SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14859
GARB OIL & POWER CORPORATION
(Exact name of small business issuer as specified
in its charter)
Utah 87-0296694
(State of other jurisdiction of (I.R.S. Employer Ident. No.)
incorporation or organization)
10 Exchange Place, Suite 507
Salt Lake City, Utah 84111
(Address of principal executive offices) (Zip Code)
(801) 322-5410
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock (No par
value)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
As of October 6, 1998, the aggregate value of the voting stock held by
non-affiliates of the Issuer, computed by reference to the average of the bid
and ask price on such date was $913,725.
As of September 28, 1998, the Issuer had outstanding 17,028,299 shares of
common stock (no par value). Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-B is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State Issuer's revenues for its most recent fiscal year: $9,625.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Garb Oil & Power Corporation (the "Company") is in the business of
developing processes which will recover crumb rubber or other recyclable rubber,
oil by-products, commercially marketable char and steel from scrap tires, and
processes which will utilize scrap tires and/or municipal waste to generate
steam for the production of electricity. The Company has designed a system it
believes will be capable of recovering used rubber from large, off-the-road
(OTR) tires. The Company has the rights to act as the non-United States agent
for a third party's unproven technology for the remediation of radioactive waste
and exclusive rights to build its plants in the United States and abroad. The
Company is in the development stage.
The Company's predecessor, Garb-Oil Corporation, was incorporated and
commenced business on September 11, 1972, under the laws of the State of Utah.
On January 15, 1981, all of its assets were acquired by a non-affiliated public
company named Energy Corporation International, which immediately thereafter
changed its name to Garb-Oil Corporation of America and continued the business
operations of the original Garb-Oil Corporation. Energy Corporation
International was incorporated under the laws of the State of Utah on October
30, 1972, as Autumn Day Inc. and was formed for the purpose of investing in
patents, franchises, contract rights and securities. The Company's sole
investment was a royalty interest in certain furniture designs. Energy
Corporation International did not engage in any significant business activity
prior to its reorganization with Garb-Oil Corporation. The Company changed its
name to Garb Oil & Power Corporation on October 31, 1985.
OTR Tire Processing System
The Company has designed a system it believes will be capable of
recovering used rubber from large, off-the-road (OTR) tires. As of the date of
this report, the Company has substantially completed the engineering and design
of the system, but has not yet constructed a commercially operating system. As
discussed below, the Company agreed to grant an option to a third party to
acquire a license to utilize the OTR system in a stated territory, but the
option holder may not exercise its option.
Commercially available tire shredders, including shredders made by the
Company's affiliate Garbalizer Machinery Corporation ("GMC"), are designed to
process standard automobile and truck tires, which may include semi-trailer or
over-the-road tires. Tires used in a variety of off the road equipment, such as
graders, bulldozers, mining equipment, etc. cannot be processed directly by
these shredders. Although these tires, which may weigh from 400 pounds to 9 tons
apiece, are less numerous than standard tires, the Company estimates that over
3,000,000 tons of OTR tires require disposal in the United States each year.
Current methods of disposal include landfilling and surface disposal, which are
accepted only due to the lack of a viable alternative. Most states have passed
laws prohibiting landfilling or storage of whole tires.
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The Company's system, known as the OTR Tire Disintegrator, uses
mechanical and cryogenic means to remove the rubber from OTR tires without
shredding. After separation of wire and other non-rubber components, the
resulting particles can then be used to produce crumb rubber. The particles can
also be used as fuel or safely disposed of in a landfill, although the Company
believes that the rubber particles will be of relatively high quality.
The Company has prepared what it believes to be a final design of the
system and has analyzed the expected performance of the system. When the first
Disintegrator is built, modifications to the design may be required to maximize
performance. It is also possible, although the Company does not anticipate this,
that the disintegrator will not perform as planned when built.
The Company has received United States Patent No. 5,299,748 on the
Disintegrator design which expires April 5, 2011 and Patent No. 5,590,838 which
expires January 7, 2014.
The Company announced the availability of the Disintegrator in July,
1992 and has received numerous inquiries from potential buyers or users of the
Disintegrator. The Company's original intent was to retain ownership of the
Disintegrator, allowing its use by persons who purchase an exclusive territory
from the Company and who agree to pay the Company a share of any profits earned.
On April 28, 1997, the Company granted Giant Tire Recyclers, Inc.
(Giant) a Nevada corporation, an option to acquire a license to use the
Company's OTR Disintegrator system. The price of the option was set at $150,000
payable as follows: 1) an initial payment of $15,000, and 2) the remaining
$135,000 was due within ten months of the execution of the agreement. The
Company received the final option payment on February 28, 1998. Giant may
exercise the option at any time. The option will expire one year after the final
option payment was received. Giant has asserted that it is entitled to
additional time to exercise the option and that the option covers a larger
territory than stated in the options. The Company disputes Giant's assertion.
The option gives Giant the opportunity to purchase an exclusive license
to use the Company's OTR Disintegrator system in the states of Arizona, New
Mexico and Nevada for a license fee of $950,000, less option payments prior to
the time of exercise. The license fee includes one Disintegrator machine and
tools and equipment suitable to operate a truck tire repair business. If the
option is exercised, the Company intends to obtain the truck tire equipment from
its UTTI subsidiary. If the option is not exercised, the agreement provides that
amounts paid for the option are non-refundable. The Company cannot predict
whether Giant will exercise the option. The Company believes Giant may require
substantial additional financing in order to exercise the option. If Giant does
not exercise the option by February 28, 1998, the Company believes that Giant
will dispute the expiration date of the option and the non-refundable nature of
the $150,000 paid for the option.
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Crumb Rubber Plants
The Company is marketing plants and equipment to process scrap
passenger car and light truck tires into crumb rubber. The Company is marketing
such plants worldwide on a "turn-key" basis. The equipment for such plants will
include third party equipment, equipment made to the Company's specifications
and shredders purchased from the Company's affiliate GMC. The Company entered
into an agreement to sell one such plant, but the buyer defaulted. See "Alberta
Recovery Technologies" below. As of the date of this report, the Company has not
sold any crumb rubber plants.
If the Company is successful in selling a crumb rubber plant, it will
be exposed to the risks of a process engineering and equipment manufacturing
concern, including potential contract, warranty and liability claims. The
Company does not have any experience in engineering or constructing crumb rubber
plants. The Company will rely on third parties as sub-contractors for the supply
of a majority of the equipment in the plant and the actual assembly and
construction labor.
Alberta Recovery Technologies
On May 23, 1996, the Company entered into two agreements with Alberta
Recovery Technologies Ltd. ("ART"). Pursuant to one of the agreements, the
Company agreed to supply and install equipment that would process scrap tires
into crumb rubber. Pursuant to the other agreement, the Company would supply a
Disintegrator to ART and grant ART the exclusive rights to use the Disintegrator
in Canada. Due to ART's failure to pay amounts due under the Agreements, the
Company terminated the Agreements during the year ended June 30, 1997.
Trenergy Radioactive Waste Technology
On May 11, 1998, the Company entered into a Project Development and
Construction Agreement with Trenergy, Inc. ("Trenergy"). Pursuant to the
Trenergy Agreement, the Company has been engaged to provide consulting and
analysis regarding the potential commercial application of Trenergy's unproven
claimed technology to neutralize and remediate radioactive waste.
Trenergy has reported to the Company that the Trenergy technology has
the potential of neutralizing radioactive waste. The Company has not verified
Trenergy's claims. If true, Trenergy's technology would involve a substantial
departure from current methodology and currently accepted scientific principles.
Trenergy has informed the Company that it has applied for a patent on the
Trenergy technology. Filing of a patent application does not indicate that any
third party has verified the validity of the technology.
The Trenergy Agreement is for a five-year term and gives the Company
the right to build all systems and plants for Trenergy on a cost basis which
cannot exceed similar costs for similar projects. The Company is designated as
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Trenergy's exclusive agent to exploit the Trenergy technology outside of the
United States with the exception of the Republic of Belarus, Ukraine, Romania,
Macedonia, Greece and Hungary. Trenergy and the Company intend to equally share
license revenues from potential licenses of the Technology in the Company's
territory; provided that Trenergy may negotiate the Company's compensation for
licenses where Trenergy had initial discussions with the licensee. No licenses
for the Trenergy technology have been granted as of the date of this report and
it is possible such licenses will not be granted in the future.
Trenergy may not be able to establish the scientific validity or
commercial viability of the Trenergy technology. Neither Trenergy nor the
Company have the resources necessary to develop or evaluate the Trenergy
technology without infusion of substantial capital or the joint venturing with
third parties. Neither Trenergy nor the Company have any such arrangements in
place. The Company may expend management time and financial resources pursuing
possible transactions with the Trenergy technology for which the Company
receives no revenue.
UTTI Tire Repair and Resale Business
The Company's efforts have historically focussed on reducing the
environmental problems of disposing of used tires by creating fuel, power or
useful by-products from the tires. Although such efforts have not resulted in
commercial operations, the Company's management has gained extensive knowledge
of the used tire distribution and disposal business through such efforts. On May
20, 1994 the Company formed Utah Truck Tires, Inc. ("UTTI") as a majority owned
subsidiary to exploit the perceived demand for repaired and retreaded commercial
truck tires. Although UTTI did demonstrate that there was some demand for these
used tires, UTTI incurred operating losses due principally to overhead costs and
high carcass costs. The Company believes that the repair and resale business
should be operated in conjunction with a recycling plant, where overhead costs
can be shared with other operations and usable carcasses obtained at relatively
low cost. In 1996, UTTI ceased active operations.
The Company is proposing to establish used tire processing and sales
joint ventures with operators of tire shredders or OTR Tire Disintegrators. The
Company does not have any agreements to establish such joint ventures. If such
joint ventures are established, it is likely that the first such venture will be
operated by UTTI in replacement of the Salt Lake City facility. As with any
start-up operation, there is substantial uncertainty regarding its ability to
operate at a profit. There are no firm commitments for any such joint venture.
The Company owns 55% of UTTI, which interest it received in exchange
for its expertise and other intangible capital contributions. The remaining 45%
of UTTI is owned by an investor who loaned $150,000 of seed capital to UTTI and
who is an officer and director of UTTI.
Co-generation and Electrical Power Generation
Since 1982, the Company has been involved in planning and preparation
for plants generating electricity or process steam to be fueled by scrap tires.
Such plants may be built by the Company alone or in joint venture with others.
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During the past fiscal year, the Company has concentrated its efforts on design
of the Disintegrator and has held only very preliminary discussions regarding
the possibility of construction of such plants.
The design which the Company developed for these plants calls for scrap
tires to be shredded into hand sized pieces. The shredded tires are then burned
in a fluidized bed combustor to produce steam, which may be used for the
generation of electricity or may be used as process steam in nearby industrial
plants.
As a result of having received permits to construct the Rialto power
plant from the South Coast Air Quality Management District, the Company believes
that its plants can comply with any currently applicable pollution requirements.
Although environmental permits were issued for the construction of the Rialto
project, litigation regarding compliance with California environmental laws
delayed completion of the project for years. The Company eventually determined
that continuing the litigation until the legal authorization to use the permits
which had been issued was finally affirmed by the courts would not be
economically feasible, and the project was abandoned. There can be no assurance
that plants planned by the Company in the future will not become similarly
embroiled in litigation.
Pyrolysis
In addition to the direct use of tires as fuel, the Company has
developed and patented the Garb-Oil Processes for pyrolytic reduction of tires.
The Garb-Oil processes are in summary form as follows: Scrap tires are
first shredded into approximately three inch size pieces with a shredder
developed by GMC, then heated in an oxygen free environment (processed in a
Garb-Oil Pyrolytic Furnace) to reduce the shredded particles into hydrocarbon
gases and char. Part of the hydrocarbon gas is condensed to recover oil
by-products. The remaining gases (ethane, methane, butane and propane) are
stored for use as fuel in the pyrolytic system. The char is crushed to liberate
the metal for magnetic recovery to be sold to the steel industry as scrap. The
crushed char can be used as a carbon additive to manufacture solid rubber
products or used as additive in the polymer industries or as low grade activated
carbon.
During the first half of 1981 a demonstration-test facility was built
in Mountlake Terrace, Washington. This test facility has been used to test
various construction materials that will be used in the full size commercial
plants. The test facility has been moved to Huntington, West Virginia. Although
the test facility reduces tires by pyrolysis as designed, there is no guarantee
that a full-scale production facility will ever be built or, if built, that it
will operate on an economically and technically sound basis.
Since 1981 the Company's licensee American Buckeye Synfuels Corporation
has attempted to obtain financing for construction of a pyrolysis plant that
would use the Garb-Oil process on a commercial basis. The Company has sold the
non-exclusive rights to exploit the pyrolysis technology within the state of
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West Virginia to American Buckeye Synfuels Corporation. The licensee had also
agreed to purchase the pilot pyrolysis plant. Due to the repeated failure of the
licensee to satisfy the conditions for sale of the plant and grant of the
license rights, during Fiscal 1992 the entire $242,500 receivable plus $24,250
of accrued interest thereon was written off to bad debt expense. The
demonstration plant is being stored in Huntington, West Virginia while the
Company attempts to find a purchaser for the plant.
The Company has not commercially exploited the pyrolysis technology to
date.
Patents, Trademarks and Proprietary Data
The Company has received two United States patents on the Disintegrator
design. The patents expire in the year 2011 and 2014.
The Company does not hold patents on the plant and process to be used
in connection with its proposed electricity and co-generation plants.
The Company owns the following unexpired patents in connection with the
Garb-Oil Pyrolysis Process:
United States Patents:
Expires
Pyrolysis Process Patent No. 4,402,791 09/30/00
Patent
A foreign patent has also been granted in Canada.
In addition to the above patents, the Company has the following patents
which relate to Tar Sand development:
Hydropulper & Classifier for Tar Patent No. 3,814,336
Sands Application
Improvement Patent for Tar Sands Patent No. 4,361,476
Process
The Company plans to exploit these patents if and when the board of
directors of the Company determines that the financing and timing is
appropriate. It is not expected that such exploitation will occur in the
foreseeable future and accordingly the patents have not been considered
important to the Company's immediate future.
Employees
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The Company's president, John C. Brewer, devotes approximately 40 hours
per week to the Company. The Company's chief engineer and secretary also perform
work for GMC, and their wages are apportioned between the two companies. All
additional work is performed on a contract basis. UTTI does not currently have
any employees.
Additional personnel will be required if the Company expands its
business or enters into agreements for the construction of a power plant and OTR
plants. The Company does not anticipate problems in finding suitable additional
personnel.
The Company believes its relationship with its employees to be good.
The Company is not a party to any collective bargaining agreement.
Research and Development
During the fiscal years ended June 30, 1998, 1997 and 1996, the Company
has not expended any funds on research and development activities.
Environmental Regulation
UTTI does not believe that its activities result in any discharge of
pollutants in the air, water or soil.
Any power plants built by the Company in the future utilizing tires as
fuel will be required to comply with state and federal regulations regarding the
discharge of pollutants into the atmosphere. The Company believes that the
plants will comply with such regulations. The Company's Rialto Power Corporation
("RPC") subsidiary was engaged in litigation from 1987 until abandonment of the
project in 1989 to determine whether RPC complied with all necessary
requirements to obtain environmental permits which had been issued for the
construction of its plant. Although on all issues in which a final determination
was rendered, RPC was found to have satisfied all such requirements which the
courts and administrative agencies determined must be complied with, there is no
assurance that the undecided issues would have been resolved in RPC's favor, or
that the decisions would not have been overturned on further appeal, if RPC had
attempted to continue the project.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices have been located at Suite 507,
Newhouse Office Building, #10 Exchange Place, Salt Lake City, Utah for the past
fifteen years. The offices occupy approximately 908 square feet, of which 608
square feet are shared with Garbalizer Corporation of America and Garbalizer
Machinery Corp. and the remainder of which are shared with the Company's
subsidiaries. The premises are being leased from SCM Land Company, an unrelated
third party, on a monthly basis. The Company's share of the rent is determined
by mutual agreement of the Company and GMC based upon management's estimation of
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the relative activities of the entities. This is not an arm's length
negotiation. UTTI leases space in Salt Lake City from a third party to store its
equipment and inventory pursuant to a month-to-month lease. During the year
ended June 30, 1998, the Company and UTTI paid $27,636 in rent.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No shareholder meetings were held during the fourth quarter of the year
ended June 30, 1998.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market.
The representative bid and asked quotations are posted on the National
Association of Securities Dealers OTC Bulletin Board under the symbol 3GARB. On
October 5, 1998, there were approximately 568 holders of record of the common
stock of the Company and the Company believes there were approximately 1,000
beneficial owners. During the years ended June 30, 1998, 1997 and 1996, the
stock was only sporadically traded. The following table sets forth the range of
high and low representative bid quotations for the periods indicated as reported
by Wilson-Davis, Inc., a market-maker in the Company's stock.
Period
(Fiscal Year) High Low
1996
1st Quarter .6563 .4375
2nd Quarter .625 .3125
3rd Quarter .375 .2188
4th Quarter .50 .1563
1997
1st Quarter .25 .1875
2nd Quarter .25 .1875
3rd Quarter .31 .25
4th Quarter .4375 .1875
1998
1st Quarter .2188 .1875
2nd Quarter .2188 .0938
3rd Quarter .14 .10
4th Quarter .52 .11
The foregoing over-the-counter quotations are inter-dealer quotations
without retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
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Dividends
No cash dividends have been paid by the Company in the past and
dividends are not contemplated in the foreseeable future. Dividends will be
dependent directly upon the earnings of the Company, financial needs, and other
similar unpredictable factors. For the foreseeable future, it is anticipated
that any earnings that may be generated from the operations of the Company will
be used to finance the operations of the Company and dividends will not be
declared for shareholders. The Company is not subject to any contractual
restrictions on the payment of dividends.
Recent Sales of Unregistered Securities
During the fourth quarter of the year ended June 30, 1998, the Company
did not issue any securities without registration under the Securities Act of
1933.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company is considered to still be in the development stage.
Therefore management cannot say with certainty when significant revenues will be
received from the Company's primary business.
The auditor's report accompanying the Company's financial statements
for the year ended June 30, 1998 contains the following statement: "As discussed
in Note 1 to the financial statements, the Company's operating losses since
inception and the deficit accumulated during the development stage raise
substantial doubt about their ability to continue as a going concern... The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty."
Management is pursuing various avenues of generating cash or revenues
during the next twelve months. The Company is pursuing sales of the crumb rubber
plants on which the Company would earn a commission. GMC is pursuing sales of
its shredders which, if successful, would allow GMC to repay amounts it owes to
the Company. The Company is also attempting to interest purchasers of GMC
shredders in establishing used tire joint ventures. The Company continues to
pursue the licensing or leasing of the Disintegrator. The Company is exploring
the synergies of its businesses - such as offering to joint venture a UTTI-type
operation with the purchaser of a crumb rubber plant. If any of such possible
transactions occur, management believes that the Company would have sufficient
resources to operate for the next twelve months. The Company is also pursuing
debt or equity financing, but management does not believe that substantial
financing can be obtained prior to obtaining firm commitments on any revenue
generating transactions. There is no assurance that the Company will be able to
obtain 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 hopeful that one or more transactions will
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proceed, no assurances can be expressed as to the Company's continuing viability
in the absence of revenues. Substantially all of the Company's existing
liabilities, other than trade payables and deferred revenue, are owed to John
Brewer or other shareholders of the Company.
The start-up costs for UTTI were financed with a loan in the principal
amount of $165,000 from the minority shareholder of UTTI, who is also an officer
and director of UTTI. Operating expenses for the Company have been paid in part
from short term unsecured notes from shareholders. As a result, at June 30, 1998
the Company had a deficit in working capital (current liabilities in excess of
current assets) of $652,937. The working capital deficit at June 30, 1997 had
been $447,098. The decrease in working capital was caused by the continued
accrual of salary and accounts payable for expenses which the Company was unable
to pay in cash. Working capital at June 30, 1998 includes accounts receivable
from GMC in the amount of $195,474 (increased from $186,044 at June 30, 1997).
Other than its short term office lease and loans payable to affiliates,
the Company excluding UTTI is not subject to any material commitments or capital
expenditures. UTTI is obligated to its minority owner in the principal amount of
$165,000. Such loan is now due on demand. The Company also made advances to UTTI
to pay its operating expenses during its start-up phase.
During the year ended June 30, 1998, the Company recorded $4,625 from
the sale of tires from inventory by UTTI compared to tire sales of $9,685 in
fiscal 1997 and $24,030 in fiscal 1996. In fiscal 1997, the Company also
recorded $30,519 of revenue representing forfeiture of a non-refundable earnest
money upon termination of the ART agreement. The funds that the Company received
from Giant towards its option during the fiscal year was treated as deferred
revenue. Since sale of tires or forfeiture of earnest moneys are not considered
to be the Company's principal business, the Company is still considered to be in
the development stage.
The Company incurred a loss from operations before other income
(expense) and extraordinary items during the year ended June 30, 1998 of
$163,251 compared to losses of $140,810 and $98,517 for the years ended June 30,
1997 and 1996, respectively. Total expenses for 1998 were $172,876 compared to
$181,104 in 1997 and $122,547 in 1996. Salaries and wages were $77,934 for 1998
compared to $93,815 for 1997 and $48,000 for 1996. Rental expenses were $27,636
in 1998, $22,308 in 1997 and $16,368 in 1996, due to UTTI's facility and
increased use of the offices shared with GMC. UTTI incurred $13,460 of direct
costs of sales in 1998, $7,496 in 1997 and $15,661 in 1996. If any of the
Company's plans for revenue producing activities come to fruition, expenses will
rise accordingly.
Net loss for the year ended June 30, 1998 was $217,439 compared to
$177,298 in 1997 and $124,871 in 1996. The 1998 net loss includes a $30,233
charge for the write down of shredder blades and gears held in inventory. On a
per share basis, the net loss for the year ended June 30, 1998 was ($.01)
compared to ($.01) in 1997 and 1996. Operating losses are expected to continue
until such time, if ever, as the Company receives revenues from the sale of a
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crumb rubber plant, the lease or license of the Disintegrator, or other
operations. There is no assurance that the Company will ever be profitable.
UTTI is 55% owned by the Company and operates at a loss. UTTI's losses
have exceeded the equity capital contributed by the minority shareholder.
Therefore, in preparing its consolidated statements of operations, the Company
does not adjust its consolidated net loss by the minority shareholder's interest
in the UTTI loss.
During the year ended June 30, 1998, the Company had a net decrease in
cash of $2,119. The non-refundable option payment from Giant, increases in
accounts payable and accrued salaries and reduction in tire inventory were the
primary sources of cash for operations for the year. Such financing sources may
not be available on an ongoing basis if the Company does not begin to generate
revenue.
ITEM 7. FINANCIAL STATEMENTS
[The remainder of this page was intentionally left blank]
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ITEM 8. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable except as previously reported.
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GARB OIL & POWER CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants 16
Financial Statements:
Consolidated Balance Sheets June 30, 1998
and 1997 17
Consolidated Statements of Operations for the Years Ended June
30, 1998, 1997 and 1996 and for the Period From January 14,
1981 (Date of Inception of the Development Stage) to
June 30, 1998 19
Consolidated Statements of Stockholders' Deficit
for the Period From Inception of the Development
Stage (January 14, 1981) Through June 30, 1998 20
Consolidated Statements of Cash Flows for the Years Ended June
30, 1998, 1997 and 1996 and for the Period From January 14,
1981 (Date of Inception of the Development Stage) to
June 30, 1998 21
Notes to Consolidated Financial Statements 22
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HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Garb Oil and Power Corporation
We have audited the accompanying consolidated balance sheets of Garb Oil & Power
Corporation and Subsidiaries (a development stage company) as of June 30, 1998
and 1997, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for each of the three years in the period ended June 30,
1998, and for the period from January 14, 1981 (date of inception of the
development stage) through June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements of Garb Oil & Power Corporation and Subsidiaries for the
year ended June 30, 1993 and for the four years in the period ended June 30,
1993 were audited by other auditors whose report dated September 28, 1993, did
not express an opinion on the financial statements for June 30, 1993 and
included an explanatory paragraph that described the uncertainty regarding the
basis of presentation discussed in Note 1 to the consolidated financial
statements. Our opinion, insofar as it relates to the amounts for those years,
is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Garb Oil & Power Corporation and
Subsidiaries as of June 30, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ending June 30,
1998 and cumulative for the period from January 14, 1981 through June 30, 1998,
in conformity with generally accepted accounting principles.
16
<PAGE>
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is a development
stage enterprise engaged in developing technology related to production of
electricity by burning used rubber, pyrolysis (extraction of oil, carbon, and
steel from used tires). As discussed in Note 1 to the consolidated financial
statements, the Company's operating losses since inception and the deficit
accumulated during the development stage raise substantial doubt about their
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
September 8, 1998
17
<PAGE>
<TABLE>
<CAPTION>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
1998 1997
--------------- ---------------
ASSETS
Current Assets
<S> <C> <C>
Cash $ 5,954 $ 8,073
Accounts receivable - related party 195,474 186,044
Inventory 30,232 73,925
--------------- ---------------
Total Current Assets 231,660 268,042
Property and Equipment
Trucks - 16,052
Office equipment 8,115 8,115
Tools and equipment 30,099 30,099
Building improvements 4,747 4,747
--------------- ---------------
Total Property and Equipment 42,961 59,013
Less: Accumulated depreciation (25,837) (31,221)
--------------- ---------------
Net Property and Equipment 17,124 27,792
Other Assets
Deposits 1,000 1,000
Patents - net of accumulated amortization at June 30,
1998 and 1997 of $12,728 and $11,796, respectively 3,090 4,022
--------------- ---------------
Total Other Assets 4,090 5,022
--------------- ---------------
Total Assets $ 252,874 $ 300,856
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 92,919 $ 72,583
Deferred revenue 150,000 53,000
Accrued payroll 312,000 264,000
Accrued interest 81,450 61,650
Accrued expenses 1,321 -
Notes payable - related parties 246,907 263,907
--------------- ---------------
Total Current Liabilities 884,597 715,140
Stockholders' Deficit
Common stock - 20,000,000 shares authorized; no par value; 17,028,299
shares issued at June 30,
1998 and 1997 2,744,068 2,744,068
Accumulated deficit - prior to development stage (27,178) (27,178)
Deficit accumulated during the development stage (3,348,613) (3,131,174)
--------------- ---------------
Total Stockholders' Deficit (631,723) (414,284)
--------------- ---------------
Total Liabilities and Stockholders' Deficit $ 252,874 $ 300,856
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996 AND FOR THE
PERIOD FROM JANUARY 14, 1981 (INCEPTION OF THE DEVELOPMENT STAGE)
TO JUNE 30, 1998
For the
Period From
January 14, 1981
(Inception of the
Development
Stage) To
1998 1997 1996 June 30, 1998
--------------- --------------- --------------- ---------------
Revenues
<S> <C> <C> <C> <C>
Tire sales $ 4,625 $ 9,685 $ 24,030 $ 117,932
Equipment sales - - - 595,723
Other revenues 5,000 30,519 - 402,333
--------------- --------------- --------------- ---------------
Total Revenues 9,625 40,204 24,030 1,115,988
Expenses
Cost of sales 13,460 7,496 15,661 60,020
Cost of equipment - - - 473,837
Bad debt - - - 266,750
Salary and wages 77,934 93,815 48,000 1,324,459
Sales commission 2,750 3,000 5,140 27,785
Office 7,955 7,160 5,920 140,942
Rent 27,636 22,308 16,368 201,919
Telephone 3,957 5,161 2,421 100,470
Professional fees 17,313 16,933 10,645 382,967
Finders' fee - - - 145,000
Insurance 5,052 5,293 3,878 80,804
Taxes and licenses 3,305 5,651 244 98,113
Travel 3,416 1,750 1,218 211,589
Promotion and entertainment - - - 14,053
Testing - - - 27,073
Advertising 200 - 864 139,414
Amortization 932 932 932 51,170
Depreciation 7,377 9,157 9,216 49,552
Consulting fee - - - 19,737
Stockholders' meetings - - - 670
Parking 990 660 - 10,774
Subcontractors - - - 40,138
Auto expense - - 679 4,417
Repairs and maintenance 116 - - 3,982
Other 483 1,698 1,361 15,065
--------------- --------------- --------------- ---------------
Total Expenses 172,876 181,014 122,547 3,890,700
Loss From Operations Before Other Income
(Expense) and Extraordinary Item (163,251) (140,810) (98,517) (2,774,712)
--------------- --------------- --------------- ---------------
Other Income (Expense)
Write off and abandonment of assets (30,233) - - (431,690)
Gain on sale of assets 4,709 - 655 5,364
Interest income - - - 147,810
Interest expense (28,664) (36,488) (27,009) (184,556)
Minority interest in losses of subsidiary - - - 5,383
--------------- --------------- --------------- ---------------
Total Other Expenses (54,188) (36,488) (26,354) (457,689)
Loss From Operations Before Extraordinary
Item (217,439) (177,298) (124,871) (3,232,401)
Extraordinary Item - Loss on Extinguishment
of Debt - - - (116,212)
--------------- --------------- --------------- ---------------
Net Loss $ (217,439) $ (177,298) $ (124,871) $ (3,348,613)
=============== =============== =============== ===============
Basic and Diluted Loss Per Share
Operations $ (0.01) $ (0.01) $ (0.01) $ (0.22)
Extraordinary item - - - (0.01)
--------------- --------------- --------------- ---------------
Basic and Diluted Net Loss Per Share $ (0.01) $ (0.01) $ (0.01) $ (0.23)
=============== =============== =============== ===============
Weighted Average Number of Shares
Outstanding 17,028,299 16,793,146 16,445,900 14,615,904
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION OF THE DEVELOPMENT STAGE
(JANUARY 14, 1981) THROUGH JUNE 30, 1998
Deficit
Accumulated Treasury Stock
Common Stock During the Number
Number Accumulated Development of
of Shares Amount Deficit Stage Shares Amount
---------- ----------- ---------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 14, 1981 12,833,333 $ 61,894 $ (27,178) $ - - $ -
Stock issued to satisfy current liabilities:
June 30, 1983-$2.94 per share 82,000 240,889 - - - -
Stock issued to satisfy related party liabilities:
November 30, 1993 - $.20 per share 64,310 12,882 - - - -
December 1, 1993 - $.14 per share 87,000 12,200 - - - -
November 9, 1994 - $.21 per share 25,000 5,342 - - - -
Stock issued for services:
May 11, 1981-$1.60 per share 5,000 8,000 - - - -
May 26, 1983-$1.50 per share 50,000 75,000 - - - -
August 13, 1992 - $.15 per share 10,000 1,500 - - - -
August 16, 1992 - $.15 per share 15,000 2,250 - - - -
December 23, 1992 - $.15 per share 4,000 600 - - - -
November 9,1994 - $.21 per share 4,000 855 - - - -
January 9,1995 - $.21 per share 76,167 16,276 - - - -
February 8,1995 - $.21 per share 10,000 2,137 - - - -
Stock issued for cash:
March 17, 1981-$.70 per share 10,000 7,000 - - - -
April 22, 1981-$.41 per share 192,834 80,000 - - - -
June 25, 1981-$1.31 per share 27,518 35,945 - - - -
March 24, 1983-$.75 per share 14,000 10,500 - - - -
April 26, 1983-$1.00 per share 50,000 50,000 - - - -
June 30, 1983-$3.04 per share 30,000 91,272 - - - -
September 10, 1984-$1.00 per share 200,000 200,000 - - - -
November 4, 1984-$.95 per share 105,470 100,000 - - - -
April 25, 1986-$1.27 per share 770,000 980,000 - - - -
May 1992 - $0.24 per share 208,334 50,000 - - - -
December 23, 1992 - $.15 per share 50,000 7,500 - - - -
February 17, 1993 - $.15 per share 100,000 15,000 - - - -
March 26, 1993 - $.15 per share 100,000 15,000 - - - -
May 17, 1993 - $.15 per share 100,000 15,000 - - - -
June 14, 1993 - $.25 per share 100,000 25,000 - - - -
August 15, 1993 - $.20 per share 100,000 20,000 - - - -
October 4, 1993 - $.15 per share 100,000 15,000 - - - -
October 14, 1993 - $.07 per share 150,000 10,000 - - - -
November 1, 1993 - $.25 per share 20,000 5,000 - - - -
December 16, 1993 - $.17 per share 30,000 5,000 - - - -
December 28, 1993 - $.15 per share 50,000 7,500 - - - -
December 29, 1993 - $.20 per share 100,000 20,000 - - - -
January 11, 1994 - $.25 per share 20,000 5,000 - - - -
February 15, 1995 - $.20 per share 50,000 10,000 - - - -
March 22,1995 - $.22 per share 163,000 36,500 - - - -
March 30, 1995 - $.20 per share 100,000 20,000 - - - -
May 19, 1995 - $.25 per share 20,000 5,000 - - - -
June 30, 1995 - $.20 per share 25,000 5,000 - - - -
Contributed capital - 356,402 - - - -
Purchase of treasury stock - - - - 10,000 (10,009)
Retirement of treasury stock (10,000) (10,009) - - (10,000) 10,009
Net loss from January 14, 1981 through
June 30, 1995 - - - (2,829,005) - -
---------- ----------- ---------- ------------- -------- ----------
Balance, June 30, 1995 16,241,966 2,632,435 (27,178) (2,829,005) - -
Stock issued for services:
September 26, 1995 - $.13 per share 20,000 2,684 - - - -
Stock issued for cash:
July 7, 1995 - $.25 per share 40,000 10,000 - - - -
December 11, 1995 - $.10 per share 250,000 25,000 - - - -
May 3, 1996 - $.12 per share 50,000 6,000 - - - -
May 28, 1996 - $.25 per share 40,000 10,000 - - - -
Net Loss - - - (124,871) - -
---------- ----------- ---------- ------------- -------- ----------
Balance, June 30, 1996 16,641,966 2,686,119 (27,178) (2,953,876) - -
Stock issued for services:
May 23, 1997 - $.15 per share 86,333 12,949 - - - -
Stock issued for cash:
January 8, 1997 - $.15 per share 300,000 45,000 - - - -
Net Loss - - - (177,298) - -
---------- ----------- ---------- ------------- -------- ----------
Balance, June 30, 1997 17,028,299 2,744,068 (27,178) (3,131,174) - -
Net loss - - - (217,439) - -
---------- ----------- ---------- ------------- -------- ----------
Balance, June 30, 1998 17,028,299 $ 2,744,068 $ (27,178) $ (3,348,613) $ - $ -
========== =========== ========== ============= ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996 AND FOR THE
PERIOD FROM JANUARY 14, 1981 (DATE OF INCEPTION OF THE DEVELOPMENT STAGE)
TO JUNE 30, 1998
For the
Period From
January 14, 1981
(Inception of the
Development
Stage) To
1998 1997 1996 June 30, 1998
------------- ------------ ------------- --------------
Cash Flows From Operating Activities
<S> <C> <C> <C> <C>
Net loss $ (217,439) $ (177,298) $ (124,871) $ (3,348,613)
Adjustments to reconcile net cash provided
by (used in) operating activities:
Depreciation and amortization 8,309 10,089 10,148 100,722
Bad debt expense - - - 266,750
Gain on sale of asset (4,709) - (655) 5,364
Write off and abandonment of assets 30,233 - - 431,690
Loss on extinguishment of debt - - - 116,212
Stock issued for services and interest - 12,949 2,684 122,251
Changes in assets and liabilities:
Accrued interest receivable - - - (24,250)
Accounts receivable - related party and
other receivables - 1,257 3,337 (150,344)
Contract receivable - - - (242,500)
Income tax refund receivable - - - 537
Inventory 13,460 6,880 15,100 62,494
Prepaid expenses - - 4,000 -
Accounts payable 20,336 10,157 (3,334) 92,817
Deferred revenue 75,000 22,481 30,519 128,000
Advances payable - related party - - - (120,106)
Accrued payroll taxes 1,321 - (3,114) 1,321
Accrued payroll 48,000 48,000 36,140 312,001
Accrued interest payable 24,800 19,800 19,800 296,209
Other current liabilities - 65 - 240,954
------------- ------------ ------------- --------------
Net Cash Used In Operating Activities (689) (45,620) (10,246) (1,719,219)
Cash Flows From Investing Activities
Construction in progress - - - (2,937,790)
Net (advances) collections (to)/from related party (9,430) (25,607) (57,224) (57,130)
Purchase of treasury stock - - - (10,009)
Increase (Decrease) of other assets - - 3,694 (1,957,733)
Purchase of property and equipment - (1,836) - (60,412)
Proceeds from sale of asset 8,000 - 1,500 9,500
------------- ------------ ------------- --------------
Net Cash Provided By (Used In) Investing Activities 1,430 (27,443) (52,030) (5,013,574)
Cash Flows From Financing Activities
Net proceeds from (payments on) notes
payable - related party - 20,000 25,000 298,407
Proceeds from bank loans - - - 4,636,647
Sale of common stock - 45,000 51,000 1,947,217
Contributions to capital by parent company - - - 356,402
Principal payments on bank loans - - - (500,000)
------------- ------------ ------------- --------------
Net Cash Provided By Financing Activities - 65,000 76,000 6,738,693
Net Increase (Decrease) In Cash And Cash Equivalents (2,119) (8,063) 13,724 5,880
Net Cash and Cash Equivalents At Beginning of Period 8,073 16,136 2,412 74
------------- ------------ ------------- --------------
Net Cash and Cash Equivalents At End of Period $ 5,954 $ 8,073 $ 16,136 $ 5,954
============= ============ ============= ==============
Supplemental Disclosures of Cash Flow Information -
Cash paid during the periods for interest $ 3,864 $ 16,688 $ 8,618 $ 95,092
============= ============ ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
Organization--Garb Oil & Power Corporation (Garb Oil) is a 56% owned
subsidiary of Garbalizer Corporation of America. Garb Oil was dormant
at January 13, 1981. From January 14, 1981, Garb Oil has been
considered to be in the development stage. Development stage activities
have consisted of raising capital, purchasing property and developing
technology related to production of electricity by the burning of used
rubber, pyrolysis (extraction of oil, carbon, and steel from used
tires), the recovery of used rubber from large off-the-road tires and
repair and sale of used truck tires.
The accompanying financial statements include Garb Oil and its wholly
owned subsidiary, Rialto Power Corporation (which has been dissolved by
the State of California), and its 55% owned subsidiary, Utah Truck
Tire, Inc.; which are collectively referred to as the Company. The
following is a summary of the significant accounting policies.
Basis of Presentation--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 normal course of business. As shown in the
consolidated financial statements, during the years ended June 30,
1998, 1997, and 1996, the Company incurred net losses of $217,439,
$177,298, and $124,871, respectively, and as of June 30, 1998, the
Company's deficit accumulated during the development stage totaled
$3,348,613. These factors, among others, indicate that the Company may
be unable 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 ultimately to attain successful operations. As
described in Note 7 the Company has entered into an option purchase
agreement. Management is hopeful that this agreement will generate
sufficient cash flows to continue operations of the Company. Management
is continuing its efforts to obtain the necessary financing as may be
required to generate sufficient cash flows for future operations.
Principles of Consolidation--The consolidated financial statements
include the accounts of Garb Oil and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The Company has recognized all of the losses of Utah
Truck Tire in its statement of operations, with no offset to minority
interest
Trade Accounts Receivable--The allowance for doubtful accounts at June
30, 1998 was immaterial.
22
<PAGE>
Inventory--Inventory is carried at the lower of cost or market, cost
being determined on the first-in first-out basis, and consists of
tires, blades and miscellaneous parts and supplies.
Patents--Patents are carried at cost and are being amortized over a
17-year life.
Property and Equipment-- Property and equipment is recorded at cost and
is depreciated using the straight-line method based on the expected
lives of the assets which range from five to ten years.
Effective July 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets to be Disposed Of (SFAS 121). SFAS 121 requires that
impairment losses be recorded when indicators of impairment are present
and undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. The adoption of this
standard did not have a material impact on the Company's operating
results, cash flows or financial position.
Advertising Costs--The Company expenses all advertising costs as
incurred. The Company had advertising expense of $200, $ 0, and $864
for the years ending June 30, 1998, 1997 and 1996, respectively.
Income Taxes--The Company recognizes the amount of income taxes payable
or refundable for the current year and recognizes deferred tax assets
and liabilities for the future tax consequences attributable to
differences between the financial statement amounts of certain assets
and liabilities and their respective tax bases. Deferred tax assets and
deferred liabilities are measured using enacted tax rates expected to
apply to taxable income in the years those temporary differences are
expected to be recovered or settled. Deferred tax assets are reduced by
a valuation allowance to the extent that uncertainty exists as to
whether the deferred tax assets will ultimately be realized.
Loss Per Share -- In the fourth quarter of 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
Per Share. Under SFAS 128, loss per common share is computed by
dividing net loss available to common stockholders by the
weighted-average number of common shares outstanding during the period.
Diluted loss per share reflects the potential dilution which could
occur if all contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common
stock. In the Company's present position, diluted loss per share is the
same as basic loss per share because there are no potentially issuable
common shares. The effect of the new standard on prior years was
immaterial; accordingly, prior periods have not been restated.
Financial Instruments--Cash equivalents include highly liquid
short-term investments with original maturities of three months or
less, readily convertible to known amounts of cash. The amounts
reported as cash and equivalents, receivables, other assets, trade
accounts payable, deferred revenue and notes payable to related parties
are considered to be reasonable approximations of their fair values.
The fair value estimates presented herein were based on market
information available to management as of June 30, 1998. The use of
different market assumptions and/or estimation methodologies could have
a material effect on the estimated fair value amounts. The reported
fair values do not take into consideration potential expenses that
would be incurred in an actual settlement.
23
<PAGE>
Reclassification--Certain previously reported amounts have been
reclassified to conform to the June 30, 1998 presentation.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2--INVESTMENT IN RIALTO POWER CORPORATION
The Company entered into a joint venture with DITT, S.A., a French
Corporation (DITT), on December 2, 1985, for the purpose of
constructing a 35-megawatt electrical generating plant fueled by scrap
tires (the project). The Company received 50 percent of the common
stock of Rialto Power Corporation (Rialto), a corporation formed for
the purpose of the joint venture, in exchange for equipment and other
assets. The remaining 50 percent of the common stock of Rialto was
issued to DITT in consideration of an arrangement whereby DITT would
arrange and guarantee a $4,000,000 line of credit from a bank to Rialto
and construct a power plant.
Rialto had drawn the entire line of credit as of May 1988 at which time
the joint venture agreement was terminated. Pursuant to the termination
of the agreement, DITT transferred to Garb Oil all of its stock in
Rialto making Garb Oil the sole shareholder of Rialto. The line of
credit was called by the bank and, under the terms of the line of
credit, DITT, as guarantor, paid the bank. As consideration for this
payment, Rialto executed a note payable at 10% to DITT collateralized
by all of the assets of Rialto. The note was due on December 31, 1988.
In November 1989, Rialto agreed to convey the collateralized assets to
DITT in satisfaction of the note and related interest payable. Such
assets represented substantially all costs of the project. The carrying
value of the related assets and liabilities at the date of the
conveyance were as follows:
Land $ 1,384,126
Construction in progress 2,937,790
Other assets 140,633
-----------------
Total assets conveyed 4,462,549
Less note and related interest payable 4,346,337
Loss recognized on extinguishment of debt $ 116,212
=================
Due to the ongoing legal actions regarding certain permits issued with
respect to the Rialto project and the adverse effect of related delays,
the Company could not proceed with any further construction or
development of the project. As discussed in Note 1, the State of
California dissolved Rialto Power Company. The Company may pursue the
construction of other waste-to-energy projects in areas believed to
have more favorable regulatory environments. The Company does not have
any firm agreements for the construction of such additional plants.
24
<PAGE>
NOTE 3--UTAH TRUCK TIRE, INC.
Utah Truck Tire, Inc. was formed May 20, 1994, and on May 24, 1994 the
Company was issued 55 percent (55 shares) of the outstanding shares of
Utah Truck Tire Inc. in exchange for the Company's experience,
expertise and reputation in dealing with tire and rubber products. The
remaining 45 percent (45 shares) was issued to a director of Utah Truck
Tire, Inc. for a commitment to loan Utah Truck Tire, Inc. $150,000 (see
Note 5). Utah Truck Tire, Inc. is primarily in the business of selling
retread diesel truck tires.
NOTE 4--CONTRACT RECEIVABLE
In August 1988, the Company sold to an unrelated corporation a plant
and technology related to the extraction of oil by-products, steel, and
resulting gases from scrap tires in exchange for a contract receivable
in the amount of $242,500. The contract bore interest at 8% and, as
extended on September 1, 1991, was due in full on March 1, 1992. As no
payments were received by the Company since the contract was entered
into in August 1988, the contract receivable and related accrued
interest receivable of $24,250 were written off as uncollectible during
the year ended June 30, 1992. The Company is attempting to locate other
parties who may be interested in purchasing the plant and related
technology. No value was assigned to such plant and related technology
as of June 30, 1998 and 1997 due to the uncertainty of the realization
of any significant value.
NOTE 5--RELATED PARTY TRANSACTIONS
During the years ended June 30, 1998, 1997 and 1996, the Company made
non-interest bearing advances to Garbalizer Machinery Corporation (GMC)
in the amounts of $27,521, $34,771 and $99,247, respectively. Payments
on these advances totaled $14,091, $9,164 and $42,024 for the years
ended June 30, 1998, 1997 and 1996. These advances are due on demand
and deemed collectable. GMC is a related sister corporation of the
Company and has common shareholders.
Prior to July 1, 1992, the Company borrowed $31,907 from an officer
under a note payable for various purchases on behalf of the Company.
The Company pays all interest charges (currently at approximately 9%),
relating to these purchases but, as of June 30, 1998, no principal
payments have been made.
During the year ended June 30, 1997, the Company borrowed $20,000 from
shareholders under short-term, non-interest bearing notes payable due
on demand. As of June 30, 1998, $10,000 has been converted to a payment
on an option agreement. (See Note 7.)
During the year ended June 30, 1996, the Company borrowed $35,000 from
shareholders under short-term, non-interest bearing notes payable due
on demand. As of June 30, 1998, no payments have been made.
During the year ended June 30, 1995, the Company borrowed $22,000 from
shareholders under short term non-interest bearing notes payable due on
demand. $10,000 of these notes were paid in cash and the remaining
$12,000 was converted in 1998 to a payment on an option agreement. (See
Note 8.)
25
<PAGE>
During the year ended June 30, 1995 and 1994, the Company borrowed
$15,000 and $150,000, respectively, from an officer under a 12% note,
due on demand, unsecured. No amounts had been paid as of June 30, 1997.
Also, during the year ended June 30, 1994, the Company borrowed $12,000
from an officer on a 90-day note which was subsequently paid by GMC as
partial payment on their advances.
NOTE 6--INCOME TAXES
The Company did not have a current or deferred provision for income
taxes for the years ended June 30, 1998, 1997 and 1996. The following
presents the components of the deferred tax asset for the Company:
June 30,
1998 1997
------------- -------------
Benefit of operating loss carryforwards $ 943,652 $ 709,962
Accrued salaries 74,880 43,200
Accrued interest 33,716 18,495
Depreciation 2,023 1,958
------------- -------------
Total deferred tax assets 1,054,271 773,615
Less: Valuation Allowance (1,054,271) (773,615)
------------- -------------
Net Deferred Tax Asset $ - $ -
============= =============
The valuation allowance has increased $280,656 and $79,220 for the
years ended June 30, 1998 and 1997, respectively. The Company and its
subsidiaries have net operating loss carryforwards of $2,760,807 that
expire, if unused, in years 1998 through 2012.
The following is a reconciliation of the income tax at the federal
statutory tax rate with the provision for income taxes for the years
ended:
<TABLE>
<CAPTION>
June 30,
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Income tax benefit at statutory rate (34%) $ (73,929) $ (60,281) $ (42,456)
Current operating loss not recognized - 37,094 44,283
Change in deferred tax asset valuation 280,656 23,187 (1,827)
State tax net of federal benefit (7,175) - -
Non-deductible expense (34) - -
Effect on change of tax rates (199,518) - -
---------- --------- --------
Provision for Income Taxes $ - $ - $ -
========== ========= ========
</TABLE>
NOTE 7--COMMITMENTS
On April 28, 1997, the Company granted Giant Tire Recyclers, Inc.
(Giant) a Nevada corporation, an option to acquire a license to use the
Company's OTR disintegrator system. The price of the option was set at
$150,000 payable as follows: 1) an initial payment of $15,000, and 2)
the remaining $135,000 is due within ten months of the execution of the
agreement. The Company has received $150,000 and $53,000 as of June 30,
1998 and 1997, respectively. Giant may exercise the option at any time.
26
<PAGE>
The option will expire February 1999. The above contract gives Giant
the opportunity to purchase an exclusive license to use the Company's
OTR Disintegrator System in the states of Arizona, New Mexico and
Nevada for a license fee of $950,000, less option payments prior co to
the time of exercise.
On May 23, 1996, the Company entered into two agreements with Alberta
Recovery Technologies Ltd. (the customer) whereby the Company agrees to
manufacture and install equipment that will 1) be utilized in
processing scrap tires into crumb rubber and 2) prepare reusable
casings for recapping or reuse of off the road tires. In exchange, the
customer agreed to pay the Company a total of $3,045,000 payable as
follows: 1) An initial non-refundable earnest payment of $30,450
($30,519 was paid as of June 30, 1996 and was included as deferred
revenue at June 30, 1996), 2)Within ninety days of the execution of the
agreement an additional $960,900 payment is due; which has yet to be
received by the Company and 3) Within 30 to 60 days following the
second payment an irrevocable letter of credit totaling $2,053,650 will
be established by the customer. This agreement was terminated in 1997
for failure to meet the provisions of the agreement between the Company
and Alberta Recovery Technologies, Ltd., the $30,519 non-refundable
down payment classified as deferred revenue at June 30, 1996 was
transferred to other revenue during the period ended June 30, 1997.
The Company executed an employment agreement with its President on May
1, 1986. The agreement is of a continuing nature and specifies no date
of termination. Under the terms of the agreement, the President's
salary is $48,000 per year and is reviewed by the Board of Directors
annually.
NOTE 8--SALE OF THE TIRE SHREDDERS
In August 1990, the Company sold to an unrelated company a stationary
tire shredder and related motor for cash of $265,402. The cost of the
items sold was $160,000.
In August 1991, the Company sold to an unrelated company a mobile tire
shredder, related motor, and spare blades for cash of $330,321. The
cost of the items sold was $185,191.
NOTE 9--OPERATING LEASES
The Company shares office space with Garbalizer Machinery Corporation
under a lease agreement on a month to month basis. The Company also
leases facilities on a month to month basis. Rental expense relating to
these operating leases was $27,636, $22,308 and $16,368 for the years
ended June 30, 1998, 1997, and 1996, respectively.
NOTE 10--SUPPLEMENTAL CASH FLOWS
During the year ended June 30, 1998, the holders of a $22,000 note
payable applied the balance as a payment on an option agreement it
purchased from the Company in 1997. (See Note 7).
During the year ended June 30, 1997 the Company issued 86,333 shares of
common stock valued at $12,949 for services rendered.
27
<PAGE>
During the year ended June 30, 1996 the Company issued 20,000 shares of
common stock valued at $2,684 to satisfy related party interest.
During the year ended June 30, 1995, the Company issued 25,000 shares
of common stock valued at $5,342 to satisfy related party liabilities.
Also, during the year ended June 30, 1995, the Company issued 90,167
shares of common stock valued at $19,268 for services rendered.
NOTE 11-CONTINGENCIES
During fiscal 1998, the Company was threatened with potential
litigation by Giant Tire in regards to the option agreement it received
from the Company. Giant has asserted that it is entitled to additional
time to exercise the option and that the option covers a larger
territory than stated in the option agreement. The Company disputes
Giant's assertions. As of September 8, 1998 no formal legal action had
been taken by Giant.
28
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The term of office of each director is one (1) year or until his
successor is elected at the Company's annual meeting and qualified. The term of
office for each officer of the Company is at the pleasure of the Board of
Directors. The Board of Directors has no nominating, auditing or compensation
committee.
The following table sets forth the names, ages, and positions with the
Company of the directors and officers of the Company.
Name Age Position
John C. Brewer 76 President, Chairman of
the Board of Directors
and Director
Bill Vee Anderson 47 Vice-President, Director
Charles Laver 75 Secretary and Director
John C. Brewer has been the President and a director of the Company
since January, 1981, and from 1972 until January, 1981, was President and a
director of the Company's predecessor Garb-Oil Corporation. Mr. Brewer also
serves as president, chairman of the board of directors and a director of
Garbalizer Corporation of America, the majority shareholder of the Company and
Garbalizer Machinery Corporation, a public non-reporting company, from which the
Company intends to purchase equipment. Mr. Brewer will continue to devote
approximately 40 hours per week to the Company as well as additional time to his
other business interests.
Bill Vee Anderson has been Vice President and a director of the Company
since September 1993, but has been employed by the Company as a design engineer
since February 1990. Prior to joining the Company, Mr. Anderson spent five years
as a design engineer at Sperry Univac. Prior to that, he was a design engineer
29
<PAGE>
with Bell Telephone Laboratories. Mr. Anderson declared personal bankruptcy in
July, 1992 and agreed to a payment plan whereby his creditors have been or will
be paid the full amount of his indebtedness.
Charles Laver has been the Secretary and a director of the Company
since January, 1981, and from 1972 until January, 1981, was secretary and a
director of Garb-Oil Corporation. Mr. Laver's principal occupation for the last
30 years has been a self-employed certified public accountant. Mr. Laver will
devote such time as may be necessary from time to time as an officer and a
director of the Company including but not limited to regular (semi-monthly) and
special meetings of the board of directors.
Compliance With Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1998 all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
There is shown below information concerning the compensation of the
Company's chief executive officer for the fiscal year ended June 30, 1998.
Compensation for the other highly compensated executive officers is not required
nor presented as no such executive officer's salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Position Fiscal Year Salary ($)
- --------------------------- ----------- ----------
John C. Brewer 1998 $48,000
President and CEO 1997 48,000
1996 48,000
No person received any form of non-cash compensation from the Company
in the fiscal year ended June 30, 1998 or currently receives any such
compensation. The Company does provide medical insurance to Mr. Brewer.
30
<PAGE>
During the current fiscal year, the Company is paying and it is
anticipated that the Company will continue to pay a salary to Mr. Brewer of
$48,000 per annum for 40 hours per week of Mr. Brewer's time. The Company has an
employment agreement with Mr. Brewer. All or substantially all of such
compensation is currently being accrued rather than paid in cash.
Other than as set forth above the Company has no employment agreement
with any of its officers or directors and has no retirement, profit sharing,
pension or insurance plans covering them.
The Company issued options during the fiscal year, and none were
outstanding.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock as of October 5, 1998 (i)
each person known by the Company to own more than five percent (5%) of the
Company's outstanding stock, (ii) each director of the Company and (iii) all
officers and directors as a group.
Name and Address Amount Percent of Class
Garbalizer Corporation 9,500,000 55.8%
of America (Note 1)
Newhouse Office Building
Suite 507
Salt Lake City, Utah
A/S Parkveien 55 1,200,000 7.0%
c/o Hoegh Invest A/S (Note 2)
P.O. Box 2416 Solli
0202 Oslo 2, Norway
John C. Brewer (Note 3) 9,500,000 55.8%
Newhouse Office Building, Suite 507
Salt Lake City, Utah
Charles Laver (See Note 4) 9,520,746 55.9%
Newhouse Office Building, Suite 507
Salt Lake City, Utah
31
<PAGE>
Bill Anderson 6,000 *
Newhouse Office Building, Suite 507
Salt Lake City, Utah
All directors and 9,537,121 55.9%
officers as a group
(3 individuals)
* less than 1%
(1) John C. Brewer beneficially owns 83.7% of the outstanding common
stock of Garbalizer Corporation of America ("GCA").
(2) In September, 1988 A/S Parkveien 55 filed a Schedule 13D stating
its beneficial ownership of 1,800,000 shares owned of record and beneficially by
it. The Schedule 13D also indicates that an additional 478,000 shares (3.3% of
the class) were beneficially owned by two Norwegian corporations having common
control or ownership with A/S Parkveien 55. During a prior fiscal year,
1,500,000 shares held of record by A/S Parkveien 55 at the time of the Schedule
13D filing have been transferred of record to Christiana Bank, Oslo, Norway and
neither A/S Parkveien 55 nor the other corporations listed on the Schedule 13D
currently own shares of record. A/S Parkveien 55 did not inform the Company of a
change in beneficial ownership as result of such change in record ownership and
the table therefore reflects beneficial ownership stated in the Schedule 13D as
adjusted for subsequent sales by Christiana Bank.
(3) Consists of 9,500,000 shares held by GCA and its subsidiary in
which Mr. Brewer may be deemed to share beneficial ownership due to his position
as a director and principal shareholder of GCA.
(4) Consists of 9,500,000 shares held by GCA and its subsidiary in
which Mr. Laver may be deemed to share beneficial ownership due to his position
as a director of GCA and 20,746 shares owned of record by Mr. Laver.
The Company is unaware of any arrangements which may result in a change
in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company advanced $27,521, $34,771 and $99,247 to GMC during the
years ended June 30, 1998, 1997 and 1996, respectively and had advanced
additional amounts in prior years. The advances were unsecured and do not bear
interest. GMC repaid $14,091 during fiscal 1998, $9,164 during fiscal 1997 and
$42,024 during fiscal 1996 leaving a balance at June 30, 1998 of $195,474.
32
<PAGE>
During fiscal 1997, the Company borrowed $20,000 from shareholders
under non-interest bearing demand notes. During fiscal 1996 and 1995, the
Company had borrowed $35,000 and $22,000 from shareholders on similar terms. One
of the shareholders, who is not an affiliate of the Company, applied $22,000 of
the amounts owed to him to Giant's option payment and $10,000 has been repaid in
cash.
During fiscal 1994, UTTI borrowed $150,000 from its minority
shareholder, who is also an officer and director of UTTI and a shareholder of
the Company. During fiscal 1995, an additional $15,000 was borrowed. The note is
due on demand, bears interest at 12% per annum and is secured by substantially
all of UTTI's assets.
During the year ended June 30, 1993 the Company borrowed a total of
$29,500 from four shareholders, including the Company's president. Such loans
were non-interest bearing and unsecured. During fiscal 1994 and 1995, the
Company converted $22,500 of such notes into stock and repaid $7,000 of the
notes in cash.
The Company's president is entitled to annual salary of $48,000. During
1993 through 1998 substantially all of such salary was accrued rather than paid
in cash. Such accrued wages are unsecured and do not bear interest. As of June
30, 1998, the balance of accrued salary to the president was $312,000. This is
in addition to the $31,907 owed to the Company's president for advances to the
Company.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
a. The following financial statements and schedules are filed herewith.
Garb Oil & Power Corporation
Consolidated Balance Sheets - June 30, 1998 and 1997.
Consolidated Statements of Operations - For the Years Ended June 30,
1998, 1997, 1996 and for the Period from January 14, 1981 (Date of
Inception of the Development Stage) to June 30, 1998
Consolidated Statements of Stockholders' Equity - For the Period from
Inception of the Development Stage (January 14, 1981) through June 30,
1998
Consolidated Statements of Cash Flows For the Years Ended June 30,
1998, 1997, 1996 and for the Period from January 14, 1981 (Date of
Inception of the Development Stage) to June 30, 1998
33
<PAGE>
b. During the fourth quarter of the year reported upon the Company filed a
Form 8-K dated May 11, 1998 reporting, under Item 5, the Project Development and
Construction Agreement with Trenergy, Inc. No financial statements were required
to be filed with such form.
c. The following exhibits are filed herewith or incorporated herein by
reference. The SEC No. refers to the Exhibit Table in Item 601 of Regulation
S-B.
<TABLE>
<CAPTION>
Section No. Exhibit No. Description Location
<S> <C> <C> <C>
3 3.1 Articles of Incorporation Exhibit 3.1 of Registration
(as amended) Statement on Form 10
File No. 0-14859
3 3.2 By-Laws Exhibit 3.2 of Registration
Statement on Form 10
File No. 0-14859
10 10.1 Employment Agreement Exhibit 10.5 of Registration
with John Brewer Statement on Form 10
File No. 0-14859
10 10.2 Amended Construction Exhibit 10.2 of Form 10-KSB
Project Agreement (ART) for June 30, 1996
10 10.3 Amended OTR Project Exhibit 10.2 of Form 10-KSB
Agreement (ART) for June 30, 1996
10 10.4 Agreement with Giant Tire Exhibit 10.4 of Form 10-KSB
Recyclers, Inc. for June 30, 1997
10 10.5 Project Development and Exhibit 10.1 of Form 8-K
Construction Agreement dated May 11, 1998
with Trenergy, Inc.
21 21.1 List of Subsidiaries Exhibit 21.1 of Form 10-KSB
for June 30, 1995
27 27 Financial Data Schedule Filed herewithin
</TABLE>
34
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GARB OIL & POWER CORPORATION
By: /s/ John C. Brewer
---------------------------
John C. Brewer, President
DATED this 12 day of October, 1998
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the date indicated.
1. By its principal executive officer.
Date: October 12, 1998 /s/ John C. Brewer
--------------------------
John C. Brewer, President
2. And by its principal financial officer and principal accounting
officer.
Date: October 12, 1998 /s/ Charles Laver
--------------------------
Charles Laver, Treasurer
3. And by a majority of its Board of Directors.
Date: October 12, 1998 /s/ John Brewer
--------------------------
John Brewer, Director
Date: October 12, 1998 /s/ Charles Laver
--------------------------
Charles Laver, Director
Date: October 12, 1998 /s/ Bill Vee Anderson
--------------------------
Bill Vee Anderson, Director
35
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of June 30, 1998, and statements of operations for the twelve months
ended June 30, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,594
<SECURITIES> 0
<RECEIVABLES> 195,474
<ALLOWANCES> 0
<INVENTORY> 30,232
<CURRENT-ASSETS> 231,660
<PP&E> 42,961
<DEPRECIATION> (25,834)
<TOTAL-ASSETS> 252,874
<CURRENT-LIABILITIES> 884,957
<BONDS> 0
0
0
<COMMON> 2,744,068
<OTHER-SE> (3,375,791)
<TOTAL-LIABILITY-AND-EQUITY> 252,874
<SALES> 4,625
<TOTAL-REVENUES> 9,625
<CGS> 13,460
<TOTAL-COSTS> 13,460
<OTHER-EXPENSES> 159,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (28,664)
<INCOME-PRETAX> (217,439)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (217,439)
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
