JBI Inc. flounders over financials
2010-07-08 12:09 ET - Street Wire
by Janice Shell http://www.stockwatch.com/newsit/newsit_newsit.aspx?bid=Z-U:JBII-1738827&symbol=JBII&news_region=U
Canadian stock promoter John Bordynuik has so far been unable to stop the two-month disintegration of his once high-flying stock promotion, JBI Inc. The Ontario company, based in Niagara Falls, has seen its shares, which began May at $5.50, sink to a recent intraday low of 75 cents on the U.S. Over-the-Counter Bulletin Board. They closed yesterday at $1.20. (All figures U.S.)
JBI Inc. which has several business endeavours, began life in Ontario in 2006 as a data recovery business called John Bordynuik Inc. On July 15, 2009, it went public on the OTC-BB by reverse takeover of a company called 310 Holdings Inc., of which Mr. Bordynuik had bought 40.25 million shares in April.
Besides its data recovery business, JBI now has (1) an oil-from-plastics scheme; (2) a subsidiary called JAVACO that distributes tools, cables and other equipment; and (3) a subsidiary called Pak-It LLC that sells cleaning concentrates.
For the year ending Dec. 31, 2009, JBI had total revenue of $13,401,820 and lost $27,234. Although the data recovery, equipment distribution and cleaning businesses are small and collectively unprofitable, there is at least some business going on. These mundane and unprofitable activities, however, were not behind JBI's once-booming stock promotion. That honour goes to the oil-from-plastics scheme.
Oil from plastics
On April 24, 2009, the day Mr. Bordynuik became the controlling shareholder of JBI's predecessor, 310 Holdings, the stock shot up from five cents to 50 cents. On July 9, two weeks after announcing the reverse takeover of John Bordynuik Inc., and six days before it closed, Canada's new gift to the OTC-BB promotional scene announced that his company had "developed a process to break down plastic molecules in order to extract fuel from plastic: Plastic2Oil." His 40.25 million shares (since reduced by 31 million in exchange for voting control) closed that day at $1.49 and the story began in earnest. The company would seek patents.
Mr. Bordynuik says that while reading a batch of old tapes from "the company's engineering archive," part of JBI's data recovery company, he came upon some potentially interesting and exploitable information: a formula for a catalyst used to extract oil from discarded plastic. According to the company, an unnamed party recorded the formula before plastic waste became ubiquitous and when oil prices were extremely low, so it remained an idea.
Now, with oil prices high and environmentalism in full bloom, the idea of converting waste plastic back to oil has become a promotable one, as promoter Bordynuik has proven. Others have tried, but all have come up short compared with the claims of JBI's Plastic2Oil, or P2O. The company claims that its processor, unlike those of competitors, accepts mixed, unwashed and unsorted plastics that can be continuously fed into its machine along with doses of a magic catalyst. Minimal external energy is required because as the plastic breaks down, it emits natural gas that is used as fuel. Approximately one litre of oil can be extracted from every kilogram of plastic processed, claims the promoter.
JBI said it would own and manage some P2O sites; others would be licensed under a revenue-sharing model. On Dec. 22, 2009, with the promotion humming along and its shares at $3.55, JBI signed a letter of intent for an area development agreement for 45 P2O sites in Florida with AS PTO, LLC, an entity controlled by Al Sousa of Largo, Fla. On the same day, the company and Rick Heddle of Heddle Marine Services formed a joint venture. Heddle Marine, a Canadian outfit based in the Port of Hamilton, would retrofit ships with P2O processors. Mr. Bordynuik called these events and the launch of P2O in 2010 "an important harbinger for job creation, environmental clean-up, and oil production." His initial goal was 2,500 P2O sites, made possible by JBI's discovery of a "unique catalyst" and a 99-per-cent recovery rate.
Even more exciting for investors was Mr. Bordynuik's profit projection. With a P2O cost of $10 a barrel and a selling price of $67 a barrel, buyers kept bidding up the shares. On Dec. 30, eight days after the dazzling profit projection, the shares closed at $7.20 after touching an intraday high of $7.70. It would be the promotion's all-time high.
Mr. Bordynuik, now 40, describes himself as a former whiz kid, who as a boy found himself fascinated with computers. As the story goes, instead of toys the young lad played with equipment "donated" to him by technology companies such as Honeywell, IBM, and Digital Equipment Corporation. The unstated comparison with Bill Gates of Microsoft is as inescapable as it is unlikely.
Community newspapers, with their wide-eyed fondness for local-boy-does-well stories, are a favourite destination for stock promoters such as Mr. Bordynuik. In 2007, he and Niagara This Week had a little sitdown. He recalled for the reporter that as a mere boy of seven he decided to try and build a robot. Parts and equipment were expensive, he told the paper, so his father somehow obtained old computers from local companies. Little John -- it would have been about pre-PC 1977 -- never built his robot, but he learned all about electronics, he says, by taking old computers apart, repairing them, and putting them back together.
It was an unlikely interest for a child, and makes a curious if dubious tale. Some of the first machines he claims to have worked on were DEC PDP-8s. Though not designed for home use, the PDP-8 was much smaller than a mainframe. For several years during the 1970s, it was the best-selling computer in the world. By the 1980s, with the advent of the first PCs and Macs, the PDP-8 had fallen out of favour, and old models were apparently Mr. Bordynuik's for the asking.
In 1989, the prodigy entered Brock University; only a year later he dropped out, he says, to work in research and development for the IT department of the Ontario Provincial Legislature. He stayed at Queen's Park for 10 years. While there, he became an expert in data recovery, repairing or redesigning obsolete equipment and recovering old information thought to be lost forever.
In 2000, having honed his data recovery skills, he struck out on his own. Since then, he claims to have successfully read and converted legacy data stored on thousands of computer tapes from 30 to 40 years ago, having worked for the Massachusetts Institute of Technology, the U.S. Army and NASA, among others. JBI (Ontario) is still in the business of digitizing magnetic tape data. As luck would have it, this recovery work would lead to Mr. Bordynuik's oil-from-plastics promotion.
Almost ready for production
On Dec. 9, 2009, JBI hired IsleChem, LLC, a company located on Grand Island, N.Y., to analyze its plastic to oil product and assist with preparing documentation required for state permits. IsleChem, now a private company, was once the research and development division of Occidental Petroleum.
IsleChem concluded that the P2O process is repeatable and scalable. It said 85-95 per cent of the hydrocarbon composition in the feedstock is converted into a "near diesel" fuel; 8 per cent is converted into a usable gas much like natural gas. Only 1 per cent of the feedstock remains in the processor as non-toxic residue. There is no evidence of air toxins in the emissions given off in the course of the processing. Finally, more energy value is produced than is consumed by the process; "early data suggests that it is by as much as a factor of two."
On April 12, 2010, JBI filed a Form 8-K containing IsleChem's report.
The first operational P2O facility managed by JBI was to be in Niagara Falls, N.Y. On Feb. 4, 2010, the company formed a wholly owned New York corporation, JBI RE #1, Inc., to purchase a 14,860-square-foot industrial property located on 3.37 acres. On Feb. 12, with the stock at $6.40, JBI announced that it had signed a purchase agreement for a fully equipped fuel blending and distribution site somewhere in the U.S. for $130,000.
At its annual general meeting on April 24, 2010, JBI proclaimed that its P2O processor "has been built, tested and is ready for production." The charismatic Mr. Bordynuik gave a slide presentation showing how the machine works. The 450 attendees, all shareholders, were then taken to see the P2O in action. Unfortunately, the shareholders were unable to see the entire process that day. Instead Mr. Bordynuik passed around small containers filled with a liquid that looked and smelled like diesel fuel.
Doubts about P2O
While a green technology capable of dealing with the vast amount of waste plastic dumped in our landfills has a great deal of appeal, it remains to be seen whether the P2O system works as well as Mr. Bordynuik and IsleChem claim, whether it is suitable for large-scale production, and whether it is economically viable.
Many investors are enthusiastic, but the system has only been tested by IsleChem. No documentation of results exists, apart from the sketchy report filed with the SEC. The catalyst is not patented; like the formula for Coca-Cola, it is a trade secret. Its precise composition is unknown. Nonetheless, on April 26, the Monday following the Saturday AGM, JBI closed up 33 cents at $5.53.
So what went wrong that caused the promotion to start collapsing a week later?
The stock collapse
The acquistions of JAVACO and Pak-It, which we met at the beginning of this tale, seem to be the culprits.
Acquiring JAVACO on Aug. 24, 2009, from another OTC-BB company called Domark International Inc., had the happy result of jazzing up JBI's balance sheet by $9,997,134 in the form of "media credits." As part of the JAVACO aquisition, JBI paid Domark one million shares for the credits, which now appear on JBI's balance sheet as a current asset, boosting the company's working capital to $16.4-million. (Media credits, invented during the dot.com era, supposedly entitle the owner to buy advertising at substantial discounts.)
Whether these media credits are all of or just part of the reason for Mr. Bordynuik's market troubles is not clear, but what is clear, and troublesome for shareholders, is that the company must restate its financial statements. According to a Form 8-K submitted to the Securities and Exchange Commission on May 14, the company's annual report for the year ended Dec. 31, 2009, and the quarterly report for the period ending Sept. 30, 2009, should "no longer be relied upon." A restatement was necessitated by (1) the accounting treatment of two acquisitions completed during 2009, and (2) the valuation of media credits acquired by the company in 2009 in exchange for common stock, according to the 8-K. The selling accelerated.
On May 14, 2010, the day JBI submitted the 8-K, and almost two weeks after the stock slide started, the company abruptly fired its auditor Gately & Associates and hired Withum Smith+Brown, PC. JBI's predecessor, 310 Holdings, Inc., changed accountants three times in less than one year, hiring the notorious Moore and Associates, Chartered, twice. A few weeks after Mr. Bordynuik merged his company into 310 Holdings in July, 2009, he fired Moore and Associates, replacing them with Seale and Beers, CPA. Ten days later, he replaced Seale and Beers with the now departed Gately & Associates.
The dreaded "E"
On May 27 -- the stock had fallen to $2.13 -- regulators appended an "E" to the company's ticker symbol. The suffix usually comes off after 30 days. If the company has satisfied regulatory requirements it will stay on the OTC-BB; otherwise it is off to the Pink Sheets. JBI has requested a hearing to forestall the delisting, which will at least result in an extension. If the company files its now delinquent March, 2010, financials and restates the earlier ones by the extension date, it will continue to trade on the OTC-BB. If not, it will be delisted to the Pink Sheets where much Canadian garbage already trades.
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