Plastic2Oil Inc (PTOI)

[tykundegex]

Comments welcome:

The 10Q showed $76k worth of "finished goods". I'm told by IR that this was ready-to-ship fuel, and has a market value of $250k. GAAP requires them to state the value of finished goods as the of lower of 1) total costs to produce the goods, or 2) the market value of the goods.

It is reasonable to assume that the cost to produce the goods is roughly the equivalent the COGS. (ref: http://www.ehow.com/how_4423284_calculate-finished-goods.html)

This would seem to imply that gross margin (for the finished goods in inventory) was 70% ($76k was cost to product finished goods worth $250k). The much lower margin from the 10Q [understatement] was explained as being as result of the contaminated feedstock, for which the costs of transporting/shredding/etc were counted in COGS, but for which no usable fuel was produced. Admittedly we don't know much that added to COGS.

Nevertheless, it seems to indicate that a respectable margin is achievable. Had the $250k of inventory been sold, we'd have had $440k in revenue (190 actual + 250 inventory), with a COGS of $265k (189 actual + 76 cost of finished goods)., or 30% margin for the entire Q.

That's good news on the margin side... but now for the uptime side...

$250k of fuel is roughly 3000 barrels of fuel, or 24 days worth production (@ old DEC rates of 20 tons/day). In reality it's a little less since Q2 ended with a small amount of "finished goods" also. But the point is that processor #2 alone appears to have produced a total 5000 barrels of fuel last Q. At old DEC rates that's 40 days up-time. The filing seems to imply that at least 1 month was lost due to downtime (contamination clean-out + cyclone installation), which leaves 60 days -- or 66% uptime for the rest of the Q. Very respectable.

If all this is true, then we can run 2 scenarios:

Baseline Q4
. they get proc #1 running by December
. both procs run @ 66% uptime
. both procs run at old DEC rates (20 tons/day)
. they end the Q with equal amounts of finished goods
. gross margin stays low around 30%

We would be looking at sales of $850k and gross profit of $255k.

Modestly Optimistic Q4
. same as above but...
. they close the Q with no inventory
. both proc run at 30 tons/day
. gross margin is 50%

We would see sales of $1.52MM and gross profit of $760k

There's our path-to-profitability.

And if P2O really hits its stride, and they achieve 3 procs running, 70% uptime, 40 tons/day, 70% margin, then we're looking at $2.8m gross profit per Q.

Comments, corrections, critiques welcome. (all calculations are based on a modest $85/bbl spec fuel)