**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 endedJune 30, 2007

 

**o****TRANSITION            REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF            1934**

 

For            the Transition Period from_______ to _______

 

Commission file Number0-14859

 

**GARB OIL & POWER CORPORATION**

(Name            of small business issuer in its charter)

             

             

| Utah                                                                           | 87-0296694                            |
|--------------------------------------------------------------------------------|---------------------------------------|
| State or other jurisdiction of                                                 | (I.R.S. Employer Identification. No.) |
| incorporation or organization)                                                 |                                  |
|                                                                           |                                  |
| 1588 South Main Street, Suite 200                                              |
| Salt Lake City, Utah  84115                                          |
| (Address of principal executive offices) (Zip                            Code) |

             

 

Issuer’s telephone number(801)            832-9865

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title            of each class Name of each exchange on which registered

 

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 past 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) YesxNoo | (2) YesxNoo |
|-------------|-------------|

 

Check            if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not            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**.o

 

State Issuer’s revenues for its most recent fiscal year:$0.00

 

State            the aggregate market value of the voting and non-voting common equity held by            non-affiliates computed by reference to the price at which the common equity was sold,            or the average bid and asked price of such common equity, as of a specified date within            the past 60 days.$246,096.

 

 

 

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**(ISSUERS INVOLVED IN BANKRUPTCY**

**PROCEEDINGS DURING THE PAST FIVE YEARS)**

 

Not            Applicable.

 

**(APPLICABLE ONLY TO CORPORATE ISSUERS)**

 

State            the number of shares outstanding of each of the issuer’s classes of common            equity, as of the latest practicable date: As of October 20,            2007, the Issuer had outstanding 22,899,098 shares of common stock (no par            value).

 

Transitional Small Business Disclosure Format (check one)

Yesx  Noo

 

**PART            I**

 

**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, 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 received revenues of $0 in the fiscal year ended June 30, 2007 and at the end            of the year its current liabilities exceeded its total assets by $2,421,710. 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 resulted in the sale and delivery of a shredder in June 2005. 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. 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.

Although such discussions are underway there is no assurance that the            discussions will result in an Agreement between the two companies or that the process            would be successful if constructed by INTERPIPE. Due to INTERPIPE’S inability to            secure funding from the Ukrainian Government to finance the OTR development the company            cancelled negotiations with INTERPIPE and entered into an Agreement with Xingcheng            Machinery of Xingcheng, China PRC to develop the OTR system. Development is currently            underway and

 

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is            scheduled to have an operational Pilot Model in development stage by the first quarter            of 2008.

 

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 except U.S. patent number 4927088 which expires on May 22,            2007.

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

 

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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 June 30,            2007 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

 

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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 June 30, 2007 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

 

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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 June 30, 2007 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 have 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.

 

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**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:

| Hydropulper & Classifier for Tar |
|--------------------------------------|

| Sand Application | Patent No. 3,814,336 |
|------------------|----------------------|

| Improvement Patents for Tar Sands | Patent No. 4,361,476 |
|-----------------------------------|----------------------|

**Process**

The            Company plans to exploit these patents if and when the board of directors of the            Company determines that the financing and timing is appropriate. It is not expected            that such exploitation will occur in the foreseeable future and accordingly the patents            have not been considered important to the Company’s immediate future.

**Employees**

The            Company’s CEO and CFO, John C. Brewer, and its Chief Engineer 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 fiscal years ended June 30, 2007 and 2006, 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.

 

**2. DESCRIPTION OF PROPERTY**

The            Company’s executive offices are located at 1588 South Main Street under a five            year lease. The offices consist of approximately 2,400 square feet. The premises are            being leased from Utah Automobile Dealers Association, 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.

 

**3. LEGAL PROCEEDINGS**

Not            Applicable.

 

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**4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

Not            Applicable.

 

**PART            II**

**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 GARB. On August 2, 2002 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, 2007 and 2006, the stock was only            sporadically traded. The following table sets forth the range of high and low            representative bid quotations for the periods indicated.

 

|   | Period |
|--------|--------|

|   | (Fiscal Year) | High | Low |
|--------|---------------|------|-----|

 

|   | 2006 |
|--------|------|

|   | 1st Quarter | .33 | .07 |
|--------|-------------|-----|-----|

|   | 2nd Quarter | .11 | .05 |
|--------|-------------|-----|-----|

|   | 3rd Quarter | .09 | .05 |
|--------|-------------|-----|-----|

|   | 4th Quarter | .12 | .04 |
|--------|-------------|-----|-----|

 

|   | 2007 |
|--------|------|

|   | 1st Quarter | .06 | .02 |
|--------|-------------|-----|-----|

|   | 2nd Quarter | .04 | .02 |
|--------|-------------|-----|-----|

|   | 3rd Quarter | .05 | .02 |
|--------|-------------|-----|-----|

|   | 4th Quarter | .05 | .02 |
|--------|-------------|-----|-----|

 

 

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.

**Sales of Unregistered Securities**

During the fiscal year ended June 30, 2007, 500,000 shares were issued            for cash and 27,316 shares were issued in payment of accounts payable by the            Company.

**6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF            OPERATION**

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,

 

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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.

Operating expenses for the Company have been paid in part from            short-term unsecured notes from shareholders. At June 30, 2007 the Company had a            deficit in working capital (current liabilities in excess of current assets) of            $2,421,710. The working capital deficit at June 30, 2006 was $2,074,182. The decrease            in working capital was caused by the continued accrual of salary, unearned revenue,            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.

Other than its short-term office lease and loans payable to affiliates            and non-related parties, 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 sales during the current fiscal year.

The            Company derived a loss from operations before other income (expense) during the years            ended June 30, 2007 and June 30, 2006 of $214,808 and $333,737, respectively. Total            expenses for 2007 were $214,808 compared to $329,122 in 2006. Salaries, wages,            commissions and consulting fees were $142,650 for 2007 compared to $218,420 for 2006.            Rental expenses were $14,400 in 2007 and in 2006. Total expenses decreased primarily            because of decreases in Consulting and Professional fees. If more of the            Company’s plans for revenue producing activities come to fruition, expenses will            rise accordingly.

Net            loss for the year ended June 30, 2007 was $374,869 compared to a net loss of $575,900            in 2006. On a per share basis, the net loss for the year ended June 30, 2007 was            ($0.02) compared to net loss of ($0.03) in 2006. Operating losses are expected to            continue until such time, if ever, 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

 

9

 

----

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 year ended June 30, 2007, the Company had a net increase in            cash of $3,360. The primary sources of cash were from sales of common stock and            additional loans from financing activities.

 

**7.****FINANCIAL STATEMENTS**

[The            remainder of this page was intentionally left blank]

 

10

 

----

 

 

 

 

 

 

 

 

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED FINANCIAL STATEMENTS**

 

**June 30, 2007**

             

F-1

 

----

 

 

**C            O N T E N T S**

 

 

| Report of Independent Registered Public Accounting                            Firm | F-3 |
|------------------------------------------------------------------------------------|-----|

 

| Consolidated Balance Sheet | F-4 |
|----------------------------|-----|

 

| Consolidated Statements of Operations | F-6 |
|---------------------------------------|-----|

 

| Consolidated Statements of Stockholders’ Equity                            (Deficit) | F-7 |
|--------------------------------------------------------------------------------------------|-----|

 

| Consolidated Statements of Cash Flows | F-8 |
|---------------------------------------|-----|

 

| Notes to the Consolidated Financial                            Statements | F-9 |
|---------------------------------------------------------------------------|-----|

 

 

F-2

 

----

**Report of Independent Registered Public Accounting            Firm**

             

             

To the Stockholders

Garb Oil and Power Corporation and Subsidiaries

Salt Lake City, Utah

             

We have audited the consolidated balance sheet of Garb Oil and Power            Corporation and Subsidiaries as of June 30, 2007, and the related consolidated            statements of operations, stockholders’ equity (deficit), and cash flows for the            years ended June 30, 2007 and 2006. These consolidated financial statements are the            responsibility of the Company’s management. Our responsibility is to express an            opinion on these consolidated financial statements based on our audits.

             

We conducted our audits in accordance with the standards of the Public            Company Accounting Oversight Board (United States). 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 provided a reasonable basis for our opinion.

             

In our opinion, the consolidated financial statements referred to above            present fairly, in all material respects, the consolidated financial position of Garb            Oil and Power Corporation and Subsidiaries as of June 30, 2007, and the consolidated            results of their operations and their cash flows for the years ended June 30, 2007 and            2006, in conformity with U.S. generally accepted accounting principles.

             

The accompanying consolidated financial statements have been prepared            assuming that the Company will continue as a going concern. The Company is engaged in            the production and marketing of tire shredding machines as well as the marketing of            various types of tires. As discussed in Note 1 to the consolidated financial            statements, the Company’s operating losses and lack of working capital 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.

             

*/s/ HJ & Associates, LLC*

             

HJ & Associates, LLC

Salt Lake City, Utah

October 9, 2007

             

 

 

F-3

 

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Consolidated Balance Sheet

 

ASSETS

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

             

             

             

             

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

 

F-4

 

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Consolidated Balance Sheet (Continued)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 
|                                                                                                       | June 30,                        2007 |
|-------------------------------------------------------------------------------------------------------|--------------------------------------|
| CURRENT                    LIABILITIES                                                                |                                 |   |   |  |   |
|    Accounts payable and                    accrued expenses                            |                                 |   | $ | 51,145 |   |
|    Notes                    payable - Note 7                                           |                                 |   |   | 538,820 |   |
|    Notes                    payable - related parties - Note 3                         |                                 |   |   | 474,194 |   |
|    Accrued                    interest                                                 |                                 |   |   | 546,994 |   |
|    Accrued interest -                    related parties - Note 3                      |                                 |   |   | 25,360 |   |
|    Wages                    payable                                                    |                                 |   |   | 789,000 |   |
|                                                                                                       |                                      |  |
|      Total                    Current Liabilities                            |                                 |   |   | 2,425,513 |   |
|                                                                                                       |                                      |  |
|      Total                    Liabilities                                    |                                 |   |   | 2,425,513 |   |
|                                                                                                       |                                      |  |
| COMMITMENT &                    CONTINGENCIES (NOTE 5);                                           |                                 |
| STOCKHOLDERS' EQUITY                    (DEFICIT)                                                     |                                 |   |
|    Common                    stock; (no par value) 80,000,000 shares                   |                                 |   |
|     authorized;                    22,899,098 shares outstanding                  |                                 |   |   | 2,942,635 |   |
|    Accumulated                    deficit                                              |                                 |   |   | (5,363,787 | ) |
|                                                                                                       |                                      |  |
|      Total                    Stockholders' Equity (Deficit)                 |                                 |   |   | (2,421,152 | ) |
|                                                                                                       |                                      |  |
|      TOTAL                    LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |                                 |   | $ | 4,361 |   |
|                                                                                                       |                                      |  |

             

             

             

             

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

 

F-5

 

----

 

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Consolidated Statements of Operations

 
|                                                                               | For the Years Ended                        June 30, |
|-------------------------------------------------------------------------------|-----------------------------------------------------|
||
| SALES                                                                         |                                                |   |   |  |   |   |  |   |   |  |   |
|    Shredder sales                                              |                                                |   | $ | - |   | $ | 289,810 |   |
|    Other                    sales                              |                                                |   |   | - |   |   | 28,625 |   |
|                                                                               |                                                     |  |  |  |
|      Total                    Revenues               |                                                |   |   | - |   |   | 318,435 |   |
|                                                                               |                                                     |  |  |  |
| COST OF                    SALES                                              |                                                |   |
|    Cost                    of shredders                        |                                                |   |   | - |   |   | 290,243 |   |
|    Other                    direct costs                       |                                                |   |   | - |   |   | 32,807 |   |
|                                                                               |                                                     |  |  |  |
|      Total Cost                    of sales          |                                                |   |   | - |   |   | 323,050 |   |
|                                                                               |                                                     |  |  |  |
| GROSS LOSS                                                                    |                                                |   |   | - |   |   | (4,615 | ) |
|                                                                               |                                                     |  |  |  |
| EXPENSE                                                                       |                                                |   |
|    Salary                    and wages                         |                                                |   |   | 141,960 |   |   | 138,302 |   |
|    Consulting                    fees                          |                                                |   |   | - |   |   | 78,000 |   |
|    Sales                    commissions                        |                                                |   |   | 690 |   |   | 2,118 |   |
|    Office                                                      |                                                |   |   | 754 |   |   | 4,686 |   |
|    Rent                                                        |                                                |   |   | 14,400 |   |   | 14,400 |   |
|    Telephone                                                   |                                                |   |   | 3,904 |   |   | 3,665 |   |
|    Professional                    fees                        |                                                |   |   | 26,908 |   |   | 38,636 |   |
|    Insurance                                                   |                                                |   |   | 9,326 |   |   | 8,985 |   |
|    Taxes                    and licenses                       |                                                |   |   | 6,066 |   |   | 8,698 |   |
|    Travel                    and entertainment                 |                                                |   |   | 525 |   |   | 10,917 |   |
|    Advertising                                                 |                                                |   |   | - |   |   | 30 |   |
|    Depreciation                                                |                                                |   |   | 248 |   |   | 248 |   |
|    Repairs and                    maintenance                  |                                                |   |   | 259 |   |   | 361 |   |
|    Other                                                       |                                                |   |   | 9,768 |   |   | 20,076 |   |
|                                                                               |                                                     |  |  |  |
|      Total                    Expenses               |                                                |   |   | 214,808 |   |   | 329,122 |   |
|                                                                               |                                                     |  |  |  |
| OPERATING                    LOSS                                             |                                                |   |   | (214,808 | ) |   | (333,737 | ) |
|                                                                               |                                                     |  |  |  |
| OTHER INCOME                    (EXPENSES)                                    |                                                |   |
|    Interest                    expense                         |                                                |   |   | (139,514 | ) |   | (215,634 | ) |
|    Stock                    options expense                    |                                                |   |   | - |   |   | (10,326 | ) |
|    Gain                    on release of debt                  |                                                |   |   | - |   |   | 29,152 |   |
|    Loss                    on write-off of assets              |                                                |   |   | (20,547 | ) |   | - |   |
|    Bad                    debt expense                         |                                                |   |   | - |   |   | (45,355 | ) |
|                                                                               |                                                     |  |  |  |
|      Total Other                    Income (Expense) |                                                |   |   | (160,061 | ) |   | (242,163 | ) |
|                                                                               |                                                     |  |  |  |
| NET LOSS                                                                      |                                                |   | $ | (374,869 | ) | $ | (575,900 | ) |
|                                                                               |                                                     |  |  |  |
| BASIC LOSS PER                    SHARE                                       |                                                |   | $ | (0.02 | ) | $ | (0.03 | ) |
|                                                                               |                                                     |  |  |  |
| WEIGHTED AVERAGE NUMBER                    OF SHARES OUTSTANDING              |                                                |   |   | 22,741,378 |   |   | 20,088,071 |   |
|                                                                               |                                                     |  |  |  |

 

             

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

 

F-6

 

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Consolidated Statements of Stockholders’ Equity            (Deficit)

 
|                                                       | Common Stock |        | Accumulated |            | Treasury Stock |
|-------------------------------------------------------|--------------|--------|-------------|------------|----------------|
||
| Balance,                    June 30, 2005             |         |   |        | 20,000,000 |           | $ | 2,650,048 |   | $ | (4,413,018 | ) |   | - |   | $ | - |   |
| Shares donated by                    shareholder      |         |   |        | (600,000   | )              |   | 78,000 |   |   | - |   |   | 600,000 |   |   | (78,000 | ) |
| Shares temporarily                    loaned          |         |   |
|    by                    shareholder   |         |   |        | (1,599,500 | )              |   | - |   |   | - |   |   | 1,599,500 |   |   | (126,300 | ) |
| Shares issued for                    cash             |         |   |        | 662,500    |           |   | 3,750 |   |   | - |   |   | (362,500 | ) |   | 36,250 |   |
| Shares issued for                    services         |         |   |        | 600,000    |           |   | - |   |   | - |   |   | (600,000 | ) |   | 78,000 |   |
| Shares issued for loan                    fees        |         |   |        | 1,237,000  |           |   | - |   |   | - |   |   | (1,237,000 | ) |   | 90,050 |   |
| Shares issued to repay                    loaned      |         |   |
|    shares                              |         |   |        | 2,071,782  |           |   | 173,418 |   |   | - |   |   | - |   |   | - |   |
| Stock options                    issued               |         |   |        | -          |           |   | 10,326 |   |   | - |   |   | - |   |   | - |   |
| Net loss for the year                    ended        |         |   |
|    June                    30, 2006    |         |   |        | -          |           |   | - |   |   | (575,900 | ) |   | - |   |   | - |   |
|                                                       |              |        |             |            |                |  |  |  |  |  |
| Balance, June 30,                    2006             |         |   |        | 22,371,782 |           |   | 2,915,542 |   |   | (4,988,918 | ) |   | - |   |   | - |   |
| Stock options                    issued               |         |   |        | -          |           |   | 1,000 |   |   | - |   |   | - |   |   | - |   |
| Shares issued to                    pay               |         |   |
|    accounts                    payable |         |   |        | 27,316     |           |   | 1,093 |   |   | - |   |   | - |   |   | - |   |
| Shares issued for                    cash             |         |   |        | 500,000    |           |   | 25,000 |   |   | - |   |   | - |   |   | - |   |
| Net loss for the year                    ended        |         |   |
|    June                    30, 2007    |         |   |        | -          |           |   | - |   |   | (374,869 | ) |   | - |   |   | - |   |
|                                                       |              |        |             |            |                |  |  |  |  |  |
| Balance, June 30,                    2007             |         |   |        | 22,899,098 |           | $ | 2,942,635 |   | $ | (5,363,787 | ) |   | - |   | $ | - |   |
|                                                       |              |        |             |            |                |  |  |  |  |  |

 

 

 

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

 

F-7

 

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**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Consolidated Statements of Cash Flows

 
|                                                                                                        | For the Years Ended                        June 30, |
|--------------------------------------------------------------------------------------------------------|-----------------------------------------------------|
||
| CASH FLOWS                    FROM OPERATING ACTIVITIES                                                |                                                |   |   |  |   |   |  |   |
|    Net                    loss                                                          |                                                |   | $ | (374,869 | ) | $ | (575,900 | ) |
|     Adjustments to                    reconcile net loss to net cash provided      |                                                |   |
|     (used) in                    operating activities:                             |                                                |   |
|      Depreciation                                                             |                                                |   |   | 249 |   |   | 248 |   |
|      Common                    stock issued for loan fees                     |                                                |   |   | - |   |   | 90,050 |   |
|      Common                    stock issued for services                      |                                                |   |   | - |   |   | 78,000 |   |
|      Options                    issued for interest expense                   |                                                |   |   | 1,000 |   |   | - |   |
|      Options                    issued for services                           |                                                |   |   | - |   |   | 10,326 |   |
|    Changes in current                    assets and liabilities:                        |                                                |   |
|      Prepaid                    expenses                                      |                                                |   |   | (143 | ) |   | 1,200 |   |
|      Work in                    progress                                      |                                                |   |   | - |   |   | 199,164 |   |
|      Inventory                                                                |                                                |   |   | 20,547 |   |   | 8,250 |   |
|      Accounts                    payable and accrued expenses                 |                                                |   |   | (3,006 | ) |   | (35,605 | ) |
|      Customer                    deposits                                     |                                                |   |   | - |   |   | (144,905 | ) |
|      Accrued                    payroll                                       |                                                |   |   | 71,800 |   |   | 68,153 |   |
|      Accrued                    interest payable and accrued interest payable |                                                |   |
|        -                    related party                           |                                                |   |   | 123,176 |   |   | 97,586 |   |
|                                                                                                        |                                                     |  |  |  |
|        Net                    Cash Used by Operating Activities     |                                                |   |   | (161,246 | ) |   | (203,433 | ) |
|                                                                                                        |                                                     |  |  |  |
| CASH FLOWS FROM                    INVESTING ACTIVITIES                                                |                                                |   |   | - |   |   | - |   |
|                                                                                                        |                                                     |  |  |  |
| CASH FLOWS FROM                    FINANCING ACTIVITIES                                                |                                                |   |
|    Bank                    overdraft                                                    |                                                |   |   | (1,656 | ) |   | 1,656 |   |
|    Common                    stock issued for cash                                      |                                                |   |   | 25,000 |   |   | 40,000 |   |
|    Proceeds from notes                    payable-related party                         |                                                |   |   | 136,262 |   |   | 23,713 |   |
|    Proceeds from notes                    payable                                       |                                                |   |   | 5,000 |   |   | 95,000 |   |
|    Payment of notes                    payable                                          |                                                |   |   | - |   |   | (11,431 | ) |
|                                                                                                        |                                                     |  |  |  |
|      Net Cash                    Provided by Financing Activities             |                                                |   |   | 164,606 |   |   | 148,938 |   |
|                                                                                                        |                                                     |  |  |  |
| NET INCREASE (DECREASE)                    IN CASH                                                     |                                                |   |   | 3,360 |   |   | (54,495 | ) |
| NET CASH AT BEGINNING OF                    PERIOD                                                     |                                                |   |   | - |   |   | 54,495 |   |
|                                                                                                        |                                                     |  |  |  |
| NET CASH AT END OF                    PERIOD                                                           |                                                |   | $ | 3,360 |   | $ | - |   |
|                                                                                                        |                                                     |  |  |  |
| SUPPLEMENTAL DISCLOSURE                    OF CASH FLOW INFORMATION:                                   |                                                |   |
|    Cash                    paid for interest                                            |                                                |   | $ | 15,357 |   | $ | 27,999 |   |
|    Cash                    paid for income taxes                                        |                                                |   | $ | - |   | $ | - |   |

 

 

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

 

 

F-8

 

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June            30, 2007 and 2006

 

| NOTE 1 - | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING                            PRINCIPLES |
|----------|------------------------------------------------------------------------------------------|

 

a. 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 had 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 Company exited the development stage on June 30, 2004.

 

The accompanying consolidated 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.

 

b. Use of Estimates

 

The preparation of consolidated financial statements in conformity with            accounting principles generally accepted in the United States of America 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.

 

c. Basis of Presentation - Going Concern

 

The accompanying consolidated financial statements have been prepared on            a going concern basis, which contemplates the realization of assets and the            satisfaction of liabilities in the ordinary course of business. As shown in the            consolidated financial statements, during the years ended June 30, 2007 and 2006, the            Company has incurred a net loss of $374,869 and $575,900, respectively, and as of June            30, 2007, the Company’s accumulated deficit was $5,363,787. 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. The company sells tire shredders and sold one machine            in the prior fiscal year. The Company also imports new tires from China to be sold            through Black Minority Distributors. The company has imported and sold two orders            of new tires for a total of $305,400 in recent years. A new scrap-tire processing            machine owned by the company is being developed in

 

 

F-9

----

 

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June            30, 2007 and 2006

             

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES            (Continued)

             

China and the pilot model has yet to be completed. In the Business            Description section of the 10KSB report the machine is described and discussed as the            OTR Disintegrator machine to process large Off the Road Tires used in the mining, road            construction and related industries. There are hundreds of millions of these large            scrap tires stored worldwide at various mining sites that can be recycled if the            machine proves successful when completed and tested. Currently there are no machines            available that are capable of processing these large tires. Current plans to utilize            this machine have been made by the company to sell or lease the machines with a            continuing royalty to be paid the company each year for a seven-year period.            Representatives of the company have contacted the companies who have the stockpiled OTR            scrap tires and have received much interest and indications that the companies would            like to become involved when the machines are ready for operation.

 

d. 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.

 

e. 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. Depreciation expense for the years ended June 30, 2007 and 2006, was $249            and $248, respectively.

 

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.

 

|   | f. Revenue Recognition |
|--------|------------------------|

 

Revenue is recognized when the sales amount is determined, shipment of            goods to the customer has occurred, and collection is reasonably assured. The sales            recorded in 2006 were to single customers.

 

g. Advertising Costs

 

The Company expenses all advertising costs as incurred. Advertising            expense was $0 and $30 for the years ending June 30, 2007 and 2006,            respectively.

             

h. 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

 

 

F-10

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June            30, 2007 and 2006

 

NOTE            1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES            (Continued)

             

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.

 

i. Basic Income (Loss) Per Share

 

The following is an illustration of the reconciliation of the numerators            and denominators of the basic loss per share            calculation:                                          

 
|                                                        | For the Years Ended                        June 30, |
|--------------------------------------------------------|-----------------------------------------------------|
||
| Net income                    (loss) (numerator)       |                                                |   | $ | (374,869 | ) | $ | (575,900 | ) |   |  |   |
| Weighted average shares                    outstanding |                                                |   |
|   (denominator)                              |                                                |   |   | 22,741,378 |   |   | 20,088,071 |   |
|                                                        |                                                     |  |  |  |
| Basic income (loss) per                    share       |                                                |   | $ | (0.02 | ) | $ | (0.03 | ) |
|                                                        |                                                     |  |  |  |

 

j. 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, prepaid expenses, trade accounts payable 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, 2007. 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.

             

k. Concentration of Credit Risk

             

The Company maintains cash in federally insured bank accounts. At times            these amounts exceed insured limits. The Company does not anticipate any losses from            these deposits.

             

|   | l. | Newly Issued Accounting Pronouncements |
|--------|----|----------------------------------------|

             

In February 2007, the FASB issued SFAS No. 159, “The Fair Value            Option for Financial Assets and Financial Liabilities”. This Statement permits            entities to choose to measure many financial assets and financial liabilities at fair            value. Unrealized gains and losses on items for which the fair value option has been            elected are reported in earnings. SFAS No.

 

 

F-11

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June            30, 2007 and 2006

             

NOTE            1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES            (Continued)

             

159 is effective for fiscal years beginning after November 15, 2007. We            are currently assessing the impact of SFAS No. 159 on our financial position and            results of operations.

 

In September 2006, the FASB issued SFAS No. 158, “Employers’            Accounting for Defined Benefit Pension and Other Postretirement Plans.” This            Statement requires an employer to recognize the over funded or under funded status of a            defined benefit post retirement plan (other than a multiemployer plan) as an asset or            liability in its statement of financial position, and to recognize changes in that            funded status in the year in which the changes occur through comprehensive income. SFAS            No. 158 is effective for fiscal years ending after December 15, 2006. The adoption of            SFAS No. 158 had no impact on our financial position and results of            operations.

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value            Measures”. This Statement defines fair value, establishes a framework for            measuring fair value in generally GAAP, expands disclosures about fair value            measurements, and applies under other accounting pronouncements that require or permit            fair value measurements. SFAS No. 157 does not require any new fair value measurements.            However, the FASB anticipates that for some entities, the application of SFAS No. 157            will change current practice. SFAS No. 157 is effective for financial statements issued            for fiscal years beginning after November 15, 2007, which for us would be the fiscal            year beginning April 1, 2008. We are currently evaluating the impact of SFAS No. 157            but do not expect that it will have a material impact on our financial            statements.

 

In September 2006, the SEC issued Staff Accounting Bulletin            (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements            when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108            addresses how the effects of prior year uncorrected misstatements should be considered            when quantifying misstatements in current year financial statements. SAB No. 108            requires companies to quantify misstatements using a balance sheet and income statement            approach and to evaluate whether either approach results in quantifying an error that            is material in light of relevant quantitative and qualitative factors. SAB No. 108 is            effective for periods ending after November 15, 2006. The adoption of SAB No. 108            had

no impact on our financial position and results of            operations.

             

In June 2006, the FASB issued FASB Interpretation Number 48,            “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement            No. 109.” This Interpretation clarifies the accounting for uncertainty in income            taxes recognized in an enterprise’s financial statements in accordance with FASB            Statement No. 109, “Accounting for Income Taxes.” This Interpretation is            effective for fiscal years beginning after December 15, 2006. We are currently            assessing the effect of this Interpretation on our financial statements.

             

|   | m. | Accounts Receivable |
|--------|----|---------------------|

             

Trade accounts receivable are carried at original invoice amount less an            estimate made

 

 

F-12

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June            30, 2007 and 2006

             

NOTE            1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES            (Continued)

             

for doubtful accounts. Management of the Company determines the            allowance for doubtful accounts by identifying potential troubled accounts and by using            historical experience and future expectations applied to an aging of accounts. Trade            accounts receivable are written off when deemed uncollectible. Recoveries of trade            accounts receivable previously written off are recorded as income when received.            Management determined that an allowance for doubtful accounts of $45,355 was required            at June 30, 2006.

             

|   | n. | Inventories |
|--------|----|-------------|

             

Inventories consist of raw materials and parts and are stated at the            lower of cost or market, with cost determined using primarily the first-in-first-out            (FIFO) method. Work-in-process inventories consist of shredders which have not been            delivered in a completed status to customers.

             

| NOTE 2 - | UTAH TRUCK TIRE, INC. |
|----------|-----------------------|

 

Utah Truck Tire, Inc. was formed May 20, 1994, and on May 24, 1994, the            Company was issued 55% (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% (45 shares) was issued to a director            of Utah Truck Tire, Inc. for a commitment to loan Utah Truck Tire, Inc. $150,000. Utah            Truck Tire, Inc. is currently dormant, having no revenues and incurring minimal            expenses during the years ended June 30, 2007 and 2006. Utah Truck Tire, Inc. was            primarily in the business of selling retread diesel truck tires.

             

| NOTE 3 - | RELATED PARTY TRANSACTIONS |
|----------|----------------------------|

 

The Company executed an employment agreement with its then President,            currently its CEO, on May 1, 1986. The agreement is of a continuing nature and            specifies no date of termination. Under the terms of the agreement, the CEO’s            salary was stated at $48,000 per year and is reviewed by the Board of Directors            annually. The salary amount in the previously executed employment agreement did not            change after the officer’s change in title. As of June 30, 2007 and 2006, the            current CEO was owed accrued salary of $744,000 and $696,000, respectively.

             

The company also executed an employment agreement with its former            President on January 9, 2006. The agreement is for one year with an annual salary of            $45,000. As of June 30, 2007 and 2006, the former President was owed accrued salary of            $45,000 and $21,200, respectively.

             

During the years ended June 30, 2007 and 2006, notes payable-related            parties increased $117,169 and decreased $408,898, respectively. The changes are due to            additional proceeds from, payments on, and reclassifications of, notes            payable.

             

 

 

F-13

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June            30, 2007 and 2006

             

| NOTE 3 - | RELATED PARTY TRANSACTIONS (continued) |
|----------|----------------------------------------|

             

Accounts payable and notes payable to related parties consisted of the            following at June 30, 2007:

             
|                                                                                   |        |
|-----------------------------------------------------------------------------------|--------|
| Accounts                    payable to a related party, due on demand,            |   |   |   |  |   |
|  no interest,                    unsecured                                   |   |   | $ | 180,000 |   |
| Accounts payable to a                    related party, due on demand,            |   |   |
|  variable interest,                    unsecured                             |   |   |   | 164,881 |   |
| Notes payable to a                    related party, due on demand, plus interest |   |   |
|  at 18% per annum,                    unsecured                              |   |   |   | 86,950 |   |
| Note payable to a                    related party, due on demand, plus interest  |   |   |
|  at 8% per annum,                    unsecured                               |   |   |   | 30,000 |   |
| Note payable to a                    related party, due on demand, plus interest  |   |   |
|  at 5% per month,                    unsecured                               |   |   |   | 12,363 |   |
|                                                                                   |        |  |
|                                                                              |   |   |   | 474,194 |   |
| Less: Current                    Portion                                          |   |   |   | (474,194 | ) |
|                                                                                   |        |  |
| Long-Term Notes Payable                    to Related Parties                     |   |   | $ | - |   |
|                                                                                   |        |  |

 

 

 

F-14

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June            30, 2007 and 2006

             

| NOTE 3 - | RELATED PARTY TRANSACTIONS (continued) |
|----------|----------------------------------------|

 

The aggregate principal maturities of notes payable to related parties            are as follows:

             
| Year Ended                        June 30, |   | Amount |
|--------------------------------------------|--------|--------|
| 2008                                       |   |   | $ | 474,194 |   |
| 2009                                       |   |   |   | - |   |
| 2010                                       |   |   |   | - |   |
| 2011                                       |   |   |   | - |   |
| 2012 and                    thereafter     |   |   |   | - |   |
|                                            |        |        |
| Total                                      |   |   | $ | 474,194 |   |
|                                            |        |        |

 

As of June 30, 2007 and 2006, accrued interest related to the related            party notes payable was $25,360 and $14,738, respectively. Interest expense related to            the related party notes payable for the years ended June 30, 2007 and 2006 was $30,299            and $32,086, respectively. Significant reclassifications of related party notes            occurred during the current year.

             

| NOTE 4 - | INCOME TAXES |
|----------|--------------|

 

Deferred taxes are provided on a liability method whereby deferred tax            assets are recognized for deductible temporary differences and operating loss and tax            credit carryforwards and deferred tax liabilities are recognized for taxable temporary            differences. Temporary differences are the differences between the reported amounts of            assets and liabilities and their tax bases. Deferred tax assets are reduced by a            valuation allowance when, in the opinion of management, it is more likely than not that            some portion or all of the deferred tax assets will not be realized. Deferred tax            assets and liabilities are adjusted for the effects of changes in tax laws and rates on            the date of enactment. Net deferred tax liabilities consist of the following components            as of June 30, 2007.

             
|                                                                    | 2007   |
|--------------------------------------------------------------------|--------|
| Deferred tax                    assets:                            |   |   |   |  |   |
|      NOL                    carryover     |   |   | $ | 1,136,400 |   |
|      Related                    parties   |   |   |   | 223,200 |   |
|      Accrued                    wages     |   |   |   | 307,700 |   |
|      Capital                    carryover |   |   |   | - |   |
|  Deferred tax                    liabilities:                 |   |   |
|      Depreciation                         |   |   |   | - |   |
|  Valuation                    allowance                       |   |   |   | (1,667,300 | ) |
|                                                                    |        |  |
|  Net deferred tax                    asset                    |   |   | $ | - |   |
|                                                                    |        |  |

 

 

 

F-15

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June            30, 2007 and 2006

 

| NOTE 4 - | INCOME TAXES (Continued) |
|----------|--------------------------|

 

The income tax provision differs from the amount of income tax            determined by applying the U.S. federal and state income tax rates of 39% to pretax            income from continuing operations for the years ended June 30, 2007 and 2006 due to the            following:

             
|                                            | 2007   |        | 2006   |
|--------------------------------------------|--------|--------|--------|
| Book                    income             |   |   | $      | (146,199 | ) | $ | (224,600 | ) |
| Interest                                   |   |   |   | - |   |   | 38,058 |   |
| Accrued                    wages           |   |   |   | - |   |   | 26,580 |   |
| Stock for                    services      |   |   |   | 390 |   |   | 30,420 |   |
| Options                    expense         |   |   |   | - |   |   | 4,027 |   |
| Meals and                    entertainment |   |   |   | 45 |   |   | 150 |   |
| Other                                      |   |   |   | 8,013 |   |   | - |   |
| Valuation                    allowance     |   |   |   | 137,751 |   |   | 125,365 |   |
|                                            |        |        |        |  |
|                                       |   |   | $      | - |   | $ | - |  |  |
|                                            |        |        |        |  |
|                                            |        |        |

             

At June 30, 2007, the Company had net operating loss carryforwards of            approximately $2,914,000 that may be offset against future taxable income from the year            2007 through 2027. No tax benefit has been reported in the June 30, 2007 financial            statements since the potential tax benefit is offset by a valuation allowance of the            same amount.

 

Due to the change in ownership provisions of the Tax Reform Act of 1986,            net operating loss carryforwards for Federal income tax reporting purposes are subject            to annual limitations. Should a change in ownership occur, net operating loss            carryforwards may be limited as to use in future years.

             

| NOTE 5 - | COMMITMENTS |
|----------|-------------|

             

The Company executed an employment agreement with its then President,            currently its CEO, on May 1, 1986. The agreement is of a continuing nature and            specifies no date of termination. Under the terms of the agreement, the CEO’s            salary was stated at $48,000 per year and is reviewed by the Board of Directors            annually. The salary amount in the previously executed employment agreement did not            change after the officer’s change in title. As of June 30, 2007 and 2006, the            current CEO was owed accrued salary of $744,000 and $696,000, respectively.

             

The company also executed an employment agreement with its former            President on January 9, 2006. The agreement was for one year with an annual salary of            $45,000. As of June 30, 2007 and 2006, the current President was owed accrued salary of            $45,000 and $21,200, respectively.

             

F-16

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June 30, 2007 and 2006

             

| NOTE 6 - | OPERATING LEASES |
|----------|------------------|

 

The Company shares office space with Garbalizer Corporation of America            and Commodities Trading 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 $14,400 and $14,400 for the years ended June 30, 2007 and            2006, respectively.

 

| NOTE 7 - | NOTES PAYABLE |
|----------|---------------|

 

During the years ended June 30, 2007 and 2006, notes payable increased            $23,000 and $485,820. The changes are due to payments of and proceeds from additional            notes payable, as well as reclassifications of note payable balances.

             

Notes payable consisted of the following at June 30, 2007:

 
|                                                                                                                                                                              |        |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|               Note                    payable, due on demand, plus interest                            |   |   |   |  |   |
|                at                    12% per annum, unsecured.                                    |   |   | $ | 68,493 |   |
|                                                                                                                                                                              |   |   |
|               Note                    payable, due on demand, plus interest                            |   |   |
|                at                    12% per annum, unsecured.                                    |   |   |   | 165,000 |   |
|                                                                                                                                                                              |   |   |
|               Notes                    payable, due on demand, plus interest                           |   |   |
|                at                    10% per annum, unsecured.                                    |   |   |   | 20,000 |   |
|                                                                                                                                                                              |   |   |
|               Note                    payable, due on demand, plus interest at                         |   |   |
|                $500                    per week, secured by sales contract and officer guarantee. |   |   |   | 53,000 |   |
|                                                                                                                                                                              |   |   |
|               Note                    payable, due on demand, 12% interest,                            |   |   |
|                one                    time loan fee of $33,000, unsecured.                        |   |   |   | 33,000 |   |
|                                                                                                                                                                              |   |   |
|               Note                    payable, due on demand, plus interest                            |   |   |
|                at                    18% per annum, secured by company stock                      |   |   |
|                owned                    by stockholder.                                           |   |   |   | 129,327 |   |
|                                                                                                                                                                              |   |   |
|               Note                    payable, due January 6, 2007, one time loan fee of               |   |   |
|                one                    million shares, secured by all company assets including     |   |   |
|                future                    sales of cement and urea by a related company.           |   |   |   | 50,000 |   |
|                                                                                                                                                                              |   |   |
|               Note                    payable, due August 1, 2006, 18% interest,                       |   |   |
|                one                    time loan fee of $2,500, secured by all company assets.     |   |   |   | 10,000 |   |
|                                                                                                                                                                              |   |   |
|               Note                    payable, due July 26, 2006, no interest,                         |   |   |
|                one                    time loan fee of $500, unsecured.                           |   |   |   | 5,000 |   |
|                                                                                                                                                                              |   |   |
|               Note                    payable, due September 5, 2006, plus interest                    |   |   |
|                at                    5% per month, unsecured.                                     |   |   |   | 2,250 |   |

             

             

             

F-17

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June 30, 2007 and 2006

             

NOTE 7            - NOTES PAYABLE (Continued)

             
|                                                                                                                                                                         |        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|               Note                    payable, due September 5, 2006, plus one time loan          |   |   |   |  |   |
|                fee                    of 100,000 stock options and interest at 5% per month, |   |   |
|                unsecured.                                                                    |   |   |
|                                                                                                                                                                    |   |   |   | 2,750 |   |
|                                                                                                                                                                         |        |  |
|                                                                                                                                                                    |   |   |   | 538,820 |   |
|               Less:                    Current Portion                                            |   |   |   | (538,820 | ) |
|                                                                                                                                                                         |        |  |
|               Long-Term                    Notes Payable                                          |   |   | $ | - |   |
|                                                                                                                                                                         |        |  |

             

The aggregate principal maturities of notes payable are as            follows:

 
| Year Ended                        June 30, |   | Amount |
|--------------------------------------------|--------|--------|
| 2008                                       |   |   | $ | 538,820 |   |
| 2009                                       |   |   |   | - |   |
| 2010                                       |   |   |   | - |   |
| 2011                                       |   |   |   | - |   |
| 2012 and                    thereafter     |   |   |   | - |   |
|                                            |        |        |
| Total                                      |   |   | $ | 538,820 |   |
|                                            |        |        |

 

As of June 30, 2007 and 2006, accrued interest related to notes payable            was $546,994 and $434,440, respectively. Interest expense related to notes payable for            the years ended June 30, 2007 and 2006 was $109,215 and $109,281, respectively.            Significant differences are due to reclassifications between related and non-related            party notes payable.

 

NOTE            8 – STOCK OPTIONS

 

The Company estimates the fair value of options and warrants using the            Black-Scholes Option Price Calculation, which requires various judgmental assumptions            including estimated stock price volatility, forfeiture rates, and expected life. Our            computation of expected volatility is based on a combination of historical and            market-based implied volatility. Our calculation of the fair market value of each            option award on the date of grant, using the Black-Scholes option-pricing model, used            the following assumptions for the options granted during July of 2006:

 

|   | Risk-free interest rate | 5.31% |
|--------|-------------------------|-------|

|   | Expected life in years | 0.50    |
|--------|------------------------|------------------------|

|   | Dividend yield | 0.00    |
|--------|----------------|------------------------|

|   | Expected volatility | 113.973% |
|--------|---------------------|----------|

             

A summary of the status of the Company’s stock option plans as of            June 30, 2007 and changes during the year is presented below:

 

F-18

----

**GARB OIL & POWER CORPORATION AND SUBSIDIARIES**

Notes            to Consolidated Financial Statements

June 30, 2007 and 2006

             

NOTE 8            – STOCK OPTIONS (Continued)

 

|                                |  

**Options** | **Weighted Average****Exercise Price** |
|-------------------------------------|---------------------|----------------------------------------|
|                                |                |                                   |
| Outstanding option at June 30, 2006 |                | 200,000                           | $ | 0.250 |
|                                |                |                                   |   |   |
| Granted                             |                | 100,000                           |   | 0.075 |
| Cancelled / Expired                 |                | (300,000)                              |   | 0.192 |
| Exercised                           |                | -                                 |   | - |
|                                |                |                                   |   |   |
| Outstanding, June 30, 2007          |                | -                                 | $ | 0.00 |
|                                |                |                                   |   |   |
| Exercisable, June 30, 2007          |                | -                                 | $ | 0.00 |

 

 

 

F-19

----

**8. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS WITH ACCOUNTANTS ON            ACCOUNTING AND FINANCIAL DISCLOSURE**

 

Not applicable except as previously reported.

 

**8A. CONTROLS AND PROCEDURES**

 

|   | (a) | Evaluation of Disclosure 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.

 

|   | **•** | Management’s Annual Report on Internal Control                            Over Financial Reporting: |
|--------|------------|-----------------------------------------------------------------------------------------------------------|

 

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,

 

|   | **•** | Lack of a control environment that sufficiently promotes                            effective internal control over financial reporting throughout the                            management structure; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Lack of independent directors for our audit                            committee; |
|--------|------------|-----------------------------------------------------------------------------------|

|   | **•** | Lack of control processes for recording and approving                            journal entries; |
|--------|------------|---------------------------------------------------------------------------------------------------|

|   | **•** | Insufficient policies and procedures over various                            financial statement areas; |
|--------|------------|---------------------------------------------------------------------------------------------------------|

|   | **•** | Lack of an audit committee financial expert; |
|--------|------------|----------------------------------------------|

|   | **•** | Insufficient segregation of duties, and |
|--------|------------|-----------------------------------------|

|   | **•** | Insufficient corporate governance policies. |
|--------|------------|---------------------------------------------|

             

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.

 

**8B. OTHER INFORMATION**

|   | None |
|--------|------|

 

11

----

**PART III**

 

**9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; 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    |   | 84                        | CEO, CFO, Chairman of the Board of |
|              |   | of Directors and Director |
|              |   |                      |
| Bill Vee Anderson |   | 55                        | Vice-President and Director        |

             

John C. Brewer had 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 is a major shareholder of the Company. Mr. Brewer devotes            approximately 40 hours per week to the Company as well as additional time to his other            business interests. On June 15, 2005 the board of directors appointed Lou Zant            president and CEO, retaining Mr. Brewer as its Chief Financial Officer.            Subsequently, Mr. Zant resigned as President and CEO and Mr. Brewer was again            appointed President and CEO. On January 13, 2006, the Board of Directors appointed            Matthew G. Shepard President and director, retaining Mr. Brewer as its CEO.            Subsequently, Mr. Shepard resigned as President and CEO and Mr. Brewer was            again appointed President and CEO.

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 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 was Secretary and a director of Garb-Oil Corporation. On            June 15, 2005, Mr. Laver resigned as Secretary, Treasurer and director of the            Company.

             

**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, 2007 all Section 16(a)            filing requirements applicable to its officers, directors and greater than ten-percent            beneficial owners were complied with.

 

12

----

 

**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, 2007.            Compensation for the other highly compensated executive officers is not required nor            presented as no such executive officer’s salary and bonus exceeded            $100,000.

             

**SUMMARY COMPENSATION TABLE**

 

|                          |   |        |   | Annual Compensation |
|-------------------------------|--------|-------------|--------|---------------------|
| Name and Principal Position   |   | Fiscal Year |   | Salary ($)          |
| John C. Brewer, CEO & CFO |   | 2007        |   | $48,000             |
|                          |   | 2006        |   | 48,000              |

 

 

No            officer received any form of non-cash compensation from the Company in the fiscal year            ended June 30, 2007 or currently receives any such compensation. The Company does            provide medical insurance to Mr. Brewer.

The            Company executed an employment agreement with its then President, currently its CEO, on            May 1, 1986. The agreement is of a continuing nature and specifies no date of            termination. Under the terms of the agreement, the CEO’s salary was stated at            $48,000 per year and is reviewed by the Board of Directors annually. The salary amount            in the previously executed employment agreement did not change after the            officer’s change in title.

             

The            company also executed an employment agreement with its former President on January 9,            2006. The agreement is for one year with an annual salary of $45,000. As of June 30,            2007 and 2006, the former President was owed accrued salary of $45,000 and $21,200,            respectively

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.

 

**11.            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER            MATTERS**

The            following table sets forth certain information with respect to the beneficial ownership            of the Company’s common stock as of June 30, 2007, (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.

 

13

----

| Name and Address                                                                                                          |   | Amount     |   | Percent of Class |
|---------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|------------------|
|                                                                                                                      |   |       |   |             |
| Garbalizer Corporation                                                                                                    |   | 9,788,291  |   | 42.7%            |
| of America (Notes 1, 3 & 4)                                                                                           |   |       |   |             |
| Newhouse Office Building, Suite 507                                                                                       |   |       |   |             |
| Salt Lake City, Utah                                                                                                      |   |       |   |             |
|                                                                                                                      |   |       |   |             |
| Ralph C. Alexander                                                                                                        |   | 943,343    |   | 4.1%             |
| 152 Hall Street                                                                                                           |   |       |   |             |
| Spartanburg, South Carolina                                                                                               |   |       |   |             |
|                                                                                                                      |   |       |   |             |
| A/S Parkveien 55                                                                                                          |   | 1,050,000  |   | 4.6%             |
| c/o Hoegh Invest A/S (Note 2)                                                                                             |   |       |   |             |
| P.O. Box 2416 Solli                                                                                                       |   |       |   |             |
| 0202 Oslo 2, Norway                                                                                                       |   |       |   |             |
|                                                                                                                      |   |       |   |             |
| LTD II Enterprises                                                                                                        |   | 1,000,000  |   | 4.4%             |
| 1209 W 1800 N                                                                                                             |   |       |   |             |
| Lehi, Utah                                                                                                                |   |       |   |             |
|                                                                                                                      |   |       |   |             |
| Bill Anderson                                                                                                             |   | 306,000    |   | 1.3%             |
| Newhouse Office Building, Suite 507                                                                                       |   |       |   |             |
| Salt Lake City, Utah                                                                                                      |   |       |   |             |
|                                                                                                                      |   |       |   |             |
| Commodities Trading Corporation                                                                                           |   | 500,000    |   | 2.2%             |
| 1588 S. Main St. (Note 1)                                                                                                 |   |       |   |             |
| Salt Lake City, Utah                                                                                                      |   |       |   |             |
|                                                                                                                      |   |       |   |             |
| All directors and                                                                                                         |   | 10,594,291 |   | 46.3%            |
| officers as a group                                                                                                       |   |       |   |             |
| (3 entities; Garbalizer, Commodities Trading and Bill                            Anderson – see notes 1, 3 & 4) |

 

 

(1)                                                               John C.            Brewer beneficially owns 98% of the outstanding common stock of Garbalizer Corporation            of America (“GCA”). John Brewer also owns 100% of the outstanding common            stock of Commodities Trading Corporation (“CTC”).

(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 9,788,291 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 9,788,291 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.

 

14

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**12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**

The            Company executed an employment agreement with its CEO and 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 CEO and President’s salary is $48,000 per year and is            reviewed by the Board of Directors annually. As of June 30, 2007 and 2006, the CEO and            President was owed accrued salary of $744,000 and $696,000, respectively.

 

During the years ended June 30, 2007 and 2006, notes payable - related            parties increased $117,169 and decreased $408,898, respectively. The changes are due to            reclassifications of notes payable and to proceeds from additional notes payable. Some            payments were made on notes payable and additional funds were borrowed during the years            ended June 30, 2007 and 2006.

 

Accounts payable and notes payable to related parties consisted of the            following at June 30, 2007:

 

| Accounts payable to a related party, due on demand, no                            interest, |    |
|---------------------------------------------------------------------------------------------|---------|
| unsecured                                                                                   | $       | 180,000 |
|                                                                                        |    |
| Accounts payable to related parties, due on demand,                            variable     |    |
| interest, unsecured                                                                         | 164,881 |
|                                                                                        |    |
| Note payable to a related party, due on demand, plus                            interest    |    |
| at 18% per annum, unsecured.                                                                | 86,950  |
|                                                                                        |    |
| Note payable to a related party, due on demand, plus                            interest    |    |
| at 8% per annum, unsecured.                                                                 | 30,000  |
|                                                                                        |    |
| Note payable to a related party, due on demand, plus                            interest    |    |
| at 5% per month, unsecured.                                                                 | 12,363  |
|                                                                                        |    |
|                                                                                        | $       | 474,194 |

 

 

As            of June 30, 2007 and 2006, accrued interest related to the related party notes payable            was $25,360 and $14,738, respectively. Interest expense related to the related party            notes payable for the years ended June 30, 2007 and 2006 was $30,299 and $32,086,            respectively.

 

 

15

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**13. EXHIBITS**

 

a.            The following financial statements and schedules are filed herewith.

|   | Garb Oil & Power Corporation |
|--------|----------------------------------|

 

Consolidated Balance Sheet - June 30, 2007.

Consolidated Statements of Operations - For the Years Ended June 30,            2007 and 2006.

Consolidated Statements of Stockholders’ Equity (Deficit) - For            the Years Ended June 30, 2007 and 2006.

Consolidated Statements of Cash Flows For the Years Ended June 30, 2007            and 2006.

 

b.            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.

 

| 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       | Exhibit 10.5 of Registration   |
|    |    | with John Brewer           | Statement on Form 10, File     |
|    |    |                       | No. 0-14859                    |
|    |    |                       |                           |
| 10      | 10.2    | Agreement with Giant Tire  | Exhibit 10.4 of Form 10-KSB    |
|    |    | Recyclers, Inc.            | for 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 EX 10-4 of Form 10-KSB   |
|    |    | Giant Tire Recyclers, Inc. | for June 30, 2001              |
|    |    |                       |                           |
| 10      | 10.4    | 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              |
|    |    |                       |                           |
| 31      | 31.1    | Certification Pursuant to  | Filed herewith                 |
|    |    | Section 302 of the         |                           |
|    |    | Sarbanes-Oxley Act of 2002 |                           |
|    |    |                       |                           |
| 32      | 32.1    | Certification Pursuant to  | Filed herewith                 |
|    |    | 18 U.S.C. Section 1350     |                           |
|    |    | as Adopted Pursuant to     |                           |
|    |    | Section 906 of the         |                           |
|    |    | Sarbanes-Oxley Act of 2002 |                           |

 

 

16

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**ITEM            14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

The            following is a summary of the fees billed to Garb Oil by its principal accountants            during the fiscal years ended June 30, 2007, and June 30, 2006:

 
| Fee category                          |        | 2007   |   | 2006   |
|---------------------------------------|--------|--------|---|--------|
| Audit                    fees         |   |   | $ | 16,200 |   | $ | 13,730 |   |
|                                       |        |        |   |        |
| Audit-related                    fees |   |   | $ | -      |   | $ | - |   |
|                                       |        |        |   |        |
| Tax fees                              |   |   | $ | -      |   | $ | - |   |
|                                       |        |        |   |        |
| All other                    fees     |   |   | $ | -      |   | $ | - |   |
|                                       |        |        |   |        |
| Total fees                            |   |   | $ | 16,200 |   | $ | 13,730 |   |
|                                       |        |        |   |        |

 

Audit            fees. Consists of fees for professional services rendered by our principal accountants            for the audit of our annual financial statements and the review of financial statements            included in our Forms 10-QSB or services that are normally provided by our principal            accountants in connection with statutory and regulatory filings or            engagements.

 

Audit-related fees. Consists of fees for assurance and related services            by our principal accountants that are reasonably related to the performance of the            audit or review of our financial statements and are not reported under “Audit            fees.”

 

Tax            fees. Consists of fees for professional services rendered by our principal accountants            for tax compliance, tax advice and tax planning.

 

All            other fees. Consists of fees for products and services provided by our principal            accountants, other than the services reported under “Audit fees,”            “Audit-related fees” and “Tax fees” above.

 

 

17

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**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, Chief Executive Officer |
|   | and Chief Financial Officer             |

             

 

|   | DATED this 24th Day of October, 2007 |
|--------|--------------------------------------|

 

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.

 

|   | **•** | By its principal executive officer. |
|--------|------------|-------------------------------------|

             

 

| Date: Oct. 24th, 2007 | /s/*John C.                            Brewer* |
|-----------------------|------------------------------------------------|
|                  | John C. Brewer, Chief Executive Officer        |
|                  |                                           |

 

 

|   | 2. And by its principal financial officer and principal                            accounting officer. |
|--------|--------------------------------------------------------------------------------------------------------|

 

 

| Date: Oct. 24th, 2007 | /s/*John C.                            Brewer* |
|-----------------------|------------------------------------------------|
|                  | John C. Brewer, Chief Financial Officer        |
|                  |                                           |

 

 

|   | 3. And by a majority of its Board of                            Directors. |
|--------|----------------------------------------------------------------------------|

 

| Date: Oct. 24th, 2007 | /s/*John C.                            Brewer* |
|-----------------------|------------------------------------------------|
|                  | John C. Brewer, Director                       |
|                  |                                           |

 

 

| Date: Oct. 24th, 2007 | /s/*Bill Vee                            Anderson* |
|-----------------------|---------------------------------------------------|
|                  | Bill Vee Anderson, Director                       |
|                  |                                              |

 

 

18

 

 

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