Plastic2Oil Inc (PTOI)

[scion]

JBI Inc. suffers summertime blues

2010-08-26 11:39 ET - Street Wire
by Janice Shell
http://www.stockwatch.com/News/Item.aspx?bid=Z-U:JBII-1753910&symbol=JBII&news_region=U

It has been a horrible summer for Canadian stock promoter John Bordynuik and his Niagara Falls, Ont. company, JBI Inc. Following a series of mishaps and promises not delivered, his stock has been demoted to the lowly Pink Sheets and his status as local hero much diminished.

As recently as the beginning of May the company that hopes to turn plastic back into oil looked like a winner, or at least its stock did. The shares were at $5.50, (All figures U.S.) and the 450 shareholders who attended the April 24 annual general meeting were enthusiastic about their leader and impressed by his glowing description of JBI's prospects.

Giddy predictions of $20 a share in the near future ceased abruptly on May 14, when the company announced that its 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." In the absence of an accurate annual report for 2009, the company was unable to file its 10-Q for the first quarter of 2010 with the Securities and Exchange Commission.

On May 27, the SEC appended the dreaded "E" to JBI's symbol; the company needed to file the delinquent 10-Q within 30 days, or be delisted from the U.S. OTC Bulletin Board to the Pink Sheets. As weeks passed, and hope of filing on time waned, the stock drifted down to a little above $1, even touching an intraday low of $0.75 on June 22.

The missing 10-Q finally appeared on July 16. Two trading sessions later, by which time it had become painfully clear that the "E" would not magically disappear, the stock, which had popped briefly to $1.77, slumped back to $1.20. In an effort to stop the bleeding, Mr. Bordynuik announced that he would be hosting a conference call on July 21.

Mr. Bordynuik explains

In the course of the conference call, Mr. Bordynuik confidently announced that progress was being made in the matter of JBI's stock listing: the "E" was to be removed within 3-5 business days, and JBI would begin trading on the OTCQX on July 23.

The OTCQX is Pink OTC Markets' "superior" tier. Companies qualifying for it are obliged to submit audited annual reports and unaudited quarterly reports, though they need not submit them to the SEC. Pink OTC insists that the OTCQX listing requirements are as stringent as those of the Nasdaq.

July 23 arrived, and JBI had not shed its "E." Worse, it was not quoted on the OTCQX. Finally, on August 6 JBI's ticker shed its scarlet "E" as FINRA dropped the stock from the OTC-BB and reclassified it "Other OTC," also known as the Pink Sheets. On Aug. 19, Pink OTC Markets upgraded JBI to its OTCQX. The change in market tier had no significant effect on the stock price; JBII closed at $0.84.

The restated annual report

JBI Inc. consists of three unprofitable businesses and the plastics-to-oil dream. The first business is a data recovery firm called John Bordynuik, Inc., founded in 2006. The other two are subsidiaries acquired in late 2009: JAVACO, which distributes tools and cables in the U.S. and Latin America; and Pak-It LLC, which packages and sells cleaning concentrates.

As it turned out, when JBI's amended 10-K for 2009 finally appeared on July 9, there were no real surprises.

It had already been known that the company needed to "correct" the valuation of media credits it had acquired in exchange for equity at the time of the purchase of JAVACO. (Media credits, invented during the dot.com era, entitle the owner to buy advertising at substantial discounts.) In the original 10-K, filed on March 31, 2010, the credits had been booked as an asset worth $9,997,134. This error, and additional misstatements, had an unhealthy effect on the bottom line in the amended report: a decrease in total assets of approximately $11,507,000 and an increase in net loss of approximately $2,178,000.

The company's biggest fans, many of whom had purchased the stock when it was trading above $5, greeted the new 10-K with relief, telling each other that it could have been worse. They expected the stock price to recover briskly, and the market initially obliged. On July 8, the day before the 10-K was filed, the stock closed at $1.19; two sessions later it reached $1.77, and held around that level for the next week. It was when the filing of the delinquent quarterly sent the stock price down, not up, that Mr. Bordynuik decided to schedule another conference call.

Another conference call

Investors had high hopes for the call. Surely their charismatic CEO would not fail them. Disappointing financial reports could be dismissed; after all, the past is the past. Perhaps they would learn more about progress on the P2O scheme. Perhaps Mr. Bordynuik would announce that P2O would soon be operational, and their troubles would be over.

Instead, an uncharacteristically subdued Mr. Bordynuik read from a script, and that script raised issues that came as a surprise to most listeners. After briefly addressing the changes to the company's financial statements, he moved on to P2O.

At the time of the April 24 annual meeting, Mr. Bordynuik had assured those in attendance that the process was working without a hitch: all that was needed for it to become fully operational and begin bringing in revenues was a "simple air permit," which would be granted by the New York State Department of Environmental Conservation (DEC) as soon as a "stack test" for emissions was completed.

In the course of the call, investors learned that oxygen sensors purchased from a "Fortune 500 company" had been failing consistently; the heat generated by the processor melted the membrane that covered them. This was a serious problem, because oxygen aids combustion dramatically. New sensors were finally located and installed. Now the processor can run in "steady state," which is to say continuously, a requirement for the eventual stack test. The stack test, according to Mr. Bordynuik, has been "tentatively scheduled."

The sensors were not the only problem. To create the P2O processor, JBI modified a machine purchased in China to increase the amount of oil recovered from the plastic feedstock. A byproduct of this enhancement was the creation of additional off-gases that must be controlled. Mr. Bordynuik explained that it would be possible, though environmentally undesirable, to flare these gases. His solution was to design a compression system in which the gas could be stored in a stable state.

Questions raised

Critics, and even some defenders, of the P2O promotion found all this more than a little disturbing. It seems unlikely that Mr. Bordynuik was unaware of these problems when he gave his enthusiastic presentation and answered shareholders' questions at the highly successful annual meeting in April.

In response to a written question, Mr. Bordynuik insisted that adding the gas compression system to the P2O processor would have little effect on the overall cost of the unit. That is important, because JBI intends to franchise some of its machines. He further explained that one compression unit could be used with several processors, and that the total cost for each processor would still be around $200,000, a figure originally offered many months earlier.

Mr. Bordynuik was also asked about his source of plastic feedstock. He replied that he had several sources in New York state. He stressed that at the moment, the company is focusing on high hydrocarbon content plastics, and in doing so brought up a point often raised by his critics. High hydrocarbon plastics are considerably easier to recycle than those containing significant quantities of additives. For that reason, they are sought after, and are not necessarily free. In the past, JBI has given the impression that its feedstock will cost them nothing except, perhaps, hauling charges.

The conference call ended on a high note: P2O will go into commercial production as soon as the air permit is obtained. The company has, however, promised that production was imminent since August 2009.

If Mr. Bordynuik had hoped to allay investors' concerns, he did not succeed. On July 22, the day after the call, the stock closed at $0.97. The following day it plunged to $0.61 intraday. Though it subsequently stabilized between $0.75 and $0.80, it appears unable to move back above $1.

10-Q for the 2nd quarter, 2010

On Aug. 13, JBI filed its financial report for the second quarter of 2010 with the SEC. (Although JBI's stock has been delisted to the Pinks, once a filer, always a filer: the company is still obliged to submit Ks and Qs to Edgar.) Like the amended 10-K and the once-delinquent 10-Q, it provides little new insight into the company's operations.

Total current assets continue to decline, though not dramatically: as of June 30, they were $5,996,261. The data recovery business's net sales are now negligible, as they were during the first quarter. As Mr. Bordynuik noted in the conference call, his energies are focused on P2O.

Mr. Bordynuik appears to be floundering along with his promotion. Management failed in its quest to keep JBI's stock on the OTCBB; they seem not even to have understood what they needed to do to ensure a continued listing. Previously unknown problems with P2O have suddenly come to light. The air permit has not yet been received. Work on the process is burning money, as the process itself brings in no revenues. Clearly the company will have to attempt to raise some serious cash in the future, but even Mr. Bordynuik does not seem to know when that will be.

In one section of the new 10-Q, it is said that "management believes that our Company's cash will be sufficient to meet our working capital requirements for the next twelve month period " Elsewhere, investors are assured that "while the Company does not currently have sufficient cash for the next 12 months," it should be possible for it to obtain a loan, if necessary. Presumably the public will learn which statement is correct in the fullness of time.

Readers can send comments about this story to [e-mail].

Further information about JBI, Inc., may be found in a Stockwatch article dated July 8, 2010.

http://www.stockwatch.com/News/Item.aspx?bid=Z-U:JBII-1753910&symbol=JBII&news_region=U