Plastic2Oil, Inc.

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

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

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

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

The weighted-average remaining contractual life of the non-qualified stock options outstanding and exercisable, as of September 30, 2019 were approximately 9.5 years and 4 years, respectively. Share-based compensation represents both stock options based expense and stock grant expense. Stock compensation expense is included in general and administrative expense for the periods then ended. At September 30, 2019, the Company had approximately $70,000 of total unamortized share-based compensation expense, related to stock option plans that will be recognized over the weighted average remaining period of 2 years.

The Company has recently entered into a Master Agreement and Purchase Order to provide several units and other services that is awaiting an initial deposit to commence work. The initial deposit is tied to final governmental approvals and contract awards that are currently working its way through the procurement cycle. There can be no assurance that these awards will be made and that the initial deposit due under the Master Agreement and Purchase Order will be honored.