per share
   
184,099
     
184
     
-
     
-
     
-
     
-
     
-
     
390,106
     
-
     
390,290
 
                                                                                 
  Common stock issued for reimbursement of expenses and repayment of short-term advance, $0.70 per share
   
214,286
     
214
     
-
     
-
     
-
     
-
     
-
     
149,786
     
-
     
150,000
 
                                                                                 
Common stock issued for
services, $3.27 per share
   
125,000
     
125
     
-
     
-
     
-
     
-
     
-
     
408,625
     
-
     
408,750
 
                                                                                 
Common stock issued for
services, $0.80 per share
   
205,307
     
205
     
-
     
-
     
-
     
-
     
-
     
164,041
     
-
     
164,246
 
                                                                                 
Common stock issued for
services, $4.15 per share
   
49,658
     
49
     
-
     
-
     
-
     
-
     
-
     
206,032
     
-
     
206,081
 
                                                                                 
Common stock issued for   
    services valued at $0.85 per
    share
   
210,000
     
210
     
-
     
-
     
-
     
-
     
-
     
178,290
     
-
     
178,500
 
                                                                                 
Common stock issued for
services, $3.93 per share
   
-
     
-
     
266,971
     
1,049,196
     
-
     
-
     
-
     
-
     
-
     
1,049,196
 
                                                                                 
Common stock issued in
connection with private
    placement, $0.70 per share
   
-
     
-
     
8,157,057
     
5,709,940
     
(21,534
)
   
-
     
-
     
-
     
-
     
5,688,406
 
                                                                                 
Common stock issued in
connection with private
    placement, $0.70 per share
   
-
     
-
     
407,071
     
284,950
     
-
     
-
     
-
     
-
     
-
     
284,950
 
                                                                                 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
 -
     
(9,263,889
)
   
(9,263,889)
 
                                                                                 
BALANCE,
    JUNE 30, 2011
   
57,654,982
   
$
57,654
     
8,831,099
   
$
7,044,086
   
$
(21,534
)
   
1,000,000
   
$
1,000
   
$
24,767,890
   
$
(25,550,130
)
 
$
6,298,966
 
 
 The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 
6

 

JBI, Inc. and Subsidiaries
 
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Month Period Ended June 30, 2011 and 2010
 
   
2011
   
2010
(Restated)
 
CASH FLOWS FROM OPERATING ACTIVITIES ATTRIBUTABLE TO CONTINUING OPERATIONS:
           
Net loss from continuing operations
 
$
(7,183,494
)
 
$
(4,217,451
)
Items not affecting cash attributable to continuing operations:
               
Depreciation of property, plant and equipment
   
169,603
     
123,300
 
Amortization of intangible assets
   
27,781
     
55,107
 
Impairment charges
   
354,870
     
-
 
Provision for uncollectible accounts
   
(67,240
   
56,561
 
Foreign exchange loss
   
18,892
       
Deferred taxes
   
-
  
   
   (60,903
)
Stock issued for services
   
2,844,768
     
3,013,020
 
Working capital changes attributable to continuing operations:
               
Accounts receivable
   
244,722
     
(1,046,528
Inventories
   
16,661
     
119,316
 
Prepaid expenses
   
93,854
     
(27,393
)
Accounts payable
   
98,534
     
414,938
 
Accrued expenses
   
(61,306
)
   
(1,155,964
)
Income taxes payable
   
(5,781
)
   
(6,412
)
                 
 NET CASH USED IN OPERATING ACTIVITIES ATTRIBUTABLE TO CONTINUING OPERATIONS
   
(3,448,136
   
(2,732,409
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES ATTRIBUTABLE TO CONTINUING OPERATIONS
               
Property, plant and equipment additions
   
(935,231
   
(1,406,527
)
Increase in deposits
   
(1,185
   
(8,515
)
Decrease in restricted cash
   
144,500
     
14,379
 
Decrease in cash held in attorney trust
   
164,467
     
2,979,095
 
                 
                 
NET CASH PROVIDED BY INVESTING ACTIVITIES ATTRIBUTABLE TO CONTINUING OPERATIONS
   
(627,449
   
1,578,432
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES ATTIBUTABLE TO CONTINUING OPERATIONS
               
Stock issuance proceeds, net
   
7,495,695
     
2,909,152
 
Repayment of long term debt
   
(8,831
   
-
 
Contribution from shareholder
   
-
     
2,104
 
Repayments of note payable
   
(37,500
   
-
 
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES ATTIBUTABLE TO CONTINUING OPERATIONS
   
7,449,364
     
2,911,256
 
                 
TOTAL CASH PROVIDED BY CONTINUING OPERATIONS
   
3,373,779
     
1,757,279
 
                 
Net cash used in operating activities attributable to discontinued operations
   
(3,734
   
227,669
 
Net cash used in investing activities attributable to discontinued operations
   
-
     
(77,634
Net cash used in operating financing attributable to discontinued operations
   
-
     
-
 
                 
                 
TOTAL CASH PROVIDED BY DISCONTINUED OPERATIONS
   
(3,734
   
150,035
 
                 
EFFECTS OF CHANGE IN FOREIGN CURRENCY EXCHANGE RATES
ON CASH AND CASH EQUIVALENTS BALANCES
   
--
     
11,973
 
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
   
3,370,045
     
1,919,287
 
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 
   
724,156
     
26,307
 
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD 
 
$
4,094,201
   
$
1,945,594
 
                 
Supplemental disclosure of cash flow information (Note 15)

The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 
 
7

 

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended June 30, 2011 (unaudited)

NOTE 1 – ORGANIZATION AND GOING CONCERN
 
JBI, Inc. was originally incorporated as 310 Holdings, Inc. (“310”) in the State of Nevada on April 20, 2006.  310 had no significant activity from inception through 2009.  In April 2009, John Bordynuik purchased 63% of the issued and outstanding shares of 310, and subsequently was appointed President and CEO of the Company.  During 2009, the Company changed its name to JBI, Inc. and began operations of its main business, Plastic2Oil.  Plastic2Oil is a combination of proprietary technologies and processes developed by JBI which convert waste plastics into fuel.  JBI currently operates a 20 MT processor out of its Niagara Falls Facility.
 
The Company has made two business acquisitions since being purchased by John Bordynuik:
 
On August 24, 2009, the Company acquired Javaco, Inc. (“Javaco”) a distributor of electronic components, including home theater and audio video products.
 
On September 30, 2009, the Company acquired Pak-It, LLC (“Pak-it”).  Pak-it operates a bulk chemical processing, mixing, and packaging facility.  It also has developed and patented a delivery system that packages condensed cleaners in small water-soluble packages.  During the second quarter of the current fiscal year, management determined that the operations of Pak-it were no longer aligned with the Company’s future strategic focus on conversion of waste plastics to fuel.  Sale criteria for Pak-it were developed and active marketing has been commenced to sell certain assets of Pak-it. Certain assets of Pak-it are classified as held for sale as of period end (Note 16).

The unaudited interim condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q of the Securities and Exchange Commission (the “Commission”).  Accordingly, certain information and footnote disclosures required in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") have been condensed or omitted.  Interim statements are subject to possible adjustment in connection with the annual audit of the Company’s accounts for the year ended December 31, 2011.  In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all necessary adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for the fair presentation of the Company’s consolidated financial position as of June 30, 2011 and the results of operations, cash flows, and changes in stockholders’ equity for the six and three month periods ended June 30, 2011 and 2010.  Results for the six and three months ended are not necessarily indicative of results that may be expected for the entire year.  The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company and notes thereto as of and for the year ended December 31, 2010 as included in the Company’s Form 10-K as amended and filed with the Commission on July 18, 2011.

These consolidated financial statements have been prepared in accordance with accounting principles which contemplate the continuation of the Company as a going concern which assumes the realization of assets and satisfaction of liabilities and commitments in the normal course of business.  The Company has experienced negative cash flows from operations since inception, has an accumulated deficit of $25,550,130 at June 30, 2011.  These factors raise substantial doubt about the Company’s ability to continue to operate in the normal course of business.  The Company has funded its activities to date almost exclusively from equity financings.
 
The Company will continue to require substantial funds to continue development of its core business of Plactic2Oil to achieve permitted commercial productions, and to commence sales and marketing efforts, if full regulatory approvals are obtained.  Management’s plans in order to meet its operating cash flow requirements include financing activities such as private placements of its common stock, issuances of debt and convertible debt instruments.
 
While the Company believes that it will be successful in obtaining the necessary financing to fund its operations, meet regulatory requirements and achieve commercial production goals, there are no assurances that such additional funding will be achieved and that it will succeed in its future operations. The 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 the Company be unable to continue in existence.
 
 
8

 
 
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES
 
The Company has disclosed its accounting policies in “NOTE 2 – SUMMARY OF ACCOUNTING POLICIES” in the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.  The following accounting policies provide an update to those included under the same captions in the Company’s Annual Report on Form 10-K as amended and filed with the Commission on July 18, 2011.

Principles of Consolidation

The consolidated financial statements include the accounts of JBI, Inc., as well as all wholly owned subsidiaries required to be consolidated under GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.
 
 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 those estimates. Significant estimates include amounts for impairment of intangible assets, impairment of goodwill, share based compensation, inventory obsolescence, accrued liabilities and accounts receivable exposures.
 
Cash Held in Attorney Trust
 
The amount held in trust represents the subscriptions received from issuance of shares, not released to the Company at the balance sheet date.
 
Restricted Cash
 
At December 31, 2010, pursuant to the terms of an employment agreement between the Company and an officer, the Company was required to have $144,500 held in an attorney trust account for the settlement of any future severance payments.  As of June 30, 2011, the officer resigned and the restricted cash was paid out in April 2011.
 
Accounts Receivable
 
Accounts receivable represent unsecured obligations due from customers under terms requesting payments upon receipt of invoice up to ninety days, depending on the customer.  Accounts receivable are non-interest bearing and are stated at the amounts billed to the customer net of an allowance for uncollectible accounts. Customer balances with invoices over 90 days old are considered delinquent. Payments of accounts receivable are allocated to the specific invoices identified on the customer remittance, or if unspecified, are applied to the earliest unpaid invoice.
 
The allowance for uncollectible accounts reflects management’s best estimate of amounts that may not be collected based on an analysis of the age of receivables and the credit standing of individual customers.  The allowance for uncollectible accounts as at June 30, 2011 and December 31, 2010 was $310,050 and $391,251, respectively.
 
Intangible Assets
 
Intangible assets consist of customer related, marketing related and technology related intangible assets.
 
Marketing related intangible assets includes trade names, trademarks and internet domain names associated with the acquired businesses and are considered separable. The Company amortizes marketing related intangible assets on a straight-line basis over their estimated useful lives which range from 8 to 9 years.

Acquired technology is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of the patents acquired. The Company amortizes acquired technology over its estimated useful life of 10 years on a straight-line basis.
 
 
9

 
 
Intangible assets are amortized on a straight-line basis over their estimated useful life of 8 to 10 years. Amortization expense for the periods ended, June 30, 2011 and 2010 was $27,781 and $55,106 (see note 7), respectively. Amortization expense for the three month periods ended, June 30, 2011 and 2010 was $Nil and $28,299, respectively.
 
Intangible assets with a finite life are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. If events or changes in circumstances indicate that the carrying amount of any of these intangible assets may not be recoverable, an impairment charge will be recognized for the amount by which the carrying amount of these assets exceeds their fair value.  The Company determined that the significant reduction of revenues from the Javaco business warranted a reduction of the carrying value of the associated intangible assets to $Nil and accordingly an impairment charge of $354,870 was recorded for the six month period ended June 30, 2011 (2010 - $Nil). Impairment charge of $Nil was recorded for the three month period ended June 30, 2011 (2010 - $Nil)
 
Advertising costs

The Company expenses advertising costs as incurred. Advertising costs approximated $10,452 and $56,009 during the six month periods ended June 30, 2011 and 2010, respectively.  Advertising costs approximated $5,693 and $32,130 during the three month periods ended June 30, 2011 and 2010, respectively.

Research and Development
 
The Company in engaged in research and development work. Research and development costs are charged as operating expense of the Company as incurred. For the six month periods ended June 30, 2011 and 2010, the Company expensed $508,417 and $Nil, respectively, towards research and development costs.  For the three month periods ended June 30, 2011 and 2010, the Company expensed $220,462 and $Nil, respectively, towards research and development costs.

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. Therefore, diluted loss per share has not been presented as at June 30, 2011 or 2010.
 
Segmented Reporting
 
The Company operates in three in 2011 (four in 2010) reportable segments. Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 280-10 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. The Company's operating segments include plastic to oil conversion (Plastic2oil), distribution of electronic components (Javaco) and Corporate.

Concentrations and Credit Risk
 
Financial instruments which potentially expose the Company to concentrations of credit risk consist principally of accounts receivable. 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.

Discontinued Operations

A business is classified as a discontinued operation when (i) the operations and cash flows of the business can be clearly distinguished and have been or will be eliminated from our ongoing operations; (ii) the business has either been disposed of or is classified as held for sale; and (iii) the Company will not have any significant continuing involvement in the operations of the business after the disposal transactions. Significant judgments are involved in determining whether a business meets the criteria for discontinued operations reporting and the period in which these criteria are met.

If a business is reported as a discontinued operation, the results of operations through the date of sale, including any gain or loss recognized on the disposition, are presented on a separate line of the income statement. Interest on debt directly attributable to the discontinued operation is allocated to discontinued operations. Gains and losses related to the sale of businesses that do not meet the discontinued operation criteria are reported in continuing operations and separately disclosed if significant.

Assets Held for Sale

An asset or business is classified as held for sale when (i) management commits to a plan to sell and it is actively marketed; (ii) it is available for immediate sale and the sale is expected to be completed within one year; and (iii) it is unlikely significant changes to the plan will be made or that the plan will be withdrawn. In isolated instances, assets held for sale may exceed one year due to events or circumstances beyond the Company’s control. Upon being classified as held for sale, the recoverability of the carrying value must be assessed. Evaluating the recoverability of the assets of a business classified as held for sale follows a defined order in which property and intangible assets subject to amortization are considered only after the recoverability of goodwill and other assets are assessed. After the valuation process is completed, the assets held for sale are reported at the lower of the carrying value or fair value less cost to sell, and the assets are no longer depreciated or amortized. An impairment charge is recognized if the carrying value exceeds the fair value. The assets and related liabilities are aggregated and reported on separate lines of the balance sheet.

 
10

 

Fair Value of Financial Instruments
 
ASC Topic 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Included in the ASC Topic 820 framework is a three level valuation inputs hierarchy with Level 1 being inputs and transactions that can be effectively fully observed by market participants spanning to Level 3 where estimates are unobservable by market participants outside of the Company and must be estimated using assumptions developed by the Company. The Company discloses the lowest level input significant to each category of asset or liability valued within the scope of ASC Topic 820 and the valuation method as exchange, income or use. The Company uses inputs which are as observable as possible and the methods most applicable to the specific situation of each company or valued item.
 
The carrying amounts of cash and cash equivalents, cash held in attorney trust, restricted cash, accounts receivable, accounts payable, accrued expenses, note payable, long term debt and short-term loans approximate fair value because of the short-term nature of these items. Per ASC Topic 820 framework each of these, except for cash and cash equivalents, 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.  Cash and cash equivalents are considered Level 1 inputs.

Reclassifications
 
To conform to the basis of presentation adopted in the current period, certain figures previously reported have been reclassified.
 
NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
 
Changes in Accounting Policies Including Initial Adoption
 
In October 2009, the FASB issued ASU No. 2009-13, Multiple Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force (“ASU 2009-13”) (codified within ASC Topic 605). ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.

In January 2010, the FASB issued an amendment to ASC 820, “Fair Value Measurements and Disclosures”, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010.

In April 2010, the FASB issued ASU No. 2010-17, Revenue Recognition - Milestone Method. The objective of this Update is to provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010.
 
 
11

 

In April 2010, the FASB issued ASU No. 2010-013, Compensation - Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades a consensus of the FASB Emerging Issues Task Force. ASU 2010-13 addresses the classification of an employee share-based award with an exercise price denominated in the currency of a market in which the underlying equity security trades. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.

The adoption of each of these new policies did not have a material effect on the Company’s consolidated financial position, results of operations, cash flows or related disclosures.
 
Recently Issued Accounting Pronouncements
 
In August 2010, the FASB issued ASU No. 2010-22, Accounting for Various Topics – Technical Corrections to SEC Paragraphs this update amends various SEC paragraphs based on external comments received and the issuance of SAB 112, which amends or rescinds portions of certain SAB topics. The Company is assessing the potential effect this guidance will have on its consolidated financial statements.
 
In August 2010, the FASB issued ASU No. 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This updates various SEC paragraphs pursuant to the issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies. The Company is assessing the potential effect this guidance will have on its consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-4 to clarify the application of some of the existing fair value measurement and disclosure requirements. These changes are effective for interim and annual periods that begin after December 15, 2011. The Company is assessing the potential effect this guidance will have on its consolidated financial statements.

In June 2011, the FASB issued an ASU No. 2011-05 relating to the presentation of other comprehensive income (“OCI”). This ASU does not change the items that are reported in OCI, but does remove the option to present the components of OCI within the statement of changes in equity. In addition, this ASU will require OCI presentation on the face of the financial statements. These changes are effective for interim and annual periods that begin after December 15, 2011, and are applied retrospectively to all periods presented. Early adoption is permitted. The Company plans to adopt the ASU beginning January 1, 2012
 
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
 
The Company believes the above discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the financial condition and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
 
NOTE 4 – PRIOR PERIOD RESTATEMENT
 
In March 2011, the Company obtained finalized independent third party appraisals for the fair values of the assets and liabilities acquired from the acquisitions of Javaco and Pak-it, which occurred in August and September 2009, respectively. After the assessment of these appraisals, the Company concluded that the original purchase price allocations for these acquisitions were required to be restated. Since the finalization of these appraisals did not occur until after the one-year measurement period, and therefore did not meet the technical requirements of accounting for business combinations, ASC 805-10-55-16, the Company concluded that the 2009 consolidated financial statements should be restated to reflect these finalized appraisals.

This restatement was completed and reported in the 2010 consolidated financial statements and included full details as to the nature and extent of the restatements.  One aspect of the restatement caused the carrying amount of intangible assets as at December 31, 2009 to be increased from $10,014 to $3,091,587.   These intangible assets are subject to amortization and the amortization expense previously reported for the period ended June 30, 2010 was not based upon these restated carrying amounts.  The effect of revising the amortization expense in accordance with these restated carrying amounts is summarized as follows:
 
 
12

 

Consolidated Statement of Operations for the six month period ended June 30, 2010:
 
   
Previously Reported on 10Q
   
Increase /(Decrease)
   
Effect of discontinued operations
   
Restated
 
                         
Sales
  $ 7,365,173     $ -     $ 3,274,093     $ 4,091,080  
Cost of sales
    6,441,247       -       2,847,010       3,594,237  
Gross profit
    923,926       -       427,083       496,843  
                                 
Operating expenses
    6,334,422       -       1,612,716       4,721,706  
Amortization of intangible assets
    -       (173,448 )     118,342       55,106  
Loss from operations
    (5,410,496 )     (173,448 )     (1,303,975 )     (4,279,969 )
Other income
    42,547       -       40,932       1,615  
Future income tax recovery
    -       (427,693 )     (366,790 )     (60,903 )
Net loss
  $ (5,367,949 )   $ 254,245     $ 896,253     $ (4,217,451 )

Consolidated Statement of Operations for the three month period ended June 30, 2010:
 
   
Previously Reported on 10Q
   
Increase / (Decrease)
   
Effect of discontinued operations
   
Restated
 
Sales
  $ 3,791,743     $ -     $ 1,721,356     $ 2,070,387  
Cost of sales
    3,181,021       -       1,312,974       1,868,047  
Gross profit
    610,722       -       408,382       202,340  
Operating expenses
    2,702,291       -       927,725       1,774,566  
Amortization of intangible assets
    -       (87,203 )     58,904       28,299  
Loss from operations
    (2,091,569 )     (87,203 )     (578,247 )     (1,600,525 )
Other income
    20,229       -       18,914       1,315  
Future income tax recovery
    -       (224,678 )     (224,678 )     -  
Net loss
  $ (2,071,340 )   $ 137,475     $ (334,655 )   $ (1,599,210 )
 
The increase in net loss did not result in a change in the Company’s basic and diluted loss per share reported for the period.
 
The restatement had no impact on the Company’s net cash flows from operating, investing or financing activities.
 
NOTE 5 – INVENTORIES, NET
 
Inventories consist of the following:

   
June 30,
2011
   
December 31,
2010
 
             
Finished goods
 
$
411,404
   
$
418,065
 
Obsolescence reserve
   
(125,000
)
   
(115,000
)
                 
Total inventories
 
$
286,404
   
$
303,065
 
 
 
13

 
 
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
 
June 30, 2011
 
Cost
   
Accumulated Amortization
   
Net Book
value
 
                   
Leasehold improvements
 
$
56,624
   
$
(6,364
)
 
$
50,260
 
Machinery and office equipment
   
2,463,042
     
(518,218
)
   
1,944,824
 
Vehicles 
   
7,370
     
(7,370
)
   
-
 
Furniture and fixtures
   
17,993
     
(7,901
)
   
10,092
 
Land
   
163,915
     
-
     
163,915
 
Office and industrial buildings
   
737,736
     
(23,028
)
   
714,708
 
                         
   
$
3,446,680
   
$
(562,881
)
 
$
2, 883,799
 
 
December 31, 2010
 
Cost
   
Accumulated Amortization
   
Net Book
value
 
                   
Leasehold improvements
 
$
533,272
   
$
(102,804
)
 
$
430,468
 
Machinery and office equipment
   
1,621,502
     
(316,258
)
   
1,305,244
 
Vehicles 
   
7,370
     
(7,370
)
   
-
 
Furniture and fixtures
   
17,993
     
(9,005
)
   
8,988
 
Land
   
163,915
     
-
     
163,915
 
Office and industrial buildings
   
341,357
     
(10,695
)
   
330,662
 
                         
   
$
2,685,409
   
$
(446,132
)
 
$
2,239,277
 
 
NOTE 7 – INTANGIBLE ASSETS
 
Intangible assets consist of customer related, marketing related and technology based intangible assets associated with the acquisition of Javaco in August 2009.  As at June 30, 2011 the carrying value of the Javaco intangible assets had been reduced to $Nil.
 
         
Accumulated
         
Net Book
 
June 30, 2011
 
Cost
   
Amortization
   
Impairment
   
Value
 
                         
Customer - Related
 
$
602,000
   
$
(119,146
)
 
$
(482,854
)
 
$
-
 
Marketing - Related
   
287,000
     
(59,034
)
   
(227,966
)
   
-
 
   
$
889,000
   
$
(178,180
)
 
$
(710,820
)
 
$
-
 
 
           
 
Accumulated
           
Net Book
 
December 31, 2010
 
Cost
   
Amortization
   
Impairment
   
Value
 
                                 
Customer - Related
 
$
602,000
   
$
(101,911
)
 
$
(295,307
)
 
$
204,782
 
Marketing - Related
   
287,000
     
(48,488
)
   
(60,643
)
   
177,869
 
   
$
889,000
   
$
(150,399
)
 
$
(355,950
)
 
$
382,651
 
 
 
 
14

 
 
NOTE 8 – SHORT-TERM LOANS AND NOTE PAYABLE

(a)   Short-term loans
 
   
June 30,
2011
   
December 31,
2010
 
On October 15, 2010, the Company entered into an unsecured short-term loan agreement with shareholder. The loan, in the amount of $200,000 Canadian dollars, bears interest at an annual rate of 6%. The entire principal of the loan, together with all accrued interest is due and payable on October 15, 2011. The loan was used for working capital purposes.
 
$
 206,280
   
$
199,820
 
On December 1, 2010 the Company entered into a secured short-term loan agreement with shareholder. The loan, in the amount of $100,000 Canadian dollars, was used for working capital purposes and bears interest at an annual rate of 6%. The entire principal of the loan together with all accrued interest is due and payable on December 1, 2011. The loan is secured against the receivables and assets of Pak-it.
   
    103,140
     
100,781
 
In November 2010, a member of the Board of Directors entered into an unsecured short-term loan agreement with the Company. The loan, which was repaid in the current period through the issuance of shares, bears no interest and was due on November 22, 2011. The loan was used for working capital purposes.
   
 -
     
35,000
 
In November 2010, a member of the Board of Directors entered into an unsecured short-term loan agreement with the Company. The loan bears no interest and is due on November 22, 2011. The loan was used for working capital purposes.
   
30,000
     
30,000
 
   
$
339,420
   
$
365,601
 
 
(b)   Note payable
 
  
 
June 30,
2011
   
December 31,
2010
 
Note payable is secured by inventory of Javaco Inc., a subsidiary of the Company, bears interest at an annual rate of 6% and is due on December 31, 2011. As at June 30, 2011, the Company was in compliance with the covenant associated with this note payable.
 
$
 75,000
   
$
112,500
 

 
15

 
 
NOTE 9 - INCOME TAXES
   
June 30
   
June 30
 
   
2011
   
2010
 
Statutory tax rate:
           
    U.S.
   
34
%
   
34
%
    Foreign
   
27
%
   
31
%
                 
Loss before recovery of income taxes:
               
    Continuing operations – U.S.
 
$
3,329,796
   
$
3,944,920
 
    Continuing operations – Foreign
   
3,853,698
     
333,434
 
     
7,183,494
     
4,278,354
 
    Discontinued operations – U.S.
   
2,208,948
     
1,263,044
 
     
9,392,442 
     
5,541,398 
 
Expected income tax recovery
   
(2,904,403
)
   
   (1,884,075)
 
                 
Permanent differences
   
263,712
     
1,025,840
 
Tax rate changes and other adjustments
   
507,999
     
189,540
 
Increase in valuation allowance
   
2,006,471
     
241,002
 
                 
Income tax recovery
   
(126,221)
     
(427,693
)
Income tax recovery from discontinued operations
   
(126,221)
     
(366,790
)
Income tax recovery from continuing operations
   
-
     
                  (60,903)
 
                 
The Company’s income tax recovery is allocated as follows:
               
                 
Current tax expense
 
$
-
   
$
-
 
Future tax recovery
   
(126,221)
     
(427,693
)
                 
   
$
(126,221)
   
$
(427,693
)

The Company’s future income tax assets and liabilities as at June 30, 2011 and December 31, 2010 are as follows:
 
   
June 30, 2011
   
December 31, 2010
 
Future Income Tax Assets:
               
Non-capital losses
 
$
4,631,137
   
$
3,187,580
 
Reserve – Contingency
   
-
     
106,250
 
Property, plant and equipment
   
155,853
     
83,347
 
                 
     
4,786,990
     
3,377,177
 
Less: Allocated against future income tax liabilities
   
(118,769
)
   
(715,426)
 
Less: Valuation allowance
   
(4,668,221
)
   
(2,661,751
)
                 
 Total
 
$
-
   
$
-
 
                 
Future Income Tax Liabilities:
               
Section 481 (a) adjustments
 
$
(15,226
)
 
$
(30,451
)
Intangible assets
   
(103,543
   
(811,196
)
Less: Reduction due to allocation of applicable future income tax assets
   
118,769
     
715,426
 
                 
  Total
 
$
-
   
$
(126,221
)
 
16

 
 
NOTE 10 – LONG TERM DEBT

   
June 30,
2011
   
December 31,
2010
 
Equipment loan bears interest at 3.9% per annum, secured by the equipment and matures on May 10, 2015, repayable in monthly installments of  approximately $1,194
 
$
 51,884
   
$
 
 
-
Mortgage bears interest at 7% per annum, secured by the land and building, and matures on June 15, 2015.  Principal and interest are due, in their entirety, at maturity.
   
 288,792
     
280,561
 
Mortgage, non-interest bearing, secured by the land and building, and matures on October 4, 2011. Principal is due, in its entirety, at maturity.
   
    216,832
     
-
 
     
557,508
     
280,561
 
Less: current portion equipment loan
   
12,569
     
-
 
Less: current portion mortgage payable
   
216,832
     
-
 
     
229,401
     
-
 
   
$
328,107
   
$
280,561
 
 
The following annual payments of principal are required over the next five years in respect of these mortgages:
 
   
Annual Payments
 
To June 30, 2012
 
$
229,384
 
To June 30, 2013
   
12,985
 
To June 30, 2014
   
13,501
 
To June 30, 2015
   
301,638
 
To June 30, 2016
   
-
 
Total repayments
 
$
557,508
 
 
NOTE 11 – COMMITMENTS AND CONTINGENCIES

Commitments

One of the Company’s subsidiaries entered into a consulting service contract with a shareholder. The minimum future payment is equal to fifty percent of the operating income generated from the operations of two of the most profitable devices and 10% from all the other devices in marine industries.
 
The Company leases facilities and equipment under leases with terms remaining of up to 20 years. The leases include Javaco, and the JBI recycling facility.
 
 
17

 

All future payments required under various agreements are summarized below:
 
To June 30, 2012
 
$
213,941
 
To June 30, 2013
   
161,237
 
To June 30, 2014
   
139,185
 
To June 30, 2015
   
126,238
 
To June 30, 2016
   
111,974
 
Thereafter
   
1,174,176
 
Total
 
$
1,926,751
 
 
The Company entered into a consulting service agreement with a shareholder. The Company is committed to issue the following number of shares in exchange for the consulting service.
 
On or before August 1, 2011:               75,000 common shares
On or before November 1, 2011:            75,000 common shares
On or before February 1, 2012:      50,000 common shares
 
Contingencies
 
In August 2010, a former employee filed a complaint against the Company’s subsidiary alleging wrongful dismissal and seeking compensatory damages.  The Company denied the validity of the contract which was signed by the former employee as employee and as president of the subsidiary. The Company entered into negotiations with the former employee to trade-off some of the benefits of the alleged employment agreement in return for repayment of debts to the Company incurred by the former employee while in the employment of the Company’s subsidiary.  At December 31, 2010 the debt in the amount of $346,386 was written off and an estimated settlement of $26,000 was accrued.  During the period the Company received $66,840 in cash, recorded as a recovery of bad debts, and $9,754 in inventory returns relative to the debt previously written off.
 
During the 2010 fiscal year, the former owner of one of the Company’s subsidiaries filed a complaint against the Company’s subsidiary alleging wrongful termination of his employment contract and seeking compensatory damages. The Company paid $48,335 during the second quarter of 2011 as full settlement of this claim. The Company had previously accrued and expensed $48,000 in respect of this matter in the condensed consolidated financial statements for fiscal 2010 
 
In September 2010, an investor filed a lawsuit against the Company for failure to timely remove restrictive legends from his shares in the Company. The outcome of this claim is not determinable at the time of issue of these interim condensed consolidated financial statements and the costs, if any, will be charged to income in the period(s) in which they are reasonably determinable.  This investor has filed other lawsuits against the company however they were dismissed.
 
In March 2011, a former employee filed a complaint against the Company and its subsidiaries alleging wrongful dismissal and seeking compensatory damages. The outcome of this claim is not determinable at the time of issue of these interim condensed consolidated financial statements and the costs, if any, will be charged to income in the period(s) in which they are reasonably determinable.
 
At June 30, 2011, the Company is involved in litigation and claims in addition to the abovementioned legal claims, which arise from time to time in the normal course of business.  In the opinion of management, any liability that may arise from such contingencies would not have a significant adverse effect on the financial statements of the Company.

NOTE 12 – SHAREHOLDERS’ EQUITY

Common Stock and Additional Paid in Capital

On March 25, 2011, the Company closed an asset purchase agreement to purchase land and building from an independent party. Under the terms of the aforementioned agreement, the Company was to issue 44,964 shares of common stock, par value $0.001 per share, valued at $26,979 as part of the consideration. During the period, the Company issued the 44,964 shares to the vendor for total proceeds of $26,979.
 
 
18

 

In December 2010, the Company consummated a confidential private placement for the issuance and sale of 2,430,000 shares of common stock at a price of $0.50 per share.  The Company received gross proceeds in the amount of $1,189,000, net of share issue costs of $26,000. The 2,430,000 shares of common stock were issued on January 19, 2011.
 
On January 19, 2011, the Company issued 223,334 shares of common stock as compensation to various parties. The shares were valued at $145,167 and were charged to operations in prior year.

On January 28, 2011, the Company issued 100,000 shares of common stock to a former employee as severance expense of $82,000. The shares issued have been valued at the closing share price on the respective issue date and were reported as operating expenses in the statement of operations.

On March 1, 2011, the Company issued 375,000 shares of common stock to two individuals at an expense of $300,000 as compensation for services provided. The shares issued have been valued at the closing share price on the respective issue date and were reported as operating expenses in the statement of operations except $40,000 which is recorded as prepaid expenses.

On March 12, 2011, the Company issued 240,924 shares of common stock to various parties at an expense of $192,739 as compensation for services provided. The shares issued have been valued at the closing share price on the respective issue date and were reported as operating expenses in the statement of operations.

In June 2011, the Company consummated a confidential private placement for the issuance and sale of 2,010,484 shares of common stock at a price of $0.70 per share.  The Company received gross proceeds in the amount of $1,407,339, net of share issue costs of $Nil.  The Company also had subscriptions for an additional 407,071 shares for proceeds of $284,950.

On April 15, 2011, the Company issued 184,099 shares of common stock to various parties at an expense of $390,290 as compensation for services provided. The shares issued have been valued at the closing share price on the respective issue date and were reported as operating expenses in the statement of operations.

On May 17, 2011, the Company issued 214,286 shares of common stock valued at $150,000 to an individual for reimbursement for expenses incurred on the Company’s behalf ($50,000) and repayment of temporary cash advances provided to the Company ($100,000). The $50,000 of shares issued have been reported as operating expenses in the statement of operations and $100,000 of shares have been applied against the temporary cash advance provided to the Company.

On May 17, 2011, the Company issued 125,000 shares of common stock valued at $408,750 to an individual for investor relations and other related services to be rendered to the Company. The shares issued have been valued at the closing share price on the respective issue date and was reported as operating expenses in the statement of operations except $136,250 which is recorded as prepaid expenses.

On June 15, 2011, the Company issued 205,307 shares of common stock to various parties at an expense of $164,246 as compensation for services provided. The shares issued have been valued at the closing share price on the respective issue date and were reported as operating expenses in the statement of operations.
 
On June 22, 2011, the Company issued 49,658 shares of common stock to various parties at an expense of $206,081 as a compensation for services provided. The shares issued have been valued at the closing share price on the respective issue date and were reported as operating expenses in the statement of operations.

On June 12, 2011, the Company issued 210,000 shares of common stock to various parties at an expense of $178,500 as compensation for services provided. The shares issued have been valued at the closing share price on the respective issue date and were reported as operating expenses in the statement of operations.
 
 
19

 

In June 2011, the Company consummated a confidential private placement with certain accredited investors for the issuance and sale of 8,157,057 shares of common stock.  The offering was at $0.70 per share and the Company had subscriptions for these shares which amounted to proceeds of $5,709,940. The Company received $5,688,406 of these proceeds with the balance of  $21,534 recorded as subscription receivable  at June 30, 2011.
 
On June 23, 2011, the board of directors authorized the issue of 266,971 shares of common stock to certain employees at an expense of $1,049,196 as compensation for services provided. The shares issued have been valued at the closing share price on the respective dates of approval and were reported as operating expenses in the statement of operations.
 
NOTE 13 – RELATED PARTY TRANSACTIONS AND BALANCES

On October 15, 2010 the Company entered into an unsecured short-term loan agreement with a shareholder in the amount of $200,000, denominated in Canadian dollars (Note 8(a)).

In November 2010, a member of the Board of Directors entered into a short-term loan agreement with the Company in the amount of $ 30,000 (Note 8(a)).
 
On December 1, 2010 the Company entered into a secured short-term loan agreement with a shareholder in the amount of $100,000, denominated in Canadian dollars. (Note 8(a)).

On December 14, 2010 the Company entered into a short-term loan agreement with an existing shareholder in the amount of $35,000 (Note 8(a)).  This loan was settled with the issuance of common stock during the period (Note 12).
 
NOTE 14 – SEGMENTED REPORTING
 
The Company has three principal operating segments, Plastic2Oil, Javaco and Corporate. These operating segments were determined based on the nature of the products and services offered. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company’s chief executive officer has been identified as the chief operating decision maker, and directs the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.
 
The Company evaluates performance based on several factors, of which the primary financial measure is net income. The accounting policies of the business segments are the same as those described in “Note 2: Summary of Accounting Policies.” Intersegment sales are accounted for at fair value as if sales were to third parties. The following tables show the operations of the Company’s reportable segments:
 
 
20

 
 
Six Months Ended June 30, 2011
   
Corporate
   
Plastic2Oil
   
Javaco
  Total  
Sales
 
$
-
   
$
86,015
   
$
1,030,485
   
$
1,116,500
 
Net Loss
 
$
(2,893,182)
   
$
(3,828,458)
(1)
 
$
(461,854)
   
$
(7,183,494)
 
Total Assets
 
$
4,853,929
   
$
2,765,911
(2)
 
$
491,611
   
$
8,111,451
 
Accounts Receivable
 
$
32,500
   
$
423,199
   
$
138,919
   
$
594,618
 
Inventories
 
$
-
   
$
-
   
$
286,404
   
$
286,404
 
 
Three Months Ended June 30, 2011
   
Corporate
   
Plastic2Oil
   
Javaco
  Total  
Sales
 
$
-
   
$
86,015
   
$
448,831
   
$
534,846
 
Net Loss
 
$
(1,954,848
)
 
$
(2,566,782)
(1)
 
$
(20,567)
   
$
(4,542,197)
 
 
 
Six Months Ended June 30, 2010
   
Corporate
   
Plastic2Oil
   
Javaco
  Total    
Sales
 
$
36,985
   
$
-
   
$
4,054,095
   
$
4,091,080
 
Net Income / (Loss)
 
$
(3,956,613)
   
$
(328,920)
   
$
       68,082
   
$
(4,217,451)
 
Total Assets
 
$
1,526,122
   
$
3,740,946
   
$
5,336,628
   
$
10,603,696
 
Accounts Receivable
 
$
-
   
$
413,943
   
$
2,128,228
   
$$$
2,542,171
 
Inventories
 
$
-
   
$
-
   
$
521,630
   
$
521,630
 
 
 
Three Months Ended June 30, 2010
   
Corporate
   
Plastic2Oil
   
Javaco
   
Total
 
Sales
 
$
10,865
   
$
-
   
$
2,059,522
   
$
2,070,387
 
Net Income / (Loss)
 
 $
(1,322,522)
   
$
(328,920)
   
$
52,232
   
$
(1,599,210)
 

(1)