FORM 10-Q

 

 

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

 

For the quarterly period ended March 31, 2008

 

oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

 

 

Commission File No. 0-14859

 

GARB OIL AND POWER CORPORATION

(Name of Small Business Issuer in its Charter)

 

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

(1) Yes x No o (2) Yes x No o

 

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

 

 

 

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:

 

May 9, 2008

 

22,899,098

 

 

 

 

 

 

 

Item 1. Financial Statements.

 

The Financial Statements of the Registrant required to be filed with this 10-QSB Quarterly Report were prepared by management, and commence on the following page, together with Related Notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Registrant.

 

 

 

GARB OIL & POWER CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

 

 

ASSETS

 

			March 31, 2008			June 30, 2007
			(Unaudited)
CURRENT ASSETS
Cash			$	-		$	3,360
Prepaid expenses				300			443
Total Current Assets				300			3,803
PROPERTY AND EQUIPMENT
Engineering drawings				2,500			2,500
Office equipment				11,658			11,658
Tools and equipment				31,340			31,340
Building improvements				8,022			8,022
Less: accumulated depreciation				(53,149	)		(52,962	)
Total Property and Equipment				371			558
TOTAL ASSETS			$	671		$	4,361

 

 

GARB OIL & POWER CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

			March 31, 2008			June 30, 2007
			(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued expenses				59,542			51,145
Notes payable				538,820			538,820
Notes payable - related parties				588,619			474,194
Accrued interest				618,489			546,994
Accrued interest- related parties				42,569			25,360
Wages payable				825,000			789,000
Total Current Liabilities				2,673,039			2,425,513
Total Liabilities				2,673,039			2,425,513
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; (no par value) 80,000,000 shares
authorized; 22,899,098 shares outstanding				2,942,635			2,942,635
Accumulated deficit				(5,615,003	)		(5,363,787	)
Total Stockholders' Equity (Deficit)				(2,672,368	)		(2,421,152	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)			$	671		$	4,361

 

 

GARB OIL & POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

 

			For the Three Months Ended March 31,						For the Nine Months Ended March 31,
			2008			2007			2008			2007
SALES
Shredder sales			$	-		$	-		$	-		$	-
Other sales				-			-			-			-
Total Sales				-			-			-			-
COST OF SALES
Cost of shredders				-			-			-			-
Other direct costs				-			-			-			-
Total Cost of Sales				-			-			-			-
GROSS PROFIT (DEFICIT)				-			-			-			-
EXPENSES
Salary, wages and commissions				29,540			30,840			88,617			112,420
Office				464			-			2,207			458
Rent				3,900			3,600			11,100			10,800
Telephone				742			938			2,323			2,949
Professional fees				3,811			1,731			23,601			24,564
Insurance				2,332			1,635			7,135			6,512
Taxes and licenses				2,014			1,901			4,769			4,266
Travel				-			-			-			338
Depreciation				62			62			186			186
Repairs and maintenance				69			164			253			234
Other				4,157			745			5,327			4,880
Total Expenses				47,091			41,616			145,518			167,607
OPERATING (LOSS)				(47,091	)		(41,616	)		(145,518	)		(167,607	)
OTHER INCOME (EXPENSES)
Interest expense				(33,778	)		(28,361	)		(105,698	)		(87,143	)
Total Other Income (Expense)				(33,778	)		(28,361	)		(105,698	)		(87,143	)
NET (LOSS) BEFORE INCOME TAXES				(80,869	)		(69,977	)		(251,216	)		(254,750	)
INCOME TAXES				-			-			-			-
NET (LOSS)			$	(80,869	)	$	(69,977	)	$	(251,216	)	$	(254,750	)
BASIC (LOSS) PER SHARE			$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01	)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING				22,899,098			22,871,782			22,899,098			22,610,833

 

 

GARB OIL & POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Deficit)

 

			Common Stock						Accumulated
			Shares			Amount			Deficit
Balance, June 30, 2007				22,899,098		$	2,942,635		$	(5,363,787	)
Net loss for the period ended
March 31, 2008 (unaudited)				-			-			(251,216	)
Balance, March 31, 2008
(unaudited)				22,899,098		$	2,942,635		$	(5,615,003	)

 

 

GARB OIL & POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

			For the Nine Months Ended March 31,
			2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)			$	(251,216	)	$	(254,750	)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation				187			186
Changes in current assets and liabilities:
Prepaid expenses				143			-
Accounts payable and accrued expenses				6,696			(6,426	)
Accrued payroll				36,000			59,800
Accrued interest payable and accrued interest
payable-related party				88,704			75,109
Net Cash (Used) by Operating Activities				(119,486	)		(126,081	)
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment				-			-
Net Cash Provided by Investing Activities				-			-
CASH FLOWS FROM FINANCING ACTIVITIES
Increase of bank overdraft				1,701			781
Proceeds from notes payable				-			10,000
Proceeds from notes payable - related party				114,425			90,300
Payments on notes payable - related party				-			-
Proceeds from sale of stock				-			25,000
Net Cash Provided by Financing Activities				116,126			126,081
NET (DECREASE) INCREASE IN CASH				(3,360	)		-
NET CASH AT BEGINNING OF PERIOD				3,360			-
NET CASH AT END OF PERIOD $				-		$	-
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest			$	7,368		$	10,300
Cash paid for income taxes $				-		$	-

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

GARB OIL & POWER CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2008 and June 30, 2007

 

 

The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim consolidated financial statements be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its June 30, 2007 Annual Report on Form 10-KSB. Operating results for the nine months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending June 30, 2008.

 

 

The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 

The Company files income tax returns in the U.S. federal jurisdiction, and Utah state jurisdiction. The Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2003. The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on July 1, 2007. As a result of the implementation of Interpretation 48, the Company recognized no increase in the liability for unrecognized tax benefits.

GARB OIL & POWER CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2008 and June 30, 2007

 

 

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the nine months ended March 31, 2008, and year ended June 30, 2007, the Company recognized no interest and penalties. The Company had nothing accrued for the payment of interest and penalties at March 31, 2008, and June 30, 2007.

Item 2. Management’s Discussion and Analysis or Results of Operation.

 

A. 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, market new tires imported for sale through distributors and market 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 rubber from used 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.

 

Management is pursuing 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, or potential purchasers, of Garbalizer shredders in establishing used and new tire marketing 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. Management also believes that with the new marketing strategies that are now implemented the potential for machinery sales has increased. The Company is now in the process of marketing commodities imported from China through its Minority Distributor, Lone Willow, LLP of Virginia. The Company has submitted quotes for dry wall, cement and other building materials to Lone Willow which Lone Willow will market to users of such materials in the Eastern, North Eastern and South Eastern United States. Because of its Minority status Lone Willow has an opportunity to achieve a favorable position for sales to contractors involved in rebuilding in Louisiana, Mississippi, Texas and other areas. Additional building materials and other commodities are available to the Company from China if the Company and Its Distributor are successful in marketing the commodities. 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 the Company’s Chief Financial Officer, John Brewer or other shareholders of the Company. Current funding has come from operations and sales and the Company is currently in negotiations with several investment sources for equity investment in the company, which if successful, will satisfy long-term operations and capital expenditures. There are no guarantees that such negotiations will be successful.

 

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.

 

B. Results of operation

 

Operating expenses for the Company have been paid in part from short-term unsecured notes from shareholders. At March 31, 2008 the Company had a deficit in working capital (current liabilities in excess of current assets) of $2,672,739. The working capital deficit at June 30, 2007 was $2,421,710. The decrease in working capital was caused by the continued accrual of salary and accounts payable for expenses, which the Company was unable to pay in cash and additional short-term unsecured notes.

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. 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. UTTI is obligated to its minority owner in the principal amount of $165,000, plus interest. Such loan is now due on demand. The Company also made advances to UTTI to pay its operating expenses during its start-up phase.

 

When shredding machines are sold the company requires that 50% of the total selling price be deposited with the company as protection against cancellation of the sales contract. The company has access to these funds and uses them to cover part of the manufacturing costs of the shredder. The company is also required to give a deposit to the manufacturer of the shredder, at the time the company contracts with the manufacturer to build a machine. When the machine is finished and delivered to the buyer, it is completed and tested prior to delivery. At the time of shipment the buyer is required to pay the balance due on the sales contract. Because of the successful history of the company’s machine performance, the deposit requirement has not presented a problem in sales. For one year the buyer has a warranty to cover performance of the machine.

 

The Company received no revenue from the sales of shredders or spare parts during the current fiscal quarter, and during the nine months ended March 31, 2008.

 

The Company derived a loss from operations before other income (expense) and extraordinary items during the quarters ended March 31, 2008 and 2007 of $47,091 and $41,616, respectively. Total expenses for this fiscal quarter 2008 were $47,091 compared to $41,616 in 2007. Salaries, wages and commissions were $29,540 for 2008 compared to $30,840 for 2007. Rental expenses were $3,900 in 2008 and $3,600 in 2007. Total expenses have remained fairly constant. If more of the Company’s plans for revenue producing activities come to fruition, expenses will rise accordingly. Net loss for the quarter ended March 31, 2008 and 2007 was $(80,869) and $(69,977), respectively. On a per share basis, the net loss for the current fiscal quarter was ($0.00) compared to $(0.00) in 2007.

 

The Company derived a loss from operations before other income (expense) and extraordinary items during the nine months ended March 31, 2008 and 2007 of $(145,518) and $(167,607), respectively. Total expenses for this nine month period were $145,518 in 2008, compared to $167,607 in 2007. Salaries, wages and commissions were $88,617 for 2008 compared to $112,420 for 2007. Rental expenses were $11,100 in 2008 and $10,800 in 2007. Net loss for the nine months ended March 31, 2008 and 2007 was $(251,216) and $(254,750) respectively. On a per share basis, the net loss for this nine month period in 2008 was ($0.01) compared to $(0.01) in 2007.

 

Operating losses may be expected to continue until such time as the Company receives sufficient revenues from the sale of shredders, crumb rubber plants, the lease or license of the OTR Tire Disintegrator System, or other operations. There is no assurance that the Company will ever be profitable. The ongoing losses have created substantial pressure on the Company’s liquidity. The Company has had to engage in less favorable borrowing arrangements with higher interest and borrowing costs, to meet its cash flow requirements.

 

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. For several years the tire repair equipment owned by UTTI has been stored in facilities in Illinois for use by a company associated with Garb-Oil. Consequently there has been no storage or rental expense related to the UTTI tire repair equipment during this time. Current plans include use of this machinery at facilities owned by a purchaser of one of the company’s shredders.Current negotiations are continuing regarding use of the tire repair machinery and the company is incurring no storage costs during these negotiations.

 

During the nine months ended March 31, 2008, the Company had a decrease in its cash balances of $3,360 compared with no change in cash during the nine months ended March 31, 2007. The primary sources of cash were from additional loans from financing activities in 2008 and 2007.

 

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. The Company has substantially completed the engineering and design of the OTR Tire Disintegrator System, but to date has not constructed a commercially operating system. Currently the company is in discussions with a company, (INTERPIPE) located in the Ukraine, who has indicated an interest in completing the development of the OTR Tire Processing System for marketing in Eastern Europe. If an agreement is reached the Company would retain marketing rights for North America where the process would be marketed by the Company.

 

INTERPIPE was unsuccessful in completing and testing the machine as required by the Agreement between the two companies and the company, under provisions provided in the Agreement, terminated the Agreement between the two companies for failure to perform.

 

Continued development of the system is described further in this section of Business Description.

 

Commercially available tire shredders, including shredders made by the Company, are designed to process standard automobile, truck tires and some OTR tires, which may include semi-trailer or over-the-road tires. Tires used in a variety of off the road equipment, such as graders, bulldozers, mining equipment, etc. cannot be processed directly by these shredders. Although these tires, which may weigh from 400 pounds to 9 tons each, 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 or desirable.

 

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, Patent No. 5,590,838 which expires January 7, 2014 and patent number 6,015,105 which expires January 18, 2018. An additional patent improvement has been filed and is currently pending in the United States. The pending patent improvement was granted in Canada on July 6, 1999 as Canadian Patent No. 2,178,326 which expires March 23, 2015 and an additional patent is pending.

 

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.

 

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.

 

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 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 has now discovered that the shredders can be built much more economically outside of the United States and would give the company better advantage to compete with larger and better financed competitors. The Company has investigated this potential and decided that future shredders should be constructed outside of the United States to give the Company more flexibility in marketing.

 

During the third quarter of 2001 the Company began a new marketing strategy to market its products. The Company began, and is still continuing to establish distributorships in the United States and Internationally. As of March 31, 2008 the Company has established Distributorships in New Jersey with National Recycling Corporation that covers a three state area, New Jersey, New York and Delaware. A Distributorship has been established in Virginia with Minority Tire Reclamation, Inc. that covers Virginia, North Carolina and Maryland. The Company will continue searching for dependable Companies to establish Distributorships throughout all of North America. Internationally the Company has concluded an Agreement with Micron SA of Odessa, Ukraine to manufacture and market its Shredders and other Technology throughout Eastern and Western Europe. All Machines and Equipment for the European Market will be manufactured by Micron on a licensed basis and marketed jointly by Garb-Oil and Micron throughout the European market area. The Company has concluded a Distributorship with Representaciones Internacionales of Guadalajara, Mexico for all of South and Central America.

 

All machines, Equipment and Technology for the South and Central America Distributorship will be manufactured in Mexico on a license basis with the marketing being done jointly by Garb-Oil and Representaciones Internacionales. It is anticipated and planned that all items sold by Garb-Oil Distributorships in the United States and Canada will be manufactured in Mexico. The Company has concluded a Distributorship with The Princeton Group of Alhambra, CA for all of Asia. Machines, Equipment and Technology for the Asian market area will be manufactured in China. Certain Technology and Machinery owned by the Chinese Manufacturer for crumb rubber processing will be manufactured in China and purchased by Garb-Oil to be sold in all of the marketing areas inside and outside of the Asian market area. Because of the NAFTA Agreement and other International Agreements currently existing, the Company is now able to establish these Distributorship agreements and contractually protect its technology and proprietary rights. These Agreements give the Company access to less expensive manufacturing and technology, which Management believes will make the Company more competitive and generate sales on a worldwide basis. As of March 31, 2008 the company management has determined that the company should take advantage of the benefits of such manufacturing and marketing in future Company operations.

 

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 sea, 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 new marketing strategy currently being established by the Company has made available crumb rubber technology which heretofore was not available to the Company.

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. During the years 1998, 1999 and 2000 Trenergy had continued research on the process but at June 30, 2001 had not completed the “hot test” which would further prove if the process could be viable. As of March 31, 2008 the “hot test” had not been completed by Trenergy and is unable to complete it’s testing due to lack of funds, and the Agreement the company had with Trenergy has expired.

 

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 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 and as of June 30, 2002 both the Company and UTTI had decided that future operations for UTTI probably would not be re-started.

The Company is proposing to establish used tire processing and sales joint ventures with purchasers of tire shredders or OTR Tire Disintegrator Systems in the United States, 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 guaranteeing the loan for startup capital, 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. The Company may build such plants 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. However, with the current and projected acute energy shortage, management now believes that this technology is timely and has an improved potential for development.

 

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.

 

Pyrolysis

The pyrolysis patents granted the Company has expired and the Company has decided at this time no further research would be warranted. The Company concluded that although the process worked the markets for such plants are financially unfeasible at this time.

 

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, 2014 and 2018. One patent has been issued in Canada that expires in 2015. 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.

 

In connection with the Garbalizer Shredder design, the Company owns United States patent number 4,927,088 that expired May 22, 2007 and Canadian patent number 1,137,949 that expired December 21, 1999.

 

In addition to the above patents, the Company has the following patents which relate to Tar Sand development:

 

 

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 and CEO, John C. Brewer, and its Chief Engineer and Secretary, Bill V. Anderson, each devote 40 hours or more per week to the Company’s business, as well as one additional engineer. All additional work is performed on a sub-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 nine ended March 31, 2008 and 2007, the Company has not expended any funds on research and development activities.

 

Environmental Regulation

Neither the Company nor UTTI believe that any of its activities result in harmful discharge of pollutants in the air, water or soil.

 

Any power plants built by the Company in the future utilizing tires as fuel will be required to comply with state and federal regulations regarding the discharge of pollutants into the atmosphere. The Company believes that the plants can comply with such regulations.

 

Item 3. Controls and Procedures.

 

 

Our CEO, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), has concluded that, as of June 30, 2007 our disclosure controls and procedures contained significant internal control weaknesses that, in the aggregate, represent material weaknesses.

 

 

In connection with the preparation of our financial statements for the year ended June 30, 2007, certain significant internal control deficiencies became evident to management that, in the aggregate, represent material weaknesses, including,

 

  over financial reporting throughout the management structure;

 

As part of the communication by HJ & Associates, LLC, or HJ, with our management with respect to HJ’s audit procedures for fiscal 2006, HJ informed management that these deficiencies constituted material weaknesses, as defined by Auditing Standard No. 2, “An Audit of Internal Control Over Financial Reporting Performed in conjunction with an Audit of Financial Statements,” established by the Public Company Accounting Oversight Board, or PCAOB.

 

There have been no significant changes in the registrant’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the registrant completed its evaluation.

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

 

Item 2. Changes in Securities and Use of Proceeds.

 

Discussion and Analysis or Plan of Operation,” Part I, Item 2 of this Report.

 

Item 3. Defaults Upon Senior Securities.

 

 

Item 4. Submission of Matters to a Vote of Security Holders.

 

 

Item 5. Other Information.

 

 

Item 6. Exhibits and Reports on Form 8-K.

 

 

 

 

 

 

 

SIGNATURES

 

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.