The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
For the Three and Six months ended June 30, 2015 and 2014
Note 1 – Organization, Nature of Business, and Significant Accounting Principles
Organization and Nature of Business to Date
Garb Oil & Power Corporation (the “Company” or “Garb”) was incorporated in the State of Utah in 1972 under the name Autumn Day, Inc. The Company changed its name to Energy Corporation International in 1978 and to Garb-Oil Corporation of America in 1981, which marked the start of the Company’s development state in the energy and recycling industries. The Company changed its name to Garb Oil & Power Corporation in 1985 and then to Garb Corporation in May 2013. In February 2014, the Company changed its name back to Garb Oil & Power Corporation.
On October 27, 2009, the Company entered into an agreement to purchase Resource Protection Systems GmBH, a company organized and currently active under the laws of Germany (“RPS”). The purchase was for all outstanding shares, as well as for specified RPS assets and liabilities. The RPS specified assets were not transferred to the Company and therefore the purchase was not fully consummated. On January 15, 2010, RPS purchased 80% of the issued and outstanding stock of Newview S.L., a company organized under the laws of Spain (“Newview”).The Company, RPS and Newview were considered entities under common control.
Effective August 21, 2013, all of the Company’s executive officers and directors at the time resigned and therefore the Company, RPS and Newview were no longer considered to be entities under common control. Also effective August 21, 2013, following the resignation of the Company’s management at the time, Ms. Tammy Taylor was appointed as the Company’s Chief Executive Officer, President and Principal Financial Officer, and Ms. M. Aimee Coleman was appointed as the Company’s Corporate Secretary and Principal Accounting Officer. Ms. Taylor was also appointed as the Company’s sole director.
On January 24, 2014 the Company signed a letter of intent (the “LOI”) and a collaborative effort agreement (the “CE Agreement”) with Shredderhotline.com Company (“Shredderhotline”) and Dan Scott Burda, Shredderhotline’s President/Owner. In general, the CE Agreement provided that the two ranking executive officers of both companies’ will collaborate on future sales and operations within a newly formed wholly owned subsidiary of the Company, Garb Global Services, Inc. (“Garb Global”). On November 18, 2014, the Company and Shredderhotline mutually determined that their business interests had diverged and the Company and Shredderhotline released one another from their rights and obligations under the LOI and CE Agreement both dated January 24, 2014. Garb Global continues as a wholly owned operating subsidiary of the Company. As of June 30, 2015, the Company's consolidated financial statements include the accounts of Garb and Garb Global. All intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The unaudited interim financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Company’s annual statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the December 31, 2014 audited financial statements and the accompanying notes thereto included in our annual report on Form 10-K. While management believes the procedures followed in preparing these unaudited financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.
These consolidated unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.
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Fair Value of Financial Instruments
The Company’s financial instruments include accounts receivable, accounts payable and accrued expenses, related party payable, notes payable, related party notes payable and derivative liabilities. The principal balance of accounts receivable, accounts payable and accrued expenses, related party payable, notes payable and related party notes payable approximate fair value because current interest rates and terms available to the Company for similar instruments are substantially the same.
Derivative liabilities are recorded at fair value. The Company uses a framework for measuring fair value with a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.
The fair value hierarchy for recurring fair value measurements is as follows:
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Fair Value
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Fair Value Measurements at June 30, 2015
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as of
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Using Fair Value Hierarchy
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June 30, 2015
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Level 1
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Level 2
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Level 3
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Liabilities:
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Derivative liability
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$
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2,668,509
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$
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-
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$
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-
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$
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2,668,509
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Derivative liability - related party
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$
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37,039
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$
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-
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$
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-
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$
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37,039
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(Also see Note 5 – Derivative Liability and Note 7 – Derivative Liability – Related Party)
Receivables
As of June 30, 2015 and December 31, 2014 the Company's receivables include $249,051 related to cash received by former management without supportive cash receipts and $350,000 of accounts receivable derived from sales derived from sales of products and services to customers operating as recyclers and tire wholesalers. Amounts that have been invoiced are recorded in accounts receivable when revenue recognition criteria have been met. The Company's allowance for doubtful accounts is based on its historical bad debt experience and on current management's evaluation of its ability to collect individual outstanding balances. The Company had an allowance for doubtful accounts of $599,051 as of June 30, 2015 and December 31, 2014.
Revenue Recognition To Date
Revenue is recognized when the following criteria are met: 1. persuasive evidence of an arrangement exists, which is generally in the form of a signed contract which specifies a fixed price, 2. the sales amount is determinable, 3. when title is transferred, which is when goods shipped to the customer has been received and accepted or services have been rendered, and 4. collection is reasonably assured. The Company engages in product sales.
Note 2 – Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. As shown in the consolidated financial statements, the Company has incurred a net loss of $1,647,581 for the six months ended June 30, 2015 and has a net accumulated deficit of $21,047,725. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate sufficient cash flows to meet its obligations on a timely basis, to obtain additional financing as may be required, and its ability to continue its implementation of operations. Management is continuing its efforts to obtain the necessary financing as may be required to generate sufficient cash flows for current and future operations. Management is pursuing avenues of generating cash or revenues during the next twelve months. The Company is also attempting to interest purchasers, or potential purchasers, of shredders, recycling equipment and new tires, and establishing manufacturing plants. The Company also continues to pursue financing to build and operate its own waste refinement and recycling industrial manufacturing plants.
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There is no assurance that the Company will be able to obtain additional cash flow from operations or to obtain additional financing. If these are not available to the Company, the Company may not be able to continue operations. While management remains confident that transactions will proceed, no assurances can be expressed as to the Company’s continuing viability in the absence of revenues. Current funding has come from operations and sales and the Company is currently in negotiations with several investment sources for equity investment in the company, which if successful, will satisfy long-term operations and capital expenditures. There are no guarantees that such negotiations will be successful.
Note 3 – Related Party Transactions
Related party payable consisted of the following at June 30, 2015:
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June 30, 2015
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Accounts payable to related parties, due on demand, no interest, unsecured
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$
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5,780
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Total
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$
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5,780
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Note 4 – Notes Payable
Both secured and unsecured notes payable balance net of discounts as of June 30, 2015 and December 31, 2014 were $1,596,886, net of debt discounts of $16,616 and $1,454,062, net of debt discounts of $48,189, respectively.
January 1, 2003 Note
A $68,493 unsecured promissory note was entered into on January 1, 2003, is due on demand and plus interest of 12%. The balance of the Note as of June 30, 2015 and December 31, 2014 was $68,493, net of debt discounts of $0.
January 1, 2003 Note
A $165,000 unsecured promissory note was entered into on January 1, 2003, is due on demand and plus interest of 12%. The balance of the Note as of June 30, 2015 and December 31, 2014 was $165,000, net of debt discounts of $0.
January 21, 2003 Note
A $20,000 unsecured promissory note was entered into on January 21, 2003, is due on demand and plus interest of 10%. The balance of the Note as of June 30, 2015 and December 31, 2014 was $20,000, net of debt discounts of $0.
June 24, 2006 Note
A $53,000 promissory note was entered into on June 24, 2006 secured by sales contract and officer guarantee, is due on demand, plus interest of 12% and plus a $5,000 default interest penalty per week. During the year ended December 31, 2013, the Company and the note holder entered into a debt settlement agreement on this note and the January 3, 2002 Note that resulted in forgiveness of the June 24, 2006 Note principal over $35,000 and all accrued interest. During the year ended December 31, 2014, the Company paid $20,000 cash payments toward the June 24, 2006 Note that was settled as a principal only note. The balance of the Note as of June 30, 2015 and December 31, 2014 was $15,000, net of debt discounts of $0.
July 5, 2006 Note
A $2,250 unsecured promissory note was entered into on July 5, 2006, was due September 5, 2006, plus interest of 5% per month and is in default. The balance of the Note as of June 30, 2015 and December 31, 2014 was $2,250, net of debt discounts of $0.
July 5, 2006 Note
A $2,750 unsecured promissory note was entered into on July 5, 2006, was due September 5, 2006, plus interest of 5% per month and is in default. The balance of the Note as of June 30, 2015 and December 31, 2014 was $2,750, net of debt discounts of $0.
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October 11, 2007 Note
A $129,327 unsecured promissory note was entered into on October 11, 2007, is due on demand, plus interest of 18% from October 7, 2005 through January 6, 2006 then $500 per week through April 1, 2009, then $5,000 per month. During the year ended December 31, 2012, the Company issued a total of 15,250,000,000 shares of common stock at an average conversion price of $.000001, or $15,250 as repayment to the original debt holder for principal and accrued interest. During the year ended December 31, 2013 the original debt holder assigned $6,000 worth of note’s accrued interest. During the year ended December 31, 2012 the original debt holder assigned $49,000 worth of note’s principle and accrued interest. The balance of the October 11, 2007 Note owed to the original debt holder as of June 30, 2015 and December 31, 2014 was $327, net of debt discounts of $0.
During the year ended December 31, 2012, the Company issued a total of 6,350,000,000 shares of common stock at an average conversion price of $.000006, or $35,750, as repayment for a portion of the year ended December 31, 2012 Assigned October 11, 2007 Note. The Assigned October 11, 2007 Notes balances total $13,250 as of June 30, 2015 and December 31, 2014, net of debt discounts of $0.
December 31, 2009 Note
A $6,000 unsecured promissory note was entered into on December 31, 2009, is due on demand and plus interest of 36%. The balance of the Note as of June 30, 2015 and December 31, 2014 was $6,000, net of debt discounts of $0.
December 31, 2009 Note
A $7,500 unsecured promissory note was entered into on December 31, 2009, is due on demand and plus interest of 10%. The balance of the Note as of June 30, 2015 and December 31, 2014 was $7,500, net of debt discounts of $0.
December 31, 2009 Note
A $3,000 unsecured promissory note was entered into on December 31, 2009, is due on demand and plus interest of 36%. The balance of the Note as of June 30, 2015 and December 31, 2014 was $3,000, net of debt discounts of $0.
June 23, 2010 Note
On June 23, 2010 the Company converted $43,217 of accounts payable into an unsecured promissory note. The note bears interest at 6% per annum and is due on demand. The balance of the June 22, 2010 Note as of June 30, 2015 and December 31, 2014 was $43,217, net of debt discounts of $0.
June 29, 2010 Note
On June 29, 2010 the Company issued an unsecured promissory note to a professional services provider for $300,000 related to consulting services rendered. The note bears interest at 18% per annum and has a maturity date of July 1, 2010. The note agreement contains a 10% penalty clause if the Company fails to make payment at the maturity date. On July 2, 2010 the Company was in default of the note and recorded penalties of $30,296 to interest expense. During the year ended December 31, 2011, the professional services provider (“Assignor”) entered into $309,250 worth of certain assignment of debt agreements with several investors (“Assignees”) pursuant to which the Assignor granted, transferred and set over until the Assignees its right, title and interest in the June 29, 2010 Note including, without limitation, all rights, interest terms, benefits and advantages of the Assignor to be derived here from and burdens, obligations and liabilities to be derived thereunder. The balance of the June 29, 2010 Note owed to the professional services provider as of June 30, 2015 and December 31, 2014 was $21,046, net of debt discounts of $0.
During the year ended December 31, 2012, the Company issued a total of 324,285,714 shares of common stock at an average conversion price of $.00012, or $39,000, as repayment for several of the year ended December 31, 2011 Assigned June 29, 2010 Note. The Assigned June 29, 2010 Notes balances as of June 30, 2015 and December 31, 2014 was $57,000, net of debt discounts of $0.
December 29, 2010 Note
On December 29, 2010 the Company issued an unsecured promissory note to a professional services provider for $50,000 related to consulting services rendered. The note bears interest at 18% per annum and has a maturity date of December 31, 2010. The note agreement contains a 10% penalty clause if the Company fails to make payment at the maturity date. On December 31, 2010 the Company was in default of the Note and recorded penalties of $5,049 to interest expense. The balance of the December 29, 2010 Note as of June 30, 2015 and December 31, 2014 was $55,049, net of debt discounts of $0.
F-7
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September 22, 2011 Note
On September 22, 2011 the Company issued an unsecured convertible note in the principal amount of $20,000 in exchange for $20,000 in cash consideration. The note bears interest at 8% per annum, has a maturity date of September 22, 2012 and has a 24% default interest rate should the note go into default. On September 23, 2012 the Company defaulted on the note and the note interest per annum increased to 24%. The balance of the September 22, 2011 Note as of June 30, 2015 and December 31, 2014 was $20,000, both net of debt discounts of $0.
October 1, 2011 Note
On October 1, 2011 the Company issued an unsecured promissory note to a professional services provider for $40,700 related to consulting services rendered. The note bears interest at 10% per annum and has a maturity date of April 1, 2012. On April 2, 2012 the Company defaulted on the note. The balance of the October 1, 2011 Note as of June 30, 2015 and December 31, 2014 was $40,700, both net of debt discounts of $0.
November 2, 2011 Note
On November 2, 2011 the Company issued an unsecured convertible note in the principal amount of $33,000 in exchange for $33,000 in cash consideration. The note bears interest at 8% per annum, has a maturity date of November 2, 2012 and has a 24% default interest rate should the note go into default. On November 3, 2012 the Company defaulted on the note and the note interest per annum increased to 24%. The balance of the November 2, 2011 Note as of June 30, 2015 and December 31, 2014 was $33,000, both net of debt discounts of $0.
December 30, 2011 Note 3
On December 30, 2011 the Company issued an unsecured promissory note in the principal amount of $22,000 in exchange for $22,000 in cash consideration. The note bears interest at 10% per annum and has a maturity date of June 30, 2012. On July 1, 2012 the Company defaulted on the note. The balance of the December 30, 2011 Note 3 as of June 30, 2015 and December 31, 2014 was $22,000, both net of debt discounts of $0.
March 7, 2012 Note
On March 7, 2012 the Company borrowed $10,000 pursuant to an unsecured convertible note. The note bears interest at 7% per annum and has a maturity date of January 24, 2013. The note agreement contains a change in the interest rate to 20% default interest rate should the note go into default. On January 25, 2013 the Company defaulted on the note and the note interest per annum increased to 20%. The balance of the March 7, 2012 Note as of June 30, 2015 and December 31, 2014 was $10,000, net of debt discounts of $0.
May 16, 2012 Note
On May 16, 2012 the Company borrowed $20,000 pursuant to an unsecured convertible note. The note bears interest at 15% per annum, has a maturity date of February 16, 2013, and unpaid accrued interest is added to the note’s principal balance at the end of each quarter. The note agreement contains a change in the interest rate to $500 per day default interest rate (or the highest rate allowed by law) should the note go into default. On February 17, 2013 the Company defaulted on the note and the note interest increased to $500 per day. During the six months ended June 30, 2015, $2,208 accrued interest was added to the note’s principal balance. During the year ended December 31, 2014, $8,901 accrued interest was added to the note’s principal balance. The balance of the May 16, 2012 Note as of June 30, 2015 was $31,109 including added accrued interest to date of $11,109 and December 31, 2014 was $28,901 including added accrued interest to date of $8,901, both net of debt discounts of $0.
May 23, 2012 Note
On May 23, 2012 the Company borrowed $15,000 pursuant to an unsecured convertible note. The note bears interest at 15% per annum, has a maturity date of May 23, 2013, and unpaid accrued interest is added to the note’s principal balance at the end of each quarter. The note agreement contains a change in the interest rate to $500 per day default interest rate (or the highest rate allowed by law) should the note go into default. On May 24, 2013 the Company defaulted on the note and the note interest increased to $500 per day. During the six months ended June 30, 2015, $1,656 accrued interest was added to the note’s principal balance. During the year ended December 31, 2014, $6,676 accrued interest was added to the note’s principal balance. The balance of the May 23, 2012 Note
F-8
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as of June 30, 2015 was $23,332 including added accrued interest to date of $8,332 and December 31, 2014 was $21,676 including added accrued interest to date of $6,676, both net of debt discounts of $0.
June 16, 2012 Note
On June 16, 2012 the Company issued a $700,000 unsecured convertible note in exchange for consolidating and paying in full the unsecured notes’ outstanding principal and accrued interest that are identified below. The principal total of the notes consolidated into the June 16, 2012 Note was $544,787 with the Company recognizing the additional $155,213 principal as consulting services expense. The note bears interest at 6% per annum and has a maturity date of June 16, 2014. The note agreement contains a change in the interest rate to 24% default interest rate should the note go into default. On June 17, 2014 the Company defaulted on the note and the note interest per annum increased to 24%. During the year ended December 31, 2014, the Company issued a total of 1,428,571 429 shares of common stock at an average conversion price of $0.0007, or $100,000 as partial repayment of the June 16, 2012 Note. The balance of the June 16, 2012 Note as of June 30, 2015 and December 31, 2014 was $600,000, net of debt discounts of $0.
Notes consolidated into the June 16, 2012 Note
June 29, 2010 Note for consulting services, an assignee – $19,000 remaining assigned principal plus accrued interest
June 29, 2010 Note for consulting services, an assignee – $12,500 remaining assigned principal plus accrued interest
October 15, 2010 Note 1 for consulting services, an assignee – $25,000 assigned principal plus accrued interest
October 15, 2010 Note 2 for consulting services, an assignee – $25,000 assigned principal plus accrued interest
December 14, 2010 Note for cash received – $3,902 remaining principal plus accrued interest
January 24, 2011 Note for consulting services – $615 principal plus accrued interest
February 2, 2011 Note for consulting services – $500 principal plus accrued interest
February 24, 2011 Note for consulting services, an assignee – $16,000 remaining assigned principal plus accrued interest
April 1, 2011 Note 1 for consulting services – $1,336 principal plus accrued interest
April 1, 2011 Note 2 for consulting services, an assignee – $50,000 assigned principal plus accrued interest
May 12, 2011 Note for consulting services – $100,000 principal plus accrued interest
July 1, 2011 Note 1 for consulting services, an assignee – $10,500 assigned principal plus accrued interest
July 1, 2011 Note 2 for consulting services, an assignee – $30,000 assigned principal plus accrued interest
October 7, 2011 Note for cash received – $25,000 principal plus accrued interest
December 13, 2011 Note for consulting services – $7,000 principal plus accrued interest
January 13, 2012 Note for cash received – $25,000 principal plus accrued interest
February 15, 2012 Note for consulting services, an assignee – $22,500 assigned principal plus accrued interest
February 20, 2012 Note for consulting services, an assignee – $40,000 assigned principal plus accrued interest
July 2, 2012 Note
On July 2, 2012 the Company borrowed $15,000 pursuant to an unsecured convertible note. The note bears interest at 15% per annum, has a maturity date of July 2, 2013, and unpaid accrued interest is added to the note’s principal balance at the end of each quarter. The note agreement contains a change in the interest rate to $500 per day default interest rate (or the highest rate allowed by law) should the note go into default. During the six months ended June 30, 2015, $1,597 accrued interest was added to the note’s principal balance. During the year ended December 31, 2014, $5,892 accrued interest was added to the note’s principal balance. The balance of the July 2, 2012 Note as of June 30, 2015 was $22,489 including added accrued interest to date of $7,489 and December 31, 2014 was $20,892 including added accrued interest to date of $5,892, both net of debt discounts of $0.
March 12, 2013 Note
On March 12, 2013 the Company borrowed $14,000 pursuant to an unsecured convertible note. The note bears interest at 10% per annum, has a maturity date of March 12, 2014, and accrues liquidating damages of $250 per day added to the principal balance of the note that may be settled to some lower amount at the time of payment in full. The note agreement contains a change in the interest rate to 20% default interest rate should the note go into default. On March 13, 2014 the Company defaulted on the note and the note interest per annum increased to 20%. During the six months ended June 30, 2015, $45,250 of accrued liquidating damages was added to the note’s principal. During the year ended December 31, 2014, $73,250 of accrued liquidating damages was added to the note’s principal balance. The balance of the March 12, 2013 Note as of June 30, 2015 was $132,500 including $118,500 of accrued liquidating damages to date and December 31, 2014 was $87,250 including $73,250 of accrued liquidating damages to date, both net of debt discounts of $0.
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April 17, 2013 Note
On April 17, 2013 the Company borrowed $3,000 pursuant to an unsecured promissory note. The note bears interest at 10% per annum and has a maturity date of June 15, 2013. On June 16, 2013 the Company defaulted on the note. The balance of the April 17, 2013 Note as of June 30, 2015 and December 31, 2014 was $3,000, net of debt discounts of $0.
April 27, 2013 Note
On April 27, 2013 the Company borrowed $700 pursuant to an unsecured promissory note. The note bears interest at 10% per annum and has a maturity date of August 25, 2013. On August 26, 2013 the Company defaulted on the note. The balance of the April 27, 2013 Note as of June 30, 2015 and December 31, 2014 was $700, net of debt discounts of $0.
May 19, 2014 Note
On May 19, 2014 the Company entered into a $60,000 unsecured convertible note for $50,000 cash to be borrowed during the year ended December 31, 2014 plus a total of $10,000 in loan fees the Company recorded as an administrative expense as cash was borrowed. The note bears interest at 8% per annum and has a maturity date 12 months after cash is borrowed. The note agreement contains a change in the interest rate to 20% default interest rate should the note go into default and required 300,000,000 shares of Company’s common stock to be reserved, but was canceled on October 8, 2014. Also if the note should go into default, the note accrues liquidating damages of $1,000 per day added to the principal balance of the note that may be settled to some lower amount at the time of payment in full. During the year ended December 31, 2014 the Company borrowed $50,000 cash and incurred $10,000 in loan fees. $12,000 of the note has a maturity date of May 19, 2015, $6,000 of the note has a maturity date of July 3, 2015, and $42,000 of the note has a maturity date of September 18, 2015.
On May 20, 2015 the Company defaulted on the note and the entire note interest per annum increased to 20%. During the six months ended June 30, 2015, $42,000 of accrued liquidating damages was added to the note’s principal. The balance of the May 19, 2014 Note as of June 30, 2015 was $90,970 including $42,000 of accrued liquidating damages to date, net of debt discounts of $11,030 and December 31, 2014 was $22,339, net of debt discounts of $37,661.
June 3, 2014 Note
On June 3, 2014 the Company entered into a $6,250 unsecured convertible note for a $5,000 cash loan plus $1,250 in documentation fees the Company recorded as an administrative expense. The note bears interest at 0% per annum and has a maturity date of June 3, 2015. The note agreement contains a change in the interest rate to 10% default interest rate should the note go into default, interest accruing from the June 3, 2014 Note date. On June 4, 2015 the Company defaulted on the note and the note interest per annum increased to 10% accruing from the June 3, 2014 Note date. The balance of the June 3, 2014 Note as of June 30, 2015 was $6,250, net of debt discounts of $0 and December 31, 2014 was $3,613, net of debt discounts of $2,637.
August 13, 2014 Note
On August 13, 2014 the Company borrowed $33,000 pursuant to a discounted unsecured convertible note amount of $46,500 when the note matures. The $13,500 discount will be an administrative expense once the note matures. The note bears interest at 0% per annum, has a maturity date of February 13, 2015 and has a 12% default interest rate should the note go into default. The note agreement required 3,000,000,000 shares of Company’s common stock to be reserved, but was canceled on September 23, 2014. On February 14, 2015 the Company defaulted on the note and the note interest per annum increased to 12%. The balance of the August 13, 2014 Note as of June 30, 2015 was $43,870, net of debt discounts of $2,630 and December 31, 2014 was $25,109, net of debt discounts of $7,891.
September 10, 2014 Note
On September 10, 2014 the Company entered into a $29,000 unsecured convertible note for $25,000 cash borrowed during the six months ended June 30, 2012 plus $4,000 in loan fees the Company recorded as an administrative expense. The note bears interest at 8% per annum and has a maturity date of September 10, 2015. The note agreement contains a change in the interest rate to 20% default interest rate should the note go into default. The balance of the September 10, 2014 Note as of June 30, 2015 and December 31, 2014 was $29,000, net of debt discounts of $0.
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January 30, 2015 Note
On January 30, 2015 the Company borrowed $4,200 pursuant to a discounted unsecured convertible note amount of $5,040. The Company recorded the $840 discount as an administrative expense. The note bears interest at 8% per annum and has a maturity date of January 30, 2016. The note agreement contains a change in the interest rate to 20% default interest rate or the highest allowed by law should the note go into default and requires the Company to reserve 100,000,000 shares of the Company’s common stock. The balance of the January 30, 2015 Note as of June 30, 2015 was $2,085, net of debt discounts of $2,955.
Note 5 - Derivative Liability
The Company’s derivative liability consists of the embedded conversion feature of its convertible notes payable. As the notes payable have conversion rates that prevent calculating the number of shares into which they can convert, the conversion feature has been separated from the underlying notes and valued as a derivative liability.
Prior to 2014, it was believed that previous management could cause the counterparties to overlook this conversion feature, and settle for the value of the notes themselves. So they estimated the fair value of the derivative liability was zero. In 2014, new management reassessed the nature of the notes payable and determined that a possibility exists that the conversion feature could be utilized by holders of the notes. As a result, the Company estimated the fair value of the derivative liability as of June 30, 2015 was $2,668,509 and December 31, 2014 was $2,250,243.
Following is a table showing activity in the derivative liability account.
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Balance January 1, 2014
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$
|
-
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|
Additions
|
|
-
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|
Deletions
|
|
-
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|
Change in derivative liability
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2,250,243
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Balance December 31, 2014
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|
2,250,243
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|
Additions
|
|
5,040
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|
Deletions
|
|
-
|
|
Change in derivative liability
|
|
413,226
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|
Balance June 30, 2015
|
$
|
2,668,509
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The derivative liability was valued using the Black Scholes option valuation model with the following inputs.
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|
Expected life in years
|
1.00
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Stock price volatility
|
143.0%
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|
Discount rate
|
0.185%
|
|
Expected dividends
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None
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Note 6 - Notes Payable - Related Party
Unsecured related party notes payable balance net of discounts as of June 30, 2015 was $177,061, net of debt discounts of $0 and December 31, 2014 was $155,645, net of debt discounts of $19,355.
September 26, 2013 Note
On September 26, 2013 the Company issued an unsecured promissory note to Corporate Business Advisors, Inc. for $150,000 as part of a non-cash select assets and liabilities purchase agreement. The note bears no interest and has a maturity date of August 31, 2014. On September 1, 2014 the Company defaulted on the note. On May 18, 2015, the Company issued a second unsecured promissory note to Corporate Business Advisors, Inc. in regard to the defaulted September 26, 2013 Note which increased the note interest to 18% on all unpaid principal balances since the original note's balance was created and continues until the note principal balance is paid in full. The balance of the September 26, 2013 Note as of June 30, 2015 and December 31, 2014 was $150,000, net of debt discounts of $0.
December 17, 2014 Note
On December 17, 2014 the Company entered into a $25,000 unsecured convertible note with Corporate Business Advisors, Inc. for $24,500 in total cash loans to date plus $500 in documentation fees the Company recorded as an administrative expense. The note
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bears interest at 18% per annum, has a maturity date of February 17, 2015, and has a 24% default compound interest rate should the note remain in default after a five day grace period. On February 22, 2015 the Company remained defaulted on the note and the note interest increased to 24% compound interest. During the six months ended June 30, 2015, $2,061 accrued interest was added to the note’s principal balance. The balance of the December 17, 2014 Note as of June 30, 2015 was $27,061 including added accrued interest to date of $2,061, net of debt discounts of $0 and December 31, 2014 was $5,645, net of debt discounts of $19,355.
Note 7 - Derivative Liability – Related Party
The Company’s derivative liability – related party consists of the embedded conversion feature of its convertible notes payable to a related party. As the notes payable to a related party have conversion rates that prevent calculating the number of shares into which they can convert, the conversion feature has been separated from the underlying notes and valued as a derivative liability – related party. During the year ended 2014, the Company entered into one convertible note payable to a related party. The estimated fair value of derivative liability – related party as of June 30, 2015 was $37,039 and December 31, 2014 was $33,987.
Following is a table showing activity in the derivative liability – related party account.
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|
|
|
Balance January 1, 2014
|
$
|
-
|
|
Additions
|
|
-
|
|
Deletions
|
|
-
|
|
Change in derivative liability
|
|
33,987
|
|
Balance December 31, 2014
|
|
33,987
|
|
Additions
|
|
-
|
|
Deletions
|
|
-
|
|
Change in derivative liability
|
|
3,052
|
|
Balance June 30, 2015
|
$
|
37,039
|
The derivative liability – related party was valued using the Black Scholes option valuation model with the following inputs.
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|
|
Expected life in years
|
1.00
|
|
Stock price volatility
|
143.0%
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|
Discount rate
|
0.185%
|
|
Expected dividends
|
None
|
Note 8 – Capital Lease
On September 1, 2014, the Company entered into a lease to own lease agreement for an office and warehouse’s 16,838 square foot portion of the property’s total 55,785 square foot space. The lease is considered a capital lease, therefore the building asset and an offsetting note payable has been recorded on the Company’s books. Lease payments are $7,000 per month with $5,000 per month being applied to the $1,385,000 purchase price. On January 5, 2016, the Company entered into an unsecured promissory note for the unpaid rents and utilities for $109,500. The promissory note carries 0% interest and is due on January 5, 2017. On February 9, 2016, the Company entered into a new lease to own lease agreement for the same property to extend the term dates beyond the original agreement including extensions and to add an additional $100,000 due at closing as a hold over fee. In addition, the unpaid rents and utilities promissory note was accelerated to be due on June 30, 2016. These agreements that were entered into subsequent to the balance sheet date required retroactive reporting as of the balance sheet date. The balance of the February 9, 2016 capital lease agreement as of June 30, 2015 was $1,246,428. The balance of the September 1, 2014 capital lease agreement as of December 31, 2014 was $1,292,571.
Note 9 – Equity
During the six months ended June 30, 2015, no shares of Capital Stock were issued.
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Stock Options/Stock-Based Compensation and Warrants
Changes in stock options for the six months ended June 30, 2015 consisted of the following:
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|
|
|
|
|
|
|
|
|
Number of shares
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|
|
Weighted Average Exercise Price
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|
Remaining Contractual Term (in years)
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|
|
Intrinsic
Value
|
|
Beginning balance January 1, 2015
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500,000
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|
$
|
0.45
|
|
0.04
|
|
|
|
|
Granted
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Exercised
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Forfeited/expired
|
(500,000)
|
|
$
|
0.45
|
|
|
|
|
|
|
Outstanding at June 30, 2015
|
-
|
|
$
|
-
|
|
-
|
|
$
|
-
|
|
Exercisable
|
-
|
|
$
|
-
|
|
-
|
|
$
|
-
|
|
Weighted average fair value of options granted during six months ended June 30, 2015
|
|
|
$
|
-
|
|
|
|
|
|
Note 10 – Subsequent Events
The Company has evaluated subsequent events pursuant to ASC Topic 855 from the balance sheet date through the date of this filing and determined that the following subsequent events have occurred.
On January 5, 2016, the Company entered into an unsecured promissory note for the unpaid rents and utilities for $109,500. The promissory note carries 0% interest and is due on January 5, 2017. On February 9, 2016, the Company entered into a new lease to own lease agreement for the same property to extend the term dates beyond the original agreement including extensions and to add an additional $100,000 due at closing as a hold over fee. In addition, the unpaid rents and utilities promissory note was accelerated to be due on June 30, 2016.
Subsequent New Debt
April 20, 2016 Note 1
On April 20, 2016 the Company borrowed $20,000 pursuant to a discounted secured convertible note. The note bears interest at 12% per annum and has a maturity date of April 20, 2017. The note agreement contains a change in the interest rate to 24% default interest rate should the note go into default and requires the Company to reserve 500,000,000 shares of the Company’s common stock.
April 20, 2016 Note 2
On April 20, 2016 the Company borrowed $20,000 pursuant to a discounted secured convertible note. The note bears interest at 12% per annum and has a maturity date of April 20, 2017. The note agreement contains a change in the interest rate to 24% default interest rate should the note go into default and requires the Company to reserve 500,000,000 shares of the Company’s common stock.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company has a long history in the fast growing industry of waste recycling and specifically related to waste-to-energy, upon which the Company is building. Garb is organized to utilize both next-generation machines and new technologies to vertically integrate into the waste refinement, recycling and energy industries. The company emphasis is in profitable new and “green” solutions for waste-to-energy, alternate energy sources, gas drilling, fuel enhancements, improving energy usage efficiency and utilizing recycled material in producing both useful and desirable products manufactured in its own plants. The Company’s use of its first industrial manufacturing property and equipment will be to manufacture wood pellets to be used as an alternate power fuel and for farm and agricultural applications. In addition, this manufacturing facility will utilize power saving technology including the use of recycled materials as fuel that will result in lower operating costs. Also, excess electricity will be generated that may be sold back to the power company, thereby generating an additional source of revenue.
Garb Oil & Power Corporation (the “Company” or “Garb”) was incorporated in the State of Utah in 1972 under the name Autumn Day, Inc. The Company changed its name to Energy Corporation International in 1978 and to Garb-Oil Corporation of America in 1981, which marked the start of the Company’s development state in the energy and recycling industries. The Company changed its name to Garb Oil & Power Corporation in 1985 and then to Garb Corporation in May 2013. In February 2014, the Company changed its name back to Garb Oil & Power Corporation. The Company’s activities have consisted of raising capital and developing technology related to waste-to-energy electricity production, pyrolysis (extraction of oil, carbon, and steel from used tires), and recovery of used rubber from large off-the-road tires, repair and sale of used truck tires, sale of new truck tires and sale of industrial shredders.
On January 24, 2014, the Company signed a letter of intent (the “LOI”) and a collaborative effort agreement (the “CE Agreement”) with Shredderhotline.com Company (“Shredderhotline”) and Dan Scott Burda, Shredderhotline’s President/Owner. In general, the CE Agreement provides that the two ranking executive officers of both companies will collaborate on future sales and operations within a newly formed wholly owned subsidiary of the Company, Garb Global Services, Inc. (“Garb Global”). On November 18, 2014, the Company and Shredderhotline mutually determined that their business interests had diverged and the Company and Shredderhotline released one another from their rights and obligations under the LOI and CE Agreement both dated January 24, 2014. Garb Global continues as an operating subsidiary of the Company.
Our Industry
The industry in which Garb is operating is still in its maturing stages. Technological developments, the economic climate and the growing global awareness of waste as a possible raw material resource, have changed the recycling industry, placing demands on the industry for new products and for new solutions. Garb is dedicated to creating products that increases energy efficiency and reduces the carbon footprint while helping to preserve the environment. With its knowledge of solutions, its comprehensive product portfolio, its experience and, above all, with personnel and advisors who understand the industry, Garb will provide superior products and services into profitable solutions that will provide the Company with a competitive advantage in the market and do our part in making the world a greener place while passing cost savings on to our customers.
Our Markets
Tires and Commercial Waste Shredders:
Garb’s past has been resurrected by current management, new truck tires and commercial waste shredders. In addition, Garb is currently in the development stage to enter into the retread truck tire production and sales market.
Waste-to-Energy:
Waste-to-energy is considered a renewable resource since its fuel source, garbage and other materials that have been destined to landfills, is sustainable and non-depletable. According to the U.S. Environmental Protection Agency, waste-to-energy is a “clean, reliable, renewable source of energy.”
In 2013, Americans generated about 254 million tons of trash and recycled and composted about 87 million tons of this material, equivalent to a 34.3 percent recycling rate.
Opportunities abound in the recycling industry to produce power and Garb is developing this area.
Biomass and Alternate Fuels:
The United States has been moving towards greater energy independence and the increase of clean renewable fuels. Biofuel is simple to use, biodegradable, nontoxic, and essentially free of sulfur and aromatics. Alternate energy sources can produce more net energy for less money than current technologies. Garb is currently pursuing multiple avenues in this growing arena.
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Useful products manufactured from recycled materials:
Garb is developing the potential for recycled materials to be utilized as raw materials in the production of useful products, alternate fuels, and energy. The first product being developed is to include recovered rubber in producing retread tires and as an alternate fuel source in the generation of electric power.
Patents, Trademarks and Proprietary Data
The Company has received United States Patent No. 5,299,748 on the OTR Tire Disintegrator System design which expired April 5, 2011, Patent No. 5,590,838 which expired January 7, 2014 and patent number 6,015,105 which expires January 18, 2018. An additional patent improvement was granted in Canada on July 6, 1999 as Canadian Patent No. 2,178,326 which expired March 23, 2015.
Management Overview
The Company is pursuing avenues of generating cash or revenues during the next twelve months. The Company is pursuing sales of new truck tires and made in the U.S. commercial waste shredders and is developing waste-to-energy, biomass alternate fuels, and manufacturing operations utilizing recycled materials. The Company continues to pursue financing to build and operate its own manufacturing plants. We believe that our current Company personnel and advisors have the necessary industry expertise and marketing skills to implement our business model.
Results of Operations
Comparison of the three months ended June 30, 2015 and June 30, 2014
Revenues
During the three months ended June 30, 2015 and June 30, 2014, the Company recognized no revenues from sales.
General and Administrative Expenses
General and administrative expenses decreased $55,381 to $133,171 for the three months ended June 30, 2015, from $188,552 for the three months ended June 30, 2014. The decrease was related to professional fees decreasing $66,186. The decreases were offset with rent increasing $6,000 and depreciation expense increasing $7,796.
Other Income (Expense)
Other income (expense) decreased by $862,865 to $(900,728) for the three months ended June 30, 2015, from a loss of $(37,863) for the three months ended June 30, 2014. The increase in subscription receivable write-off of $403,815 was based on writing off aged balances. The increase in derivative liability expense of $187,153 was due to the change in the fair value of the derivative liability after first recognizing the derivative liability at December 31, 2014. The increase in interest expense of $271,897 was primarily due to recognizing certain notes payables default interest amounts during the three months ended June 30, 2015 and the same certain notes payables did not incur default interest amounts during the three months ended June 30, 2014.
Net Loss
Net loss was $1,033,898 and $226,415 for the three months ended June 30, 2015 and June 30, 2014, respectively. Net loss was due to a lack of consistent revenues. While the Company has substantially decreased general and administrative expenses, we expect to continue to incur losses until such time as we can begin to generate consistent revenue from operations.
Comparison of the six months ended June 30, 2015 and June 30, 2014
Revenues
During the six months ended June 30, 2015 the Company recognized no revenues from sales. During the six months ended June 30, 2014 the Company recognized $200,000 revenues from sale of equipment.
General and Administrative Expenses
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General and administrative expenses decreased $207,604 to $331,504 for the six months ended June 30, 2015, from $539,108 for the six months ended June 30, 2014. The decrease was related to commissions decreasing $110,000 and consulting fees decreasing $100,000.
Other Income (Expense)
Other income (expense) decreased by $1,169,855 to $(1,316,077) for the six months ended June 30, 2015, from a loss of $(146,222) for the six months ended June 30, 2014.The increase in subscription receivable write-off of $403,815 was based on writing off aged balances. The increase in derivative liability expense of $416,278 was due to the change in the fair value of the derivative liability after first recognizing the derivative liability at December 31, 2014. The increase in interest expense of $349,762 was primarily due to recognizing certain notes payables default interest amounts during the six months ended June 30, 2015 and the same certain notes payables did not incur default interest amounts during the six months ended June 30, 2014.
Net Loss
Net loss was $1,647,581 and $575,330 for the six months ended June 30, 2015 and June 30, 2014, respectively. Net loss was due to a lack of consistent revenues. While the Company has substantially decreased general and administrative expenses, we expect to continue to incur losses until such time as we can begin to generate consistent revenue from operations.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. The Company is not generating significant revenues. Operating expenses for the Company have been paid in part from short-term unsecured notes and the issuance of Company stock. The Company also has a stockholders’ deficit of $34,771,252 at June 30, 2015.
The Company has incurred indebtedness in order to finance its operations. As of June 30, 2015, the Company’s total liabilities were $9,299,535, with a working capital deficit of $9,299,278. See Note 4 – Notes Payable, Note 5 - Derivative Liability, Note 6 – Notes Payable –Related Party, Note 7 – Derivative Liability –Related Party, and Note 8 – Capital Lease of the Company’s financial statements appearing elsewhere in this quarterly report on Form 10-Q.
Net cash used in operating activities was $(4,979) and $(56,722) for the six months ended June 30, 2015 and June 30, 2014, respectively. Cash was primarily used to fund our net losses from operations.
Net cash from investing activities was $0 for the six months ended June 30, 2015 and June 30, 2014.
Net cash provided by financing activities was $5,040 and $56,722 for the six months ended June 30, 2015 and June 30, 2014, respectively. During the six months ended June 30, 2015, we received cash of $5,040 from the issuance of a note payable, of which $0 cash was used as repayment of financing activities.
Going Concern
The financial statements accompanying this report have been prepared on a going concern basis, which implies that our Company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our Company has not generated sufficient revenues in the last two years to cover all operating and overhead costs, and has never paid any dividends and is unlikely to pay dividends in the immediate or foreseeable future. The continuation of our Company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our Company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations. As of June 30, 2015, our Company has accumulated losses of $21,047,725. We do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.
Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above in their report on the financial statements for the year ended December 31, 2014, the Company’s independent auditors have included an explanatory paragraph regarding concerns about our ability to continue as a going concern. The continuation of our business is dependent upon our ability to raise additional financial support. The issuance of additional equity securities by the Company could result in a significant dilution in the equity interests of our current shareholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
