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, 1999
[ ] 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
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(Exact name of small business issuer in its charter)
Utah 87-0296694
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(State of other jurisdiction of (I.R.S. Employer Ident. No.)
incorporation or organization)
10 Exchange Place, Suite 507
Salt Lake City, Utah 84111
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(Address of principal executive offices) (Zip Code)
(801) 322-5410
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(Issuer'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
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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. [ ]
State Issuer's revenues for its most recent fiscal year: None.
As of September 27, 1999, 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 $780,162.
As of September 27, 1999, the Issuer had outstanding 17,943,299 shares
of common stock (no par value).
Transitional Small Business Disclosure Format (check one) Yes X No
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Garb Oil & Power Corporation (the "Company") is in the business of
developing and marketing processes which will recover crumb rubber or other
recyclable rubber, oil by-products, commercially marketable char and steel from
scrap tires, a system and process to recover, repair and market truck tires of
all sizes and processes which will utilize scrap tires and/or municipal waste to
generate steam for the production of electricity. During 1999, the Company
acquired certain assets from its sister corporation Garbalizer Machinery
Corporation, including the rights to manufacture and sell Garbalizer tire
shredders. The Company has designed a system that in its opinion is 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 wastes and exclusive rights to
build its plants in the United States and abroad. The Company is in the
development stage.
The Company received no revenues in the fiscal year ended June 30, 1999
and at the end of the year its current liabilities exceeded its total assets by
approximately $877,000. The Company continues, as it has done in recent years,
to actively pursue sales of its OTR Tire Disintegrator System, Garbalizer tire
shredders and crumb rubber plants. These activities did not result in any sales
during fiscal 1999, and they may not result in any sales during fiscal 2000. The
Company has limited financial resources, and it may not be able to continue in
business if it does not receive significant additional cash from operations or
financing activities. The Company cannot give assurances that its plans to
generate cash will be successful.
The Company's predecessor, Garb-Oil Corporation, was incorporated and
commenced business on September 11, 1972, under the laws of the State of Utah.
The Company changed its name to Garb Oil & Power Corporation in 1985.
OTR Tire Processing System
The Company has designed a system known as the OTR Tire Disintegrator
System which it believes will be capable of recovering used rubber from large,
off-the-road (OTR) tires. In 1998, the Company substantially completed the
engineering and design of the OTR Tire Disintegrator System, but has not yet
constructed a commercially operating system. As discussed below, the Company
granted an option to a third party to acquire a license to utilize the OTR Tire
Disintegrator System in a stated territory. The option holder may not be
successful in obtaining financing for the project.
Commercially available tire shredders, including shredders made by the
Company, 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
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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 2,600,000 tons of OTR tires of
all sizes require disposal in the United States each year. Current methods of
disposal include land filling and surface disposal, which are accepted only due
to the lack of a viable alternative. Most states have passed laws prohibiting
land filling or storage of whole tires.
The OTR Tire Disintegrator System uses mechanical means to remove the
exterior rubber from OTR tire carcasses without shredding. After removal of
non-rubber components, primary shredding and wire separation, the resulting
particles are then processed into crumb rubber during secondary processing. The
shredded particles could also be used as fuel or safely disposed of in a
landfill, although the Company believes that the rubber particles will be of
such high quality that landfill disposal or use as fuel will be unnecessary.
The Company has prepared what it believes to be the final design of the
OTR Tire Disintegrator System and has analyzed its expected performance. When
the first OTR Tire Disintegrator System is built, it is expected that only
slight modifications to the design could be required to maximize performance. It
is also possible, although the Company does not anticipate this, that the OTR
Tire Disintegrator System will not perform as planned when built.
The Company has received United States Patent No. 5,299,748 on the OTR
Tire Disintegrator System design which expires April 5, 2011 and Patent No.
5,590,838 which expires January 7, 2014. An additional patent improvement has
been filed and is currently pending in the United States. The additional patent
improvement was granted in Canada on July 6, 1999 as Canadian Patent No.
2,178,326 and will expire March 23, 2015.
The Company announced the availability of the OTR Tire Disintegrator
System in July, 1992. Although the Company has received and continues to receive
numerous inquiries from potential buyers or users of the OTR Tire Disintegrator
System, it has not built or sold an OTR Tire Disintegrator System. The Company's
original intent was to retain ownership of the OTR Tire Disintegrator System,
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. However, the
Company has decided to modify its requirements to allow others to purchase and
use the technology and machinery on a license and royalty based upon gross
sales.
On April 28, 1997, the Company granted Giant Tire Recyclers, Inc.
("Giant") a Nevada corporation, an option to acquire a license to use the OTR
Tire Disintegrator System. The price of the option was $150,000. Giant may
exercise the option at any time. In April, 1999 the Company and Giant amended
the option to provide that the option will expire if not exercised by April 29,
2000, plus applicable notice and grace periods.
The option, as amended, gives Giant the opportunity to purchase an
exclusive license to use the Company's OTR Tire Disintegrator System system in
the states of Arizona, New Mexico and Nevada for a license fee of $1,315,000,
less option payments prior to the time of exercise. The license fee includes two
OTR Tire Disintegrator System machines and tools and equipment suitable
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to operate a truck tire repair business. 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.
Shredding Systems
On March 19, 1999 the Company acquired a patented shredding system from
its sister company, Garbalizer Machinery Corporation ("GMC"). See "Certain
Relationships and Related Transactions". This system became available when GMC
merged with a Canadian internet company, changed its name to RecycleNet, Inc.
and ceased its shredder business.
The Company acquired from GMC all of its then existing assets,
including the Garbalizer name and logo, patents, machinery designs and contract
rights in exchange for assumption of all then existing indebtedness of GMC in
the approximate amount of $500,000.
The system known as the "Garbalizer Shredder" has a thirty year history
of shredding automobile and truck tires in the United States, Canada and Europe.
During this period of time, GMC acquired fourteen U.S., and six foreign patents
all of which have expired except one U.S. and one Canadian patent. U.S. patent
number 4927088 expires May 22, 2007. Canadian patent number 1137949 expires
December 21, 1999.
The Garbalizer Shredder employs a cutting method rather than the impact
method embodied in hammer mills and grinders. This cutting method consists of a
rotatable shaft or pair of shafts, supported by bearings, upon which are fixed a
series of blade holders at 120(Degree) or 180(Degree) intervals around the
shaft. The blade holders to which blades are attached are positioned along the
length of the shaft so that their tips form a helix which tends to position the
tires for cutting. Spacers to which no cutting blades are attached are located
between each blade holder mounted on the rotatable shaft so that the rotating
blades and the spacers form the cutting mechanism of the Garbalizer Shredder
when co-acting with stationary blade holders.
The shredding mechanism for all of the electric-driven models is
protected by fluid couplings, torque limiting couplings and overload relays in
the electrical control system. If non-shreddable material is encountered within
the Garbalizer Shredders, the torque limiting or fluid coupling and relays stop
the machines and protect the Garbalizer Shredders from serious damage. The
rotatable shaft or shafts are driven by an electric motor or diesel electric
system through a system of gear reducers. The diesel electric-driven mobile
Garbalizer Shredder is protected from non-shreddable items by similar couplings
and overload relays that stop the Garbalizer Shredder if it becomes overloaded
or jammed. If this happens on any of the Garbalizer Shredders, it is simple to
reverse the rotor and remove from the Garbalizer Shredder the item or items that
jammed or stopped the machine. This and several additional unique and beneficial
features of the Garbalizer Shredder reduces the time and effort required for
maintenance.
In operation, material to be shredded is placed on a conveyor and
carried to the top of the hopper where it falls by gravity upon the rotating
blade or blades or can be fed directly into the
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cutters by a patented controlled feeding system. The rotating blades position
the material and cut it as it is forced between the stationary blades. The
shredded material is then transported away from the machine by conveyor to be
used as tire derived fuel (TDF), crumb rubber production or other processes that
use shredded tires.
The Garbalizer Shredders are offered in mobile and stationary models of
various capacities.
The Company believes that acquisition of the Garbalizer Shredder system
and related marketable items from GMC will benefit the Company by allowing it to
quote complete recycling systems more economically and efficiently.
There are a number of companies that sell competitive products. The
Company believes that the design of the Garbalizer Shredders is equivalent or
superior to competitive designs. Some of the competitors are larger and better
financed than the Company, and the Company believes certain competitors may have
a competitive advantage on the sale of stand-alone shredders with respect to
marketing prowess, financing terms, cost and perceived customer support.
Historically, GMC had determined that it could manufacture the
Garbalizer Shredders more economically on a contract basis with local machine
shops in lieu of its own manufacturing facilities and personnel. The Company
intends to continue this practice.
There are several machine shops located near the Company's offices with
the required manufacturing and production capabilities to produce multiple
shredders on a timely basis.
The Garbalizer Shredder takes approximately four to five months to
construct. It is manufactured and assembled from stock alloy steel, gear
reducers, drive units and motors. Any heavy equipment machine shop with standard
machine technology can manufacture the shaft, blade holders, blades, spacers,
hopper, structural frame and supports for the Garbalizer Shredder from standard
alloy steel stock. The gear reducer, bearings, electric motor and related drive
components are standard items available from several suppliers. The completed
components are assembled into major units for shipping to the installation site
by truck or railroad flat car. At the site, the major units can be field
assembled with local construction or rigging workers who need have no previous
experience with the Garbalizer Shredder. Location of the manufacturing
facilities in close geographical proximity to the installation sites of
potential customers is not considered by management to be a significant factor.
Crumb Rubber Plants
The Company markets 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, shredders
and other items provided by the Company. The Company entered into an agreement
to sell one such plant in 1996, but the buyer defaulted. As of the date of this
report, the Company has not sold any crumb rubber plants.
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If the Company is successful in selling a crumb rubber plant, it will
be exposed to the risks of process engineering and equipment manufacturing
concerns, including potential contract, warranty and liability claims. The
Company has limited experience in engineering for or constructing crumb rubber
plants. The Company relies on third parties including engineers and
sub-contractors for the supply of a majority of the equipment in the plant and
the actual assembly and construction labor.
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 with renewal provisions
and gives the Company the right to build all systems and plants for Trenergy on
a cost plus basis which cannot exceed similar costs for similar projects. The
Company is designated as 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
Trenergy 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 may 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 plans to use management time and financial resources pursuing
possible transactions with the Trenergy technology for which the Company may
receive no revenue.
UTTI Tire Repair and Resale Business
The Company's efforts have historically focused 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
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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 a 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
could be commercially viable if 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 purchasers of tire shredders or OTR Tire Disintegrator
Systems, to date the Company does not have any agreements to establish such
joint ventures. As with any start-up operation, there is substantial uncertainty
regarding its ability to operate at a profit.
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 $165,000 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.
During the past fiscal year, the Company has concentrated its efforts on other
aspects of its business and has held only very preliminary discussions regarding
the possibility of construction of such plants. To date the Company has not
built a plant.
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.
The Company received permits to construct the Rialto power plant from
the South Coast Air Quality Management District, which determined that the
project met all existing applicable pollution requirements. Based on this, the
Company believes that a plant could be engineered to meet current pollution
requirements. Although environmental permits were issued for the construction of
the Rialto project, litigation with private citizens regarding compliance with
California environmental laws delayed completion of the projects for years. The
Company and it's joint venture partner 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.
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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 1981 a demonstration-test facility was built in Mountlake
Terrace, Washington. This test facility was used to test various construction
materials that would be used in full size commercial plants. The test facility
was later 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. The Company in 1981 licensed the pilot
plant, but terminated the license and during Fiscal 1992 the entire receivable
plus 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 and does not believe that the pyrolysis technology is financially feasible
without heavy subsidies from governmental sources or other entities.
Patents, Trademarks and Proprietary Data
The Company has received two United States patents on the OTR Tire
Disintegrator System design. The patents expire in the year 2011 and 2014.
Additional patents are pending in the United States and Canada.
The Company does not hold patents on the plant and process to be used
in connection with its proposed electricity, co-generation plants or nuclear
remediation.
The Company owns the following unexpired patents in connection with the
Garb-Oil Pyrolysis Process:
United States Patents:
- ------------------------- Expires
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Pyrolysis Process Patent No. 4,402,791 09/30/00
Patent
A foreign patent has also been granted in Canada.
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In connection with the Garbalizer Shredder design, the Company owns
United States patent number 4,927,088 that expires May 22, 2007 and Canadian
patent number 1,137,949 that expires December 21, 1999:
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
Sand Application
Improvement Patents for Tar Sands Patents 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
The Company's president, John C. Brewer, it's Chief Engineer and
Secretary each devote 40 hours, or more, per week to the Company's business. All
additional work is performed on a contract basis. UTTI currently has no
employees and has no plans to hire employees in the foreseeable future.
Additional personnel will be required when the Company expands its
business or enters into agreements for construction of power plants, crumb
rubber 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, 1999, 1998, and 1997, 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 or
pollutants in the air, water or soil.
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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
twenty one years. The offices occupy approximately 1400 square feet. The
premises are being leased from SCM Land Company, an unrelated third party, on a
monthly basis. 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, 1999, the Company and UTTI paid approximately $18,000 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, 1999.
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
September 27, 1999, 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, 1999, 1998 and 1997, 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.
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Period
(Fiscal Year) High Low
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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
1999
1st Quarter .18 .17
2nd Quarter .09 .08
3rd Quarter .14 .13
4th Quarter .13 .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.
Dividends
No cash dividends have been paid by the Company in the past, and
dividends are not contemplated in the foreseeable future. Utah law currently
prohibits the payment of dividends since the Company's liabilities exceed its
assets. 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 third quarter of the year ended June 30, 1999, the Company
issued 900,000 common shares for total consideration of $60,000. The shares were
sold to six current shareholders who represented they were sophisticated
investors. No underwriting commissions or similar fees were paid in connection
with the sale. The Company believes the sale was exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2).
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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 be in the development stage. Therefore
management cannot say with certainty when significant revenues will be received
from the Company's business.
The auditor's report accompanying the Company's financial statements
for the year ended June 30, 1999 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."
As discussed further in Item 12, in exchange for the Company's
assumption of GMC's net liabilities, Garbalizer Corporation of America
transferred 1,061,668 shares of RecycleNet, Inc. common stock to the Company. As
of June 30, 1999 the Company had 775,000 of these shares remaining with a fair
value of $290,625. These shares could be liquidated and utilized for settling
various Company obligations. Management is pursuing other 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. The
Company is also attempting to interest purchasers of Garbalizer shredders in
establishing used tire joint ventures. The Company continues to pursue the
licensing or leasing of the OTR Tire Disintegrator System. 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. 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 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. At June 30, 1999 the Company
had a deficit in working capital (current liabilities in excess of current
assets) of $890,470. The working capital deficit at June 30, 1998 was $652,937.
The decrease in working capital was caused by the continued accrual of salary,
accounts payable for expenses which the Company was unable to pay in cash and
additional short-term unsecured notes incurred as part of the assumption of GMC
liabilities.
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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, 1999 the Company received proceeds from
the sale of RecycleNet common stock. The proceeds include $50,000 of cash for
the sale of 166,668 shares and $52,560 for 120,000 shares given to an employee,
lawyers and a consultant for various services rendered. During the year ended
June 30, 1999, the Company recorded no revenue from the sale of tires from
inventory by UTTI compared to tire sales of $4,625 in fiscal 1998 and $9,685 in
fiscal 1997. 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 the 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, 1999 of
$194,275 compared to losses of $163,251 and $140,810 for the years ended June
30, 1998 and 1997, respectively. Total expenses for 1999 were $194,275 compared
to $172,876 in 1998 and $181,104 in 1997. Salaries and wages were $76,073 for
1999 compared to $77,934 for 1998 and $93,815 for 1997. Rental expenses were
$14,716 in 1999, $27,636 in 1998 and $22,308 in 1997. Rental expense decreased
in 1999 due to UTTI giving up their lease on its facility in March 1999. Rental
expense increased in 1998 as a result of UTTI's facility and increased use of
the offices shared with GMC. UTTI incurred $13,460 of direct costs of sales in
1998 and $7,496 in 1997. 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, 1999 was $123,519 compared to
$217,439 in 1998 and $177,298 in 1997. 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, 1999 was ($0.01)
compared to ($0.01) in 1998 and 1997. Operating losses are expected to continue
until such time, if ever, as the Company receives revenues from the sale of a
crumb rubber plant, the lease or license of the OTR Tire Disintegrator System,
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, 1999, the Company had a net increase in
cash of $7,935. The non-refundable option payment from Giant, increases in
accounts payable and accrued salaries, and reduction in tire inventory were the
primary
13
<PAGE>
sources of cash for operations for the year. The sale of RecycleNet's common
shares and the sale of the Company's own common stock were the primary sources
of cash from financing and investing activities. 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]
14
<PAGE>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants F-1
Financial Statements:
Consolidated Balance Sheets June 30, 1999
and 1998 F-3
Consolidated Statements of Operations for the Years Ended June
30, 1999, 1998 and 1997 and for the Period From January 14,
1981 (Date of Inception of the Development Stage) to
June 30, 1999 F-4
Consolidated Statements of Comprehensive Income (Loss) for the
Years Ended June 30, 1999, 1998 and 1997 and for the Period
From January 14, 1981 (Date of Inception of the Development
Stage) to June 30, 1999 F-5
Consolidated Statements of Stockholders' Deficit
for the Period From Inception of the Development
Stage (January 14, 1981) Through June 30, 1999 F-6
Consolidated Statements of Cash Flows for the Years Ended June
30, 1999, 1998 and 1997 and for the Period From January 14,
1981 (Date of Inception of the Development Stage) to
June 30, 1999 F-7
Notes to Consolidated Financial Statements F-9
i
<PAGE>
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, 1999
and 1998, and the related consolidated statements of operations, comprehensive
income (loss), stockholders' deficit, and cash flows for each of the three years
in the period ended June 30, 1999, and for the period from January 14, 1981
(date of inception of the development stage) through June 30, 1999. 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 the 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, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ending June 30,
1999 and cumulative for the period from January 14, 1981 through June 30, 1999,
in conformity with generally accepted accounting principles.
(Continued)
F-1
<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 its
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 10, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
1999 1998
--------------- ---------------
ASSETS
Current Assets
<S> <C> <C>
Cash $ 13,889 $ 5,954
Accounts receivable - related party - 195,474
Inventory 30,232 30,232
Investment in available-for-sale securities 290,625 -
--------------- ---------------
Total Current Assets 334,746 231,660
--------------- ---------------
Property and Equipment
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 42,961
Less: Accumulated depreciation (31,876) (25,837)
---------------- ---------------
Net Property and Equipment 11,085 17,124
--------------- ---------------
Other Assets
Deposits - 1,000
Patents - net of accumulated amortization at June 30,
1999 and 1998 of $12,728 and $11,796, respectively 2,158 3,090
--------------- ---------------
Total Other Assets 2,158 4,090
--------------- ---------------
Total Assets $ 347,989 $ 252,874
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 73,998 $ 58,113
Deferred revenue 150,000 150,000
Accrued payroll 360,000 312,000
Accrued interest 162,594 81,450
Accrued expenses 3,769 1,321
Notes payable - related parties 474,855 281,713
--------------- ---------------
Total Current Liabilities 1,225,216 884,597
--------------- ---------------
Stockholders' Deficit
Common stock - 20,000,000 shares authorized;
no par value; 17,933,299 and 17,028,299 shares issued at
June 30, 1999 and 1998, respectively 2,331,458 2,744,068
Unrealized gain on available-for-sales securities 290,625 -
Accumulated deficit - prior to development stage (27,178) (27,178)
Deficit accumulated during the development stage (3,472,132) (3,348,613)
---------------- ---------------
Total Stockholders' Deficit (877,227) (631,723)
---------------- ---------------
Total Liabilities and Stockholders' Deficit $ 347,989 $ 252,874
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND FOR THE
PERIOD FROM JANUARY 14, 1981 (INCEPTION OF THE DEVELOPMENT STAGE)
TO JUNE 30, 1999
For the
Period From
January 14, 1981
(Inception of the
Development
Stage) To
1999 1998 1997 June 30, 1999
--------------- --------------- --------------- ---------------
Revenues
<S> <C> <C> <C> <C>
Tire sales $ - $ 4,625 $ 9,685 $ 117,932
Equipment sales - - - 595,723
Other revenues - 5,000 30,519 402,333
--------------- --------------- --------------- ---------------
Total Revenues - 9,625 40,204 1,115,988
Expenses
Cost of sales - 13,460 7,496 60,020
Cost of equipment - - - 473,837
Bad debt - - - 266,750
Salary and wages 76,073 77,934 93,815 1,400,532
Sales commissions - 2,750 3,000 27,785
Office 5,142 7,955 7,160 146,084
Rent 14,716 27,636 22,308 216,635
Telephone 1,545 3,957 5,161 102,015
Professional fees 69,737 17,313 16,933 452,704
Finders' fee - - - 145,000
Insurance 1,705 5,052 5,293 82,509
Taxes and licenses 6,548 3,305 5,651 104,661
Travel 5,721 3,416 1,750 217,310
Promotion and entertainment - - - 14,053
Testing - - - 27,073
Advertising 5,133 200 - 144,547
Amortization 932 932 932 52,102
Depreciation 6,039 7,377 9,157 55,591
Consulting fee - - - 19,737
Stockholders' meetings - - - 670
Parking 440 990 660 11,214
Subcontractors - - - 40,138
Auto expense - - - 4,417
Repairs and maintenance - 116 - 3,982
Other 544 483 1,698 15,609
--------------- --------------- --------------- ---------------
Total Expenses 194,275 172,876 181,014 4,084,975
Loss From Operations Before Other Income
(Expense) and Extraordinary Item (194,275) (163,251) (140,810) (2,968,987)
---------------- --------------- --------------- ----------------
Other Income (Expense)
Write off and abandonment of assets - (30,233) - (431,690)
Gain on sale of assets 102,560 4,709 - 107,924
Interest income - - - 147,810
Interest expense (31,804) (28,664) (36,488) (216,360)
Minority interest in losses of subsidiary - - - 5,383
--------------- --------------- --------------- ---------------
Total Other Income (Expense) 70,756 (54,188) (36,488) (386,933)
Loss From Operations Before Extraordinary
Item (123,519) (217,439) (177,298) (3,355,920)
Extraordinary Item - Loss on Extinguishment
of Debt - - - (116,212)
--------------- --------------- --------------- ---------------
Net Loss $ (123,519) $ (217,439) $ (177,298) $ (3,472,132)
================ =============== =============== ================
Basic and Diluted Loss Per Share
Operations $ (0.01) $ (0.01) $ (0.01) $ (0.23)
Extraordinary item - - - (0.01)
--------------- --------------- --------------- ----------------
Basic and Diluted Net Loss Per Share $ (0.01) $ (0.01) $ (0.01) $ (0.24)
================ =============== =============== ================
Weighted Average Number of Shares
Outstanding 17,411,573 17,028,299 16,793,146 14,767,279
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND FOR THE
PERIOD FROM JANUARY 14, 1981 (INCEPTION OF THE DEVELOPMENT STAGE)
TO JUNE 30, 1999
For the
Period From
January 14, 1981
(Inception of the
Development
Stage) To
1999 1998 1997 June 30, 1999
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Loss $ (123,519) $ (217,439) $ (177,298) $ (3,472,132)
-------------- -------------- --------------- ---------------
Other Comprehensive Income
Unrealized gain on investment in securities 290,625 -- -- 290,625
-------------- -------------- --------------- ---------------
Other Comprehensive Income 290,625 -- -- 290,625
-------------- -------------- --------------- ---------------
Comprehensive Income (Loss) $ 167,106 $ (217,439) $ (177,298) $ (3,181,507)
============== ============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<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, 1999
Deficit
Unrealized Accumulated Treasury Stock
Common Stock Gain on During the Number
Number Investment Accumulated Development of
of Shares Amount In Securities Deficit Stage Shares Amount
--------- ------ ------------- ------- ----- ------ ------
<S> <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 1983-$2.94 per share 82,000 240,889 - - - - -
Stock issued to satisfy related party liabilities:
November 1993-$.20 per share 64,310 12,882 - - - - -
December 1993-$.14 per share 87,000 12,200 - - - - -
November 1994-$.21 per share 25,000 5,342 - - - - -
Stock issued for services:
May 1981-$1.60 per share 5,000 8,000 - - - - -
May 1983-$1.50 per share 50,000 75,000 - - - - -
August 1992-$.15 per share 25,000 3,750 - - - - -
December 1992-$.15 per share 4,000 600 - - - - -
November 1994-$.21 per share 4,000 855 - - - - -
January 1995-$.21 per share 76,167 16,276 - - - - -
February 1995-$.21 per share 10,000 2,137 - - - - -
Stock issued for cash:
March 1981-$.70 per share 10,000 7,000 - - - - -
April 1981-$.41 per share 192,834 80,000 - - - - -
June 1981-$1.31 per share 27,518 35,945 - - - - -
March 1983-$.75 per share 14,000 10,500 - - - - -
April 1983-$1.00 per share 50,000 50,000 - - - - -
June 1983-$3.04 per share 30,000 91,272 - - - - -
September 1984-$1.00 per share 200,000 200,000 - - - - -
November 1984-$.95 per share 105,470 100,000 - - - - -
April 1986-$1.27 per share 770,000 980,000 - - - - -
May 1992-$0.24 per share 208,334 50,000 - - - - -
December 1992-$.15 per share 50,000 7,500 - - - - -
February 1993-$.15 per share 100,000 15,000 - - - - -
March 1993-$.15 per share 100,000 15,000 - - - - -
May 1993-$.15 per share 100,000 15,000 - - - - -
June 1993-$.25 per share 100,000 25,000 - - - - -
August 1993-$.20 per share 100,000 20,000 - - - - -
October 1993-$.07 to $.15 per share 250,000 25,000 - - - - -
November 1993-$.25 per share 20,000 5,000 - - - - -
December 1993-$.15 to $.20 per share 180,000 32,500 - - - - -
January 1994-$.25 per share 20,000 5,000 - - - - -
February 1995-$.20 per share 50,000 10,000 - - - - -
March 1995-$.20 to $.22 per share 263,000 56,500 - - - - -
May 1995-$.25 per share 20,000 5,000 - - - - -
June 1995-$.20 per share 25,000 5,000 - - - - -
Contributed capital - 356,402 - - - - -
Purchase of treasury stock - - - - - 10,000 (10,009)
Retirement of treasury stock (10,000) (10,009) - - - (10,000) 10,009
Net loss from January 14, 1981
through June 30, 1995 - - - - (2,829,005) - -
----------- ---------- --------- -------- ----------- ------- -------
Balance, June 30, 1995 16,241,966 2,632,435 - (27,178) (2,829,005) - -
Stock issued for services:
September 1995-$.13 per share 20,000 2,684 - - - - -
Stock issued for cash:
July 1995-$.25 per share 40,000 10,000 - - - - -
December 1995-$.10 per share 250,000 25,000 - - - - -
May 1996-$.12 to $.25 per share 90,000 16,000 - - - - -
Net loss - - - - (124,871) - -
----------- ---------- --------- -------- ----------- ------- -------
Balance, June 30, 1996 16,641,966 2,686,119 - (27,178) (2,953,876) - -
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION OF THE DEVELOPMENT STAGE
(JANUARY 14, 1981) THROUGH JUNE 30, 1999
Deficit
Unrealized Accumulated Treasury Stock
Common Stock Gain on During the Number
Number Investment Accumulated Development of
of Shares Amount In Securities Deficit Stage Shares Amount
--------- --------- ------------- ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 16,641,966 2,686,119 - (27,178) (2,953,876) - -
Stock issued for services:
May 1997-$.15 per share 86,333 12,949 - - - - -
Stock issued for cash:
January 1997-$.15 per share 300,000 45,000 - - - - -
Net loss - - - - (177,298) - -
------------- ----------- ----------- ----------- ------------ --------- --------
Balance, June 30, 1997 17,028,299 2,744,068 - (27,178) (3,131,174) - -
Net loss - - - - (217,439) - -
------------- ----------- ----------- ---------- ------------ --------- --------
Balance, June 30, 1998 17,028,299 2,744,068 - (27,178) (3,348,613) - -
Stock issued for services:
October 1998-$.09 per share 5,000 450 - - - - -
Stock issued for cash
January-1999-$.05 to $.10 per share 770,000 47,000 - - - - -
February-1999-$.10 per share 130,000 13,000 - - - - -
Distribution from majority shareholder - (473,060) - - - - -
Change in unrealized gain on investment
in securities, net of tax - - 290,625 - - - -
Net loss - - - - (123,519) - -
------------- ----------- ----------- ----------- ------------ --------- --------
Balance, June 30, 1999 17,933,299 $ 2,331,458 $ 290,625 $ (27,178) $ (3,472,132) $ - $ -
============= =========== =========== =========== ============ ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
GARB OIL & POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 AND FOR THE
PERIOD FROM JANUARY 14, 1981 (DATE OF INCEPTION OF THE DEVELOPMENT STAGE)
TO JUNE 30, 1999
For the
Period From
January 14, 1981
(Inception of the
Development
Stage) To
1999 1998 1997 June 30, 1999
------------- ------------ ------------- --------------
Cash Flows From Operating Activities
<S> <C> <C> <C> <C>
Net loss $ (123,519) $ (217,439) $ (177,298) $ (3,472,132)
Adjustments to reconcile net cash provided
by (used in) operating activities:
Depreciation and amortization 6,971 8,309 10,089 107,693
Bad debt expense - - - 266,750
Gain on sale of asset - (4,709) - (5,364)
Gain on sale of available-for-sale securities (102,560) - - (102,560)
Write off and abandonment of assets - 30,233 - 431,690
Loss on extinguishment of debt - - - 116,212
Stock issued for services and interest 450 - 12,949 122,701
Available for sale securities issued for services 52,560 - - 52,560
Changes in current assets and liabilities:
Accrued interest receivable - - - (24,250)
Accounts receivable 11,645 - - 11,645
Accounts receivable - related party and
other receivables - - 1,257 (150,344)
Contract receivable - - - (242,500)
Income tax refund receivable - - - 537
Inventory - 13,460 6,880 62,494
Accounts payable 8,371 (14,473) 10,157 66,380
Deferred revenue - 75,000 22,481 128,000
Advances payable - related party - - - (120,106)
Accrued expenses (3,076) 1,321 - (1,755)
Accrued payroll 48,000 48,000 48,000 360,000
Accrued interest payable 22,239 59,609 19,800 353,257
Other current liabilities - - 65 240,954
------------- ------------ ------------- --------------
Net Cash Used In Operating Activities (78,919) (689) (45,620) (1,798,138)
Cash Flows From Investing Activities
Construction in progress - - - (2,937,790)
Cash acquired from Garbalizer Machinery 899 - - 899
Net (advances) payments (to)/from related party (26,479) (9,430) (25,607) (83,609)
Purchase of treasury stock - - - (10,009)
Increase (decrease) of other assets 1,000 - - (1,956,733)
Purchase of property and equipment - - (1,836) (60,412)
Proceeds from sale of available for sale securities 50,000 - - 50,000
Proceeds from sales of assets - 8,000 - 9,500
------------- ------------ ------------- --------------
Net Cash Provided By (Used In) Investing Activities 25,420 (1,430) (27,443) (4,988,154)
Cash Flows From Financing Activities
Net proceeds from (payments on) notes
payable - related party 1,434 - 20,000 299,841
Proceeds from bank loans - - - 4,636,647
Sale of common stock 60,000 - 45,000 2,007,217
Contributions to capital by parent company - - - 356,402
Principal payments on bank loans - - - (500,000)
------------- ------------ ------------- ---------------
Net Cash Provided By Financing Activities 61,434 - 65,000 6,800,107
------------- ------------ ------------- --------------
Net Increase (Decrease) In Cash And Cash Equivalents 7,935 (2,119) (8,063) 13,815
Net Cash and Cash Equivalents At Beginning of Period 5,954 8,073 16,136 74
------------- ------------ ------------- --------------
Net Cash and Cash Equivalents At End of Period $ 13,889 $ 5,954 $ 8,073 $ 13,889
============= ============ ============= ==============
Supplemental Disclosures of Cash Flow Information -
Cash paid for interest $ 9,564 $ 3,864 $ 16,688 $ 104,656
============= ============ ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<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 majority
owned subsidiary of Garbalizer Corporation of America and was dormant
at January 13, 1981. Since 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 was 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.
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.
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 ordinary course of business. As shown in the
consolidated financial statements, during the years ended June 30,
1999, 1998, and 1997, the Company has incurred net losses of $123,519,
$217,439, and $177,298, respectively, and as of June 30, 1999, the
Company's deficit accumulated during the development stage was
$3,472,132. 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.
Management is continuing its efforts to obtain the necessary financing
as may be required to generate sufficient cash flows for future
operations. During the year ended June 30, 1999, the Company received
Recyclenet common shares in conjunction with the reorganization and
sale of Garbalizer Machinery Corporation. Management intends to sell
the shares received in the transaction and use the funds received from
the sale of the securities to fund current and 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.
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.
F-9
<PAGE>
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.
The Company records impairment losses when indicators of impairment are
present and undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount.
Advertising Costs--The Company expenses all advertising costs as
incurred. Advertising expense was $5,133, $200, and $ 0, for the years
ending June 30, 1999, 1998 and 1997, 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
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 -- 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.
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, 1999. 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.
Reclassification--Certain previously reported amounts have been
reclassified to conform to the June 30, 1999 presentation.
NOTE 2--DISTRIBUTION TO MAJORITY SHAREHOLDER
In March 1999, the Company and the Company's majority shareholder,
Garbalizer Corporation of America (GCA), were parties to the
reorganization and sale of GCA's subsidiary, Garbalizer Machinery
Corporation (GMC). The reorganization was accomplished by GMC
transferring all of its assets and liabilities to the Company, by GMC
merging with Recyclenet, Inc. in exchange for approximately 90% of its
common stock being issued to the former Recyclenet, Inc. shareholders
and by GMC changing its name to Recyclenet, Inc. GCA retained
approximately 10% of the common stock of Recyclenet, Inc. after the
reorganization. In exchange for the Company's assumption of GMC's net
liabilities, GCA transferred 1,061,668 shares of Recyclenet, Inc.
common stock (approximately 2% of the outstanding common shares after
the reorganization) to the Company. The assets and liabilities
transferred to the Company, including the Company's receivable from GMC
which was effectively forgiven, were as follows:
F-10
<PAGE>
Cash $ 899
Accounts receivable 11,645
Accounts payable (10,584)
Accrued expenses (61,359)
Payable to related parties (103,215)
Notes payable (88,493)
----------
Net Liabilities Assumed (251,107)
Receivable from GMC forgiven $ (221,953)
Net Liabilities Assumed and Receivable Forgiven $ (473,060)
==========
The common shares of Recyclenet, Inc. received from GCA were recorded
at zero which was the historical cost of GCA's investment in GMC after
the transfer of GMC's net liabilities to the Company. The liabilities
assumed, net of the assets received, were recorded as a distribution of
stockholders' equity to GCA and was recorded at the historical carrying
values of the assets and liabilities to GMC which were also equal to
their fair values.
NOTE 3--INVESTMENT IN SECURITIES AND OTHER COMPREHENSIVE INCOME
The Recyclenet shares owned by the Company are classified as
available-for-sale and are stated at fair value. At June 30, 1999, the
available-for-sale securities consisted of the following:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Common Stock $ - $ 290,625 $ - $ 290,625
Proceeds from sales of securities and the resulting gross realized
gains and losses were as follows:
For the Years
Ending June 30,
1999 1998
------------ ------------
Proceeds from Sales of Securities $ 102,560 $ --
============ ============
Gross realized gains $ 102,560 $ --
Gross realized losses -- --
------------ ------------
Net Gain from Sale of Investments $ 102,560 $ --
============ ============
Proceeds from sales of securities includes $50,000 of cash proceeds for
the sale of 166,668 shares and $52,560 for 120,000 shares given to an
employee, lawyers and a consultant for various services rendered. The
shares given for services rendered had a fair value of $0.44 per share
which was the market value of the stock on the day granted.
Other comprehensive income is only relevant for the year ending June
30, 1999 and for the period from inception through June 30, 1999 and
consists of the change in net unrealized holding gains and losses on
securities classified as available for sale and their related income
tax benefit as follows:
<TABLE>
<CAPTION>
Before-Tax Tax Net-of-Tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C>
For the Year Ended June 30, 1999
Unrealized net holding gains $ 393,185 $ - $ 393,185
Reclassification adjustment for net gains
included in net income (102,560) - (102,560)
------------ ------------ ------------
Other Comprehensive Income $ 290,625 $ $ 290,625
============ ============ ============
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
Before-Tax Tax Net-of-Tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C>
Cumulative For the Period January
14, 1981 (Date of Inception) Through
June 30, 1999
Unrealized net holding gains $ 393,185 $ - $ 393,185
Reclassification adjustment for net gains
included in net income (102,560) - (102,560)
------------ ------------ ------------
Other Comprehensive Income $ 290,625 $ $ 290,625
============ ============ ============
</TABLE>
A provision for income taxes has not been assessed against the
unrealized gain on securities because of the current NOL's of the
Company. Any gain on the sale of the securities will be offset against
these NOL's.
NOTE 4--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 is currently dormant having no revenues and
incurring minimal expenses during the years ended June 30, 1999 and
1998. Utah Truck Tire, Inc. was primarily in the business of selling
retread diesel truck tires.
NOTE 5--PAYABLE TO RELATED ENTITIES, OFFICERS AND SHAREHOLDERS
During the period July 1998 through March 1999 and for the years ended
June 30, 1998 and 1997, the Company made non-interest bearing advances
to Garbalizer Machinery Corporation (GMC), a sister corporation, in the
amounts of $34,094, $27,521, and $34,771, respectively. Payments on
these advances totaled $60,573, $14,091, and $9,164 for the years ended
June 30, 1999, 1998 and 1997. As discussed in Note 2, in March 1999,
GMC merged with an unrelated Company and transferred all assets and
liabilities to the Company which include the above mentioned receivable
totaling $221,953. The related party receivable/payable has been
eliminated in the accompanying financial statements.
Prior to July 1, 1992 through June 30, 1999 the Company borrowed
$68,147, which includes $1,434, $24,403 and $1,438 during the three
years ending June 30, 1999, 1998 and 1997, from an officer under a note
payable for various purchases on behalf of the Company. As part of the
assumption of GMC's liabilities, the Company assumed an additional
$103,215 payable to this officer for various purchases on behalf of
GMC. The Company paid all interest charges (currently at approximately
9%), relating to these purchases. These payables were due on demand,
but as of June 30, 1999, no principal payments had been made.
Prior to June 30, 1996, a shareholder advanced to the Company $35,000
under short-term, non-interest bearing notes which were due on demand.
During the year ended June 30, 1997 an additional $10,000 was advanced.
During the year ended June 30, 1998, $5,000 of interest was added to
these advances. As part of the assumption of GMC's liabilities, the
Company assumed an additional $10,000 short-term, non-interest bearing
note which was due on demand. As of June 30, 1999 a total of $60,000
was owed to this shareholder with no principal payments being made as
of June 30, 1999.
Prior to June 30, 1996, the Company borrowed $165,000 from an officer.
Interest accrues at the rate of 12% and the amount is due on demand and
is unsecured. No payments had been made as of June 30, 1999.
F-12
<PAGE>
As part of the assumption of GMC's liabilities, the Company assumed a
$10,000 note payable from a shareholder. This note bears interest at
12% and is due on demand. No principal payments had been made as of
June 30, 1999,
As part of the assumption of GMC's liabilities, the Company assumed a
12% note payable from an individual with an outstanding balance of
$68,493. The note was originally for $150,000 and was due in 1992. The
Company has not made any principal payments since assuming this note.
During the year ended June 30, 1995, the Company borrowed $12,000 from
a shareholder under short term, non-interest bearing notes payable
which were due on demand. An additional $10,000 was loaned to the
Company during the year ended June 30, 1997. During 1998, the notes
were converted to a payment on an option agreement as discussed in Note
7.
NOTE 6--INCOME TAXES
The Company did not have a current or deferred provision for income
taxes for the years ended June 30, 1999, 1998 or 1997. The following
presents the components of the deferred tax asset for the Company:
June 30,
1999 1998
------------ ------------
Benefit of operating loss carryforwards $ 831,230 $ 943,652
Inventory reserve 11,790 -
Accrued salaries 93,600 74,880
Accrued interest 41,438 33,716
Depreciation 2,086 2,023
------------ ------------
Total Deferred Tax Assets 980,144 1,054,271
Less: Valuation Allowance (980,144) (1,054,271)
------------ ------------
Net Deferred Tax Asset $ - $ -
============ ============
The valuation allowance has decreased $74,127 and increased $280,656
for the years ended June 30, 1999 and 1998, respectively. The decrease
in valuation during 1999 is due to the expiration of federal and state
NOL's offset by the tax losses incurred during 1999. The Company and
its subsidiaries have federal net operating loss carryforwards of
$2,411,594 that expire, if unused, in years 2000 through 2019.
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,
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Income tax benefit at statutory rate (34%) $ (41,997) $ (73,929) $ (60,281)
Change in deferred tax asset valuation 46,084 280,656 60,281
State tax net of federal benefit (4,076) (7,175) -
Effect due to change in tax rates - (199,518) -
Other (11) (34) -
------------ ------------ -------------
Provision for Income Taxes $ - $ - $ -
============ ============ =============
</TABLE>
F-13
<PAGE>
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 was due within ten months of the execution of
the agreement. The Company received $150,000 as of June 30, 1998
consisting of $128,000 in cash and assigned $22,000 as a payment on a
note payable to a shareholder. Giant may exercise the option at any
time. The option was initially to expire in April 1999, but an
extension was granted through April 2000. The above contract gives
Giant the opportunity to purchase an exclusive license to use the
Company's OTR Disintegrator System for a license fee of $1,315,000,
less option payments prior to the time of exercise.
On May 23, 1996, the Company entered into two agreements with Alberta
Recovery Technologies Ltd. whereby the Company agreed to manufacture
and install equipment. An initial non-refundable earnest payment of
$30,519 was paid and was included as deferred revenue at June 30, 1996.
This agreement was terminated in 1998 for failure to meet the
provisions of the agreement, the $30,519 non-refundable down payment
classified as deferred revenue was transferred to other revenue during
the period ended June 30, 1998.
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--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, 1999 and 1998 due to the uncertainty of the realization
of any significant value.
NOTE 9--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 1987 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.
F-14
<PAGE>
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. 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.
NOTE 10--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 $14,716, $27,636, and $22,308 for the years
ended June 30, 1999, 1998, and 1997, respectively.
NOTE 11--SUPPLEMENTAL CASH FLOWS
During the year ended June 30, 1999, the Company and the Company's
majority shareholder, Garbalizer Corporation of America (GCA), were
parties to the reorganization and sale of GCA's subsidiary, Garbalizer
Machinery Corporation (GMC). See Note 2 for a discussion of the
acquisition.
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.
During the year ended June 30, 1997, the Company issued 86,333 shares
of common stock valued at $12,949 for services rendered.
F-15
<PAGE>
ITEM 8. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable except as previously reported.
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 77 President, Chairman of
the Board of Directors
and Director
Bill Vee Anderson 48 Vice-President, Director
Charles Laver 76 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 which was the majority shareholder of the
Company. Until March, 1999 Mr. Brewer was a director of, and Garbalizer
Corporation of America was the majority shareholder of, GMC Corporation, a
public non-reporting company. Mr. Brewer devotes 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. He has been employed by the Company as a design engineer
since February 1990. Prior
15
<PAGE>
to joining the Company, Mr. Anderson spent five years as a design engineer at
Sperry Univac. Prior to that, he was a design engineer 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 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, 1999 all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with except as follows:
John C. Brewer filed a Form 4 on October 12, 1999 reporting a change in
the number of shares of the Company indirectly owned by him. The Form 4
should have been filed on April 12, 1999.
Charles Laver filed a Form 4 on October 12, 1999 reporting a change in
the number of shares of the Company indirectly owned by him. The Form 4
should have been filed on April 12, 1999.
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, 1999.
Compensation for the other highly compensated executive officers is not required
nor presented as no such executive officer's salary and bonus exceeded $100,000.
16
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Position Fiscal Year Salary ($)
- --------------------------- ----------- ----------
John C. Brewer 1999 $48,000
President and CEO 1998 48,000
1997 48,000
No person received any form of non-cash compensation from the Company
in the fiscal year ended June 30, 1999 or currently receives any such
compensation. The Company does provide medical insurance to Mr. Brewer.
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 no 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 September 27, 1999 (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 8,131,590 45.3%
of America (Note 1)
Newhouse Office Building, Suite 507
Salt Lake City, Utah
Ralph C. Alexander 933,343 5.2%
152 Hall Street
Spartanburg, South Carolina
A/S Parkveien 55 1,050,000 5.9%
c/o Hoegh Invest A/S (Note 2)
P.O. Box 2416 Solli
0202 Oslo 2, Norway
17
<PAGE>
John C. Brewer (Note 3) 8,131,590 45.3%
Newhouse Office Building, Suite 507
Salt Lake City, Utah
Charles Laver (Note 4) 8,152,336 45.4%
Newhouse Office Building, Suite 507
Salt Lake City, Utah
Bill Anderson 6,000 *
Newhouse Office Building, Suite 507
Salt Lake City, Utah
All directors and 8,158,336 45.5%
officers as a group
(3 individuals)
* less than 1%
(1) John C. Brewer beneficially owns 98% 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 were 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 8,131,590 shares held by GCA in which Mr. Brewer may be
deemed to share beneficial ownership as a result of his position as a director
and principal shareholder of GCA.
(4) Consists of 8,131,590 shares held by GCA in which Mr. Laver may be
deemed to share beneficial ownership as a result of 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.
18
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 19, 1999 the Company acquired all rights to the Garbalizer
Shredder and related assets from GMC in exchange for assumption of liabilities.
In connection with the sale, GMC was reorganized into RecycleNet, Inc. The
reorganization was accomplished by GMC transferring all of its assets and
liabilities to the Company, by merging with RecycleNet, Inc. in exchange for
approximately 90% of its common stock being issued to the former RecycleNet,
Inc. shareholders, and by GMC changing its name to RecycleNet Inc. Prior to the
change in control, Garbalizer Corporation of America owned a majority of the GMC
shares and the board of directors of the Company was the same as the board of
directors of GMC. Garbalizer Corporation of America retained approximately 10%
of the common stock of RecycleNet, Inc. after the reorganization. Although the
persons acquiring control of GMC are not affiliated with the Company, the terms
of the sale of assets to the Company were not determined at arms length. The
Company assumed $473,060 more in liabilities than assets on the acquisition,
which was accounted for as a distribution from Garbalizer Corporation of America
to the Company. In exchange for the Company's assumption of GMC's net
liabilities, Garbalizer Corporation of America transferred 1,061,668 shares of
RecycleNet, Inc. common stock to the Company. The common shares of RecycleNet,
Inc. received from Garbalizer Corporation of America were recorded with a zero
basis which was the historical cost of Garbalizer Corporation of America's
investment in GMC.
During the period July 1998 through March 1999 and for the years ended
June 30, 1998 and 1997, the Company made non-interest bearing advances to GMC in
the amounts of $34,094, $27,521, and $34,771, respectively. Payments on these
advances totaled $60,573, $14,091, and $9,164 for the years ended June 30, 1999,
1998 and 1997. As discussed above, in March 1999 GMC merged with an unrelated
Company and transferred all assets and liabilities to the Company, which include
the above mentioned receivable totaling $221,953.
Prior to June 30, 1996, a shareholder advanced to the Company $35,000
under short-term, non-interest bearing notes which were due on demand. During
the year ended June 30, 1997 an additional $10,000 was advanced. During the year
ended June 30, 1998, $5,000 of interest was added to these advances. As part of
the assumption of GMC's liabilities, the Company assumed an additional $10,000
short-term, non-interest bearing note which was due on demand. As of June 30,
1999 a total of $60,000 was owed to this shareholder with no principal payments
being made as of June 30, 1999.
As part of the assumption of GMC's liabilities, the Company assumed a
$10,000 note payable from a shareholder. This note bears interest at 12% and is
due on demand. No principal payments had been made as of June 30, 1999,
As part of the assumption of GMC's liabilities, the Company assumed a
12% note payable from an individual with an outstanding balance of $68,493. The
note was originally for $150,000 and was due in 1992. The Company has not made
any principal payments since assuming this note.
During the year ended June 30, 1995, the Company borrowed $12,000 from
a shareholder under short term, non-interest bearing notes payable which were
due on demand. An additional
19
<PAGE>
$10,000 was loaned to the Company during the year ended June 30, 1997. During
1998, the notes were converted to a payment on an option agreement.
The Company's president is entitled to an annual salary of $48,000.
During 1993 through 1999, 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, 1999, the balance of accrued salary to the president was $360,000.
This is in addition to the $68,147 owed to the Company's president for advances
to the Company. As part of the assumption of GMC's liabilities, the Company
assumed an additional $103,215 payable to this officer for various purchases on
behalf of GMC. The Company paid all interest charges (currently at approximately
9%) relating to these purchases. These payables were due on demand; however, as
of June 30, 1999, no principal payments had been made.
ITEM 13. EXHIBITS 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, 1999 and 1998.
Consolidated Statements of Operations - For the Years Ended
June 30, 1999, 1998, 1997 and for the Period from January 14,
1981 (Date of Inception of the Development Stage) to June 30,
1999
Consolidated Statements of Stockholders' Equity - For the
Period from Inception of the Development Stage (January 14,
1981) through June 30, 1999
Consolidated Statements of Cash Flows For the Years Ended June
30, 1999, 1998, 1997 and for the Period from January 14, 1981
(Date of Inception of the Development Stage) to June 30, 1999
b. During the fourth quarter of the year reported upon the Company
filed no Form 8-K.
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.
20
<PAGE>
Section Exhibit
No. No. Description Location
- ------- ------- ------------------------- ----------------------------------
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 with Exhibit 10.5 of Registration
John Brewer Statement on Form 10, File No.
0-14859
10 10.2 Agreement with Giant Tire Exhibit 10.4 of Form 10-KSB for
Recyclers, Inc. June 30, 1997
10 10.3 Project Development and Exhibit 10.1 of Form 8-K dated
Construction Agreement May 11, 1998
with Trenergy, Inc.
10 10.4 Extension Agreement with Filed herewith
Giant Tire Recyclers, Inc.
10 10.5 Agreement between Filed herewith
Garbalizer Machinery
Corporation and the
Company
21 21.1 List of Subsidiaries Exhibit 21.1 of Form 10-KSB for
June 30, 1995
27 27 Financial Data Schedule Filed herewith
21
<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 12th day of October, 1999
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, 1999 /s/ John C. Brewer
------------------------------
John C. Brewer, President
2. And by its principal financial officer and principal accounting
officer.
Date: October 12, 1999 /s/ Charles Laver
------------------------------
Charles Laver, Treasurer
3. And by a majority of its Board of Directors.
Date: October 12, 1999 /s/ John C. Brewer
------------------------------
John C. Brewer, Director
Date: October 12, 1999 /s/ Charles Laver
------------------------------
Charles Laver, Director
Date: October 12, 1999 /s/ Bill Vee Anderson
------------------------------
Bill Vee Anderson, Director
22
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT is made and executed this 16th day of April,
1999, to be effective as of 28th day of April, 1999 by and between GARB OIL &
POWER CORPORATION, a Utah corporation ("Garb-Oil") and GIANT TIRE RECYCLERS,
INC., a Nevada Corporation ("GTR").
R E C I T A L S
A. Garb-Oil, as the "Seller" and GTR, as the "Buyer" are parties to an
agreement dated April 28, 1997 entitled "Option Contract" referred to herein as
the "Option Contract".
B. The Option Contract gives GTR the right to purchase "Exclusive
Rights" to use Patented Garb-Oil technology to recycle and process Off The Road
(OTR) tires. (See Option Contract Exhibit "B")
C. The Option Contract requires the OTR Project Agreement to be
executed no later than April 28, 1999.
E. Garb-Oil is willing to grant GTR an extension of the due date for
the April 28, 1999 Contract Execution date, and Art is willing to obtain such
extension, on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises, the mutual covenants and
conditions set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree to be
legally bound as follows:
1. Paragraph 1. Of the original OPTION CONTRACT, dated April 28, 1997,
is amended to read as follows.
Grant of Option. Garb-Oil acknowledges receipt from Optionee of an
initial non-refundable Option payment in the amount of One Hundred Fifty
Thousand ($150,000.00) Dollars which will be applied to the total purchase price
of the OTR Project Agreement. Garb-Oil hereby grants to Optionee, and Optionee
hereby accepts from Garb-Oil, the right and option ("Option") to purchase the
Exclusive License during the Option Period (as hereinafter defined), at the
Purchase Price (as hereinafter defined) and in accordance with the terms and
conditions of the "Amended" OTR PROJECT AGREEMENT. The OTR PROJECT AGREEMENT (AS
AMENDED) is set forth in its general terms and attached as Exihibit A. Some of
the non-material or non-substantial terms of the OTR PROJECT AGREEMENT may be
revised or added, as negotiated and mutually agreed upon by the parties through
good-faith negotiations, as more fully described below, after Optionee gives
notice of intent to exercise Option (the OTR PROJECT AGREEMENT, as may be
revised, is hereinafter referred to as the "Final Agreement").
2. Paragraph 2. Of the original Option Contract, dated April 28, 1997
is amended to read as follows.
<PAGE>
Option Period. The Option Period shall commence as of April 29, 1999 and
continue for a period of one (1) year (the "Option Period").
3. Paragraph 4 of the original Option Contract Dated April 28, 1997 is
amended to read as follows
Purchase Price. The Purchase price for the Exclusive License shall be One
Million Three Hundred Fifteen Thousand ($1,315,000.00) Dollars ("Purchase
Price") and shall be payable as outlined in the OTR PROJECT AGREEMENT, paragraph
4, attached hereto as "EXHIBIT A".
4. In the event that the contract is not executed and the payment due
under paragraph 4 of the Agreement is not paid when due (as extended by
paragraph 2 of this Extension Agreement), then Garb may notify GTR that GTR is
in default under the Option Contract and GTR shall have (14) days after the
dispatch of such notice to cure such defaults by executing the OTR Agreement and
making the required payment. If GTR does not so cure the defaults, Garb shall be
entitled without further notice to GTR to (i) declare the Option Contract
terminated, thereby relieving Garb from further obligations thereunder and
terminating any rights of GTR thereunder, and (ii) to retain as its own property
without any interest or claim of GTR, all payments theretofore made by GTR.
5. The notice permitted to be given by the preceding paragraph shall be
sent by facsimile to GTR at (520) 623-3360 with a hard copy sent by first class
mail to 2419 N. Geronimo Ave. Apt. B, Tucson, AZ 85705. All other notices
required or permitted to be given shall be in accordance with the terms and
conditions of the OTR Agreement.
6. The parties intend this Extension Agreement to amend the OTR
Agreement as set forth above and as shown in the Amended OTR PROJECT AGREEMENT.
The Amended OPTION CONTRACT and as expressly amended hereby, the OTR Agreement
and OPTION CONTRACT shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers on the date and year first above
written.
Garb-Oil: GARB-OIL & POWER CORPORATION
By /s/ John C. Brewer
---------------------------
Its President
GTR: GIANT TIRE RECYCLERS, INC.
By /s/ Herbert Kuglmeier
---------------------------
Its President
-2-
AGREEMENT
This agreement entered into the date below shown between Garbalizer
Machinery Corporation, a Utah corporation [Garbalizer] and Garb-Oil & Power
Corporation, a Utah corporation [Garb-Oil]
Whereas Garbalizer, on February 25, 1999 entered into a stock exchange
agreement with RecycleNet Corporation of Ontario, Canada [RecycleNet], and
Whereas Garbalizer and RecycleNet agreed that Garbalizer would have,
prior to the closing of said agreement, the right to sell and convey all its
existing assets (including the "Garbalizer" name and logo, patents, machinery
designs, and contract rights) to Garb-Oil in exchange for Garb-Oil's assumption
of existing indebtedness of Garbalizer in the approximate amount of $500,000.00
(U.S.), and
Whereas Garb-Oil is desirous of obtaining said existing assets, the
"Garbalizer" name and logo, patents, machinery designs, and contract rights and
further, is desirous of assuming the existing indebtedness of Garbalizer in the
approximate amount of $500,000.00 (U.S.), and
Whereas the board of directors of both Garbalizer and Garb-Oil have by
resolution authorized their respective corporation to enter into this
transaction and have authorized the officers of their respective corporations to
perform all acts necessary and to execute all documents necessary to effect this
transaction, therefore
Garbalizer, by these presents, hereby convoys all existing assets
including all right, title, and interest in and to the Garbalizer name and logo,
patents [as identified in the attached exhibit], machinery designs, and contract
rights by it possessed.
Garb-Oil, by these presents, and as consideration for the assets above
referenced, hereby assumes all existing indebtedness of Garbalizer in the
approximate amount of $500,000.00 (U.S.).
Dated the 19th day of March, 1999.
GARBALIZER MACHINERY CORPORATION ATTEST
By /s/ John C. Brewer /s/ Charles K. Laver
----------------------------- ----------------------------
President secretary
GARB-OIL & POWER CORPORATION ATTEST:
By /s/ John C. Brewer /s/ Charles K. Laver
----------------------------- ----------------------------
President secretary
<PAGE>
EXHIBIT TO
GARALIZER/GARB-OIL
AGREEMENT
GARBALIZER SHREDDER PATENTS
U.S. PATENTS
patent #3578252
patent #3708127
patent #3762655
patent #3840187
patent #3893635
patent #3951346
patent #4059236
patent #4082232
patent #4099678
patent #4125228
patent #4176800
patent #4205799
patent #4350308
patent #4927088
INTERNATIONAL PATENTS
Canada patent #1018958
Canada patent #1137949
Switzerland patent #555195
Japan patent #924581
England patent #1441783
France patent #74-02442
Garbalizer Machinery Corporation has the following machinery patents which it
intends to develop and market as funds become available
Mechanical Wast Receiver patent #3660038
Waste Remover Vehicle [packer truck] patent #3831789
Air Classification patent #3856217
Refuse Processing Equipment [mangler] patent #3966129
Waste Mangler System and Structure patent #3993256
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
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0
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