UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended:
March 31, 2009
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 Number:
000-51932
|
SYNTEC
BIOFUEL INC.
|
|
|
(Exact
name of registrant as specified in its charter)
|
|
Washington
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91-2031335
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(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification
No.)
|
Suite
206 - 388 Drake Street
Vancouver,
British Columbia, Canada
|
|
V6B
6A8
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(Address
of principal executive offices)
|
|
(Zip
Code)
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Registrant’s
telephone number
(including
area code)
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|
(604)
648-2090
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark 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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer
|
o
|
Accelerated
Filer
|
o
|
Non
Accelerated Filer
|
o
(Do not check if
smaller reporting company)
|
Smaller
Reporting Company
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate
by check mark whether the registrant filed all documents and reports required to
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes
|
o
|
No
|
o
Not
applicable
|
APPLICABLE
ONLY TO CORPORATE ISSUERS
The
number of shares of common stock outstanding as of May 1, 2009 was
33,194,079.
SYNTEC
B
IOF
UEL INC.
(A
Development Stage Company)
FORM
10-Q
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4
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4
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15
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17
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17
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18
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18
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18
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18
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18
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18
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18
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18
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P
AR
T I – FINANCIAL INFORMATION
I
te
m 1. FINANCIAL STATEMENTS
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
INTERIM
FINANCIAL STATEMENTS
March 31,
2009
Unaudited
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
Unaudited
ASSETS
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March
31,
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December
31,
|
|
|
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2009
|
|
|
2008
|
|
|
|
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|
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Current
Assets
|
|
|
|
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Cash
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$
|
3,447
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|
$
|
1,419
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|
Receivables
|
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15,915
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23,283
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19,362
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24,702
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Equipment
(Note 4)
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|
236,731
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254,839
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Intellectual
property (Note 3)
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5,100,000
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5,100,000
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Intangible
assets (Note 3)
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20,000
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20,000
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$
|
5,376,093
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$
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5,399,541
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LIABILITIES AND STOCKHOLDERS’
EQUITY
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Current
Liabilities
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Accounts
payable and accrued liabilities
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$
|
163,531
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$
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193,324
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Current
portion of obligation under capital lease (Note 4)
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16,452
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16,411
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Due
to related parties (Note 5)
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797,909
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561,209
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Notes
payable (Note 6)
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246,742
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238,158
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|
|
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1,224,634
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1,009,102
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Obligation
under capital lease (Note 4)
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4,513
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9,175
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1,229,147
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1,018,277
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Commitments
and Contingencies (Notes 4, 5 and 6)
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Preferred
stock:
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Authorized:
20,000,000 with a par value of $0.0001 Issued and outstanding:
None
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-
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-
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Common
stock:
|
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Authorized:
100,000,000 with a par value of $0.0001 Issued and outstanding: 33,194,079
(December 31, 2008: 33,194,079)
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3,319
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|
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|
3,319
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Additional
paid-in capital
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6,344,261
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6,328,543
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Accumulated
other comprehensive income
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111,319
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104,342
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Deficit
accumulated during the development stage
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(2,311,953
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)
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(2,054,940
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)
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|
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4,146,946
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4,381,264
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|
|
|
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$
|
5,376,093
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|
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$
|
5,399,541
|
|
SEE
ACCOMPANYING NOTES
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
Unaudited
|
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|
|
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March
15,
|
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|
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2000
|
|
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(Date
of
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Three
months ended
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Inception)
to
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March
31,
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March
31,
|
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|
2009
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|
2008
|
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|
2009
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|
|
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|
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Expenses
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Consulting
fees
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|
$
|
-
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|
$
|
31,949
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$
|
251,258
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|
Depreciation
|
|
|
15,885
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|
12,398
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|
85,199
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Development
fees (Note 3)
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105,459
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138,447
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540,410
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Filing
fees
|
|
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1,109
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2,149
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43,387
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Financing
charges
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7,000
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2,706
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102,635
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Foreign
exchange Loss
|
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36,649
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-
|
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|
97,596
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Interest
expense
|
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15,514
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8,228
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95,583
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Management
fees (Note 5)
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56,225
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110,353
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514,785
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Marketing
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591
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4,548
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53,705
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Office
and miscellaneous
|
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2,744
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36,923
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68,688
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Professional
fees
|
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8,520
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11,913
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297,550
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Rent
(Note 5)
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|
4,821
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|
|
|
5,972
|
|
|
|
32,917
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Rights
and licenses costs
|
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|
-
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-
|
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|
|
25,015
|
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Travel
|
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|
2,496
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|
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|
-
|
|
|
|
107,135
|
|
Write-down
of website
|
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-
|
|
|
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-
|
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|
5,000
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(257,013
|
)
|
|
|
(365,586
|
)
|
|
|
(2,320,863
|
)
|
|
|
|
|
|
|
|
|
|
|
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Other
income
|
|
|
-
|
|
|
|
5,814
|
|
|
|
8,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(257,013
|
)
|
|
$
|
(359,772
|
)
|
|
$
|
(2,311,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
Weighted
average shares outstanding – basic and diluted
|
|
|
33,194,079
|
|
|
|
33,056,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(257,013
|
)
|
|
$
|
(359,772
|
)
|
|
$
|
(2,311,953
|
)
|
Foreign
currency translation adjustment
|
|
|
6,977
|
|
|
|
(9,454
|
)
|
|
|
111,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss
|
|
$
|
(250,036
|
)
|
|
$
|
(369,226
|
)
|
|
$
|
(2,200,634
|
)
|
SEE
ACCOMPANYING NOTES
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Unaudited
|
|
|
|
|
|
|
|
March
15,
|
|
|
|
|
|
|
|
|
|
2000
|
|
|
|
Three
months ended
|
|
|
(Inception)
to
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(257,013
|
)
|
|
$
|
(359,772
|
)
|
|
$
|
(2,311,953
|
)
|
Non-cash
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
15,885
|
|
|
|
12,398
|
|
|
|
85,199
|
|
Financing
charges
|
|
|
7,000
|
|
|
|
2,706
|
|
|
|
41,000
|
|
Accrued
interest on notes payable
|
|
|
1,584
|
|
|
|
8,087
|
|
|
|
17,408
|
|
Interest
on capital lease obligation
|
|
|
897
|
|
|
|
-
|
|
|
|
2,534
|
|
Legal
and organizational expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
8,000
|
|
Rights
and licenses costs
|
|
|
-
|
|
|
|
-
|
|
|
|
24,751
|
|
Share
subscriptions receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
575
|
|
Write-down
of website
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
7,368
|
|
|
|
252
|
|
|
|
(15,915
|
)
|
Prepaids
|
|
|
-
|
|
|
|
31,092
|
|
|
|
-
|
|
Accounts
payable and accrued liabilities
|
|
|
(29,793
|
)
|
|
|
10,706
|
|
|
|
163,529
|
|
Amounts
due to related parties
|
|
|
(6,051
|
)
|
|
|
(15,774
|
)
|
|
|
148,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(260,123
|
)
|
|
|
(310,305
|
)
|
|
|
(1,831,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in equipment
|
|
|
-
|
|
|
|
(17,407
|
)
|
|
|
(33,667
|
)
|
Repayment
of debt assumed
|
|
|
-
|
|
|
|
-
|
|
|
|
(350,000
|
)
|
Rights
and licenses
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
Website
cost
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
-
|
|
|
|
(17,407
|
)
|
|
|
(388,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash
|
|
|
-
|
|
|
|
51,155
|
|
|
|
1,277,767
|
|
Proceeds
from notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
204,106
|
|
Payments
under capital lease obligation
|
|
|
(3,295
|
)
|
|
|
-
|
|
|
|
(34,832
|
)
|
Payments
to related parties
|
|
|
(20,811
|
)
|
|
|
-
|
|
|
|
(20,811
|
)
|
Proceeds
from related parties
|
|
|
279,280
|
|
|
|
-
|
|
|
|
685,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
255,174
|
|
|
|
51,155
|
|
|
|
2,112,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rates on cash
|
|
|
6,977
|
|
|
|
(9,454
|
)
|
|
|
111,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
2,028
|
|
|
|
(286,011
|
)
|
|
|
3,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
beginning
|
|
|
1,419
|
|
|
|
509,504
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
ending
|
|
$
|
3,447
|
|
|
$
|
223,493
|
|
|
$
|
3,447
|
|
Supplemental
cash flow information (Note 7)
SEE
ACCOMPANYING NOTES
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2009
Unaudited
Note
1
|
Basis of
Presentation
|
These
unaudited interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Regulation S-B as
promulgated by the Securities and Exchange Commission ("SEC"). Accordingly,
these financial statements do not include all of the disclosures required by
generally accepted accounting principles for complete financial statements. The
accompanying unaudited financial statements and related notes should be read in
conjunction with the audited financial statements and the Form 10-K of the
Company for the year ended December 31, 2008. In the opinion of management, the
unaudited interim financial statements furnished herein include all adjustments,
all of which are of a normal recurring nature, necessary for a fair statement of
the results for the interim period presented. The results of operations for such
periods are not necessarily indicative of the results expected for a full year
or for any future period.
Note
2
|
Nature and Continuance
of Operations
|
Syntec
Biofuel Inc. (the “Company”) was incorporated in the State of Washington on
March 15, 2000. The Company is a development stage company as defined by
Statement of Financial Accounting Standards (“SFAS”) No. 7, “Development Stage
Enterprises.”
The
Company, on April 7, 2006, entered into a purchase and assignment agreement (the
“Purchase Agreement”) with Syntec Biofuel Inc. ("Syntec Canada"), a Canadian
company located in Burnaby, British Columbia, Canada, to acquire all of its
assets including the intellectual property relating to the development of a
catalyst that would convert biomass waste material into ethanol. The Purchase
Agreement was subject to the Company raising a minimum of $500,000 prior to
September 12, 2006 or the ownership of assets would be assigned back to Syntec
Canada. At the Annual General Meeting on July 13, 2006, the shareholders of the
Company ratified the Purchase Agreement and the decision to change the Company’s
name to Syntec Biofuel Inc. from NetCo Investments Inc. effective July 27, 2006.
On September 12, 2006, the Company was unable to raise the required minimum
amount of capital and the pending transaction with Syntec Canada was
terminated.
On
September 28, 2007, the Company entered into an asset purchase agreement (the
“Asset Purchase Agreement”) with Montilla Capital Inc. (“Montilla”), a private
company that acquired the assets of Syntec Canada, to acquire co-ownership of
certain intellectual property, in order to continue the original business plan.
The agreement was subsequently amended and the Company acquired 100% ownership
interest in the intellectual property. The intellectual property relates to the
development of a method of producing catalysts and processes that convert
biomass waste material into ethanol (see Note 3).
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2009
Unaudited
Note
3
|
Acquisition of
assets
|
Pursuant
to the Asset Purchase Agreement, the Company issued 11,000,000 common shares to
Montilla at a fair value of $0.455 per share, for total consideration of
$5,355,000, in exchange for co-ownership of certain intellectual property,
acquisition of the assets and assumption of the liabilities of Montilla, of
$350,000.
This sale
was subject to the Company raising a minimum of $500,000 by December 31, 2007
which was completed during fiscal 2007.
Consideration
|
|
|
|
11,000,000
common shares at a fair value of $0.455
|
|
$
|
5,005,000
|
|
Debt
assumed
|
|
|
350,000
|
|
|
|
|
|
|
|
|
$
|
5,355,000
|
|
|
|
|
|
|
Fair
Value of Assets Acquired
|
|
|
|
|
Office
equipment
|
|
$
|
15,000
|
|
Laboratory
equipment
|
|
|
220,000
|
|
Intangible
assets
|
|
|
20,000
|
|
Intellectual
property
|
|
|
5,100,000
|
|
|
|
|
|
|
|
|
$
|
5,355,000
|
|
Subsequently,
the Asset Purchase Agreement with Montilla was amended to grant the Company 100%
ownership of the intellectual property.
Concurrent
with the Asset Purchase Agreement, the Company entered into a development
service agreement (the “Service Agreement”) on November 1, 2007 with Syntec
Biofuel Research Inc. (“Syntec Biofuel Research”), a company located in British
Columbia, Canada. Syntec Biofuel Research will provide certain services related
to the ongoing research and development of the catalysts acquired under the
Asset Purchase Agreement. In exchange, the Company will pay Syntec Biofuel
Research on a cost plus 5% basis. Syntec Biofuel Research will also apply for a
Scientific Research and Experimental Development Credit, which is a refundable
tax credit based on annual rates prescribed by the Canadian Income Tax Act. The
amount of refundable tax credit received by Syntec Biofuel Research will be
assigned to the Company, less a 10% fee.
The
Service Agreement will be for an initial term of two years commencing November
1, 2007 and automatically renew for one additional year unless terminated in
writing at least 60 days prior to the end of the term. During the period ended
March 31, 2009, the Company paid or accrued development fees to Syntec Biofuel
Research for $105,459 (March 31, 2008 - $138,447). The balance has been
allocated to the statements of operations under development
fees.
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2009
Unaudited
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
March
31, 2009
Net
Book Value
|
|
|
December
31, 2008
Net
Book Value
|
|
Computer
equipment
|
|
$
|
6,827
|
|
|
$
|
2,819
|
|
|
$
|
4,008
|
|
|
$
|
4,439
|
|
Office
equipment
|
|
|
15,401
|
|
|
|
4,588
|
|
|
|
10,813
|
|
|
|
11,597
|
|
Laboratory
equipment
|
|
|
242,990
|
|
|
|
62,694
|
|
|
|
180,296
|
|
|
|
194,414
|
|
Equipment
under capital lease
|
|
|
55,486
|
|
|
|
13,872
|
|
|
|
41,614
|
|
|
|
44,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
320,704
|
|
|
$
|
83,973
|
|
|
$
|
236,731
|
|
|
$
|
254,839
|
|
The
Company leases laboratory equipment under capital lease that expires in fiscal
2010. At March 31, 2009, the Company has recorded the obligation under capital
lease of $16,452 (December 31, 2008 - $16,411) as the current portion and $4,513
(December 31, 2008 - $9,175) as the long-term portion. The capital lease has an
effective interest rate of 15%. Minimum lease payments under this agreement in
future fiscal years are as follows:
Fiscal
Year Ending December 31,
|
|
Lease
Payments
|
|
2009
|
|
$
|
13,881
|
|
2010
|
|
|
9,254
|
|
Total
minimum lease payments
|
|
$
|
23,135
|
|
|
|
|
|
|
Amount
representing interest
|
|
|
(2,170
|
)
|
Total
obligation under capital lease
|
|
$
|
20,965
|
|
Note
5
|
Related Party
Transactions
|
During the period ended March 31, 2009,
the Company incurred management fees of $56,225 (March 31, 2008 - $110,353)
which were charged by a company controlled by a director and officer of the
Company and the directors of the Company
.
During
the period ended March 31, 2009, the Company incurred rental expense of $4,821
(March 31, 2008 - $5,972) which was charged by company controlled by a director
and officer of the Company.
As at
March 31, 2009, an amount of $68,354 (December 31, 2008 – $79,118) is owing to
directors and officers of the Company. This amount is unsecured, non-interest
bearing and has no set terms of repayment.
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2009
Unaudited
Note
5
|
Related Party
Transactions
(cont’d)
|
On June
20, 2008, the Company received $237,840 (CDN $300,000) (December 31, 2008 -
$246,300) from CAJ Business Solutions Ltd. (“CAJ”), (formerly Impulse
Advertising Ltd.), a company controlled by the spouse of a director and officer
of the Company. Under the terms of the loan agreement, the Company paid $24,630
in finance fees; this fee was paid in 2008. The loan bears interest at 10% per
annum and is secured by promissory note and a general security agreement,
granting CAJ a security interest in all of the assets and intellectual property
held by the Company. Under the terms of the general security agreement, in the
event of default by the Company, the security interest shall become enforceable,
allowing CAJ to take immediate possession of the collateral in any manner
permitted by law. Repayment of the principal, accrued interest and loan fee is
payable by the Company on December 20, 2008. The loan has been extended until
April 30, 2009 (see Note 8). In the event that the Company requests an
additional extension on the loan, CAJ will receive one fully paid, worldwide,
single use, royalty free, non-exclusive license for use of the Company’s
intellectual property as compensation. Included in the due to related parties
balance at March 31, 2009 is accrued interest and financing fee of $18,653
(December 31, 2008 - $13,158).
On
September 26, 2008, the Company received a loan from Pelican Financial Corp., a
company controlled by a director and officer of the Company. The promissory note
is unsecured, bears interest at 10% per annum and is payable by the Company on
April 30, 2009. All outstanding principal and accrued interest have been repaid
during the period ended March 31, 2009 (December 31, 2008 -
$20,811).
On March
13, 2009, the Company received a loan of $79,280 (CDN $100,000) from TargetBar
Marketing Inc. (“TargetBar”), a company controlled by a director and officer of
the Company. The promissory note is unsecured, bears interest at 8% per annum.
Repayment of the principal and accrued interest is payable by the Company on
August 31, 2009. Included in the due to related parties balance at March 31,
2009 is accrued interest of $313 (December 31, 2008 - $NIL). TargetBar has the
option to convert the $79,280 note payable, at any time during the term of the
promissory note, into common shares of the Company at $0.25 per share. In
accordance with EITF 98-5 “
Accounting for Convertible
Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion
Ratios
”, (“EITF 98-5”) the Company recognized the intrinsic value of the
embedded beneficial conversion feature of $15,718 as additional paid-in capital
and an equivalent discount which will be expensed over the term of the
promissory note. During the three months ended March 31, 2009, the Company
recorded accretion of $1,429 against the discount of the promissory
note.
The
Company had received loans from Iris International Holdings Limited (“Iris”), a
significant shareholder of the Company, in the amount of $341,500 (December 31,
2008 - $141,500) comprised of :
|
o
|
$56,500
received on July 26, 2006,
|
|
o
|
$85,000
received on September 28, 2006,
|
|
o
|
$100,000
received on January 7, 2009, and
|
|
o
|
$100,000
received on January 20, 2009.
|
These
loans are unsecured and bear interests ranging from 5% to 10% per annum.
Repayment of the principal and accrued interest is payable by the Company on
April 30, 2009 (see Note 8), with extension fees of 10% of the capital debt.
Included in the due to related parties balance at March 31, 2009 is accrued
interest and extension fees of $66,258 (December 31, 2008 - $60,322) relating to
loans owing to Iris.
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2009
Unaudited
|
a)
|
On
May 21, 2008, the Company received a loan in the amount of $42,811 (CDN
$54,000) (December 31, 2008 - $44,334) from Montilla. The loan is
unsecured and bears interest at 10% per annum. Repayment of the principal
and accrued interest is payable on September 30, 2009. Failure of
repayment of this note payable will result in a penalty of one fully paid,
worldwide, single use, non-exclusive license for use of the Company’s
intellectual property, for which Montilla will pay to the Company a
royalty fee of 1.5% of sales. Included in the notes payable balance at
March 31, 2009 is accrued interest and loan fees of $7,975 (December 31,
2008 - $7,166).
|
|
b)
|
As
of March 31, 2009, the Company had received loans totaling $144,000
(December 31, 2008 - $144,000) from Hokley Limited (“Hokley”), which are
unsecured and each carry a loan fee equal to 10% of the principal
balance.
|
Repayment
of the following principal, accrued interest and loan fees are payable by the
Company on June 30, 2009. The dates on which the loans were received and
applicable interest rates are as follows:
|
i.
|
On
August 4, 2004, the Company received $4,000 which bears interest at 8% per
annum;
|
|
ii.
|
On
September 24, 2004, the Company received $5,000 which bears interest at
10% per annum;
|
|
iii.
|
On
December 23, 2004, the Company received $5,000 which bears interest at 10%
per annum;
|
|
iv.
|
On
May 28, 2007, the Company received $30,000 which bears interest at 5% per
annum; and
|
|
v.
|
On
July 18, 2007, the Company received $30,000 which bears interest at 5% per
annum.
|
Repayment
of the following principal, accrued interest and loan fees are payable by the
Company on February 28, 2009. The loans have been extended until August 31,
2009. The dates on which the loans were received and applicable interest rates
are as follows:
|
i.
|
On
February 26, 2007, the Company received $40,000 which bears interest at 5%
per annum; and
|
|
ii.
|
On
September 26, 2007, the Company received $30,000 which bears interest at
10% per annum. In the event that the Company fails to pay the capital and
interest on the extended date, Hokley will receive one fully paid,
worldwide, single use, non-exclusive license for use of the Company’s
intellectual property, for which Hokley will pay to the Company a royalty
fee of 1.5% of sales.
|
Included
in the notes payable balance at March 31, 2009 is accrued interest and loan fees
of $51,956 (December 31, 2008 - $42,658).
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2009
Unaudited
Note
7
|
Supplemental cash flow
information
|
|
|
|
|
|
|
|
|
March
15,
|
|
|
|
|
|
|
|
|
|
2000
|
|
|
|
|
|
|
|
|
|
(Date
of
|
|
|
|
Three
months ended
|
|
|
Inception)
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
A
total of 11,00,000 common shares were issued to Montilla at a fair value
of $0.455 per share, for total consideration of $5,005,000, pursuant to
the Asset Purchase Agreement (Note 3)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,005,000
|
|
Debt
assumed on acquisition of assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
acquired under capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
55,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An
aggregate of 4,323,000 common shares were issued at fair values of $0.01
to $0.025 per share net of a deemed dividend of $10,250
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
33,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
total of 1,600,000 common shares were issued to a company controlled by a
director at a fair value of $0.005 per share for legal and organizational
expenses paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
total of 7,000,000 common shares were issued at fair value of $0.005 per
share for the acquisition of a license from a company controlled by a
director.
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
deemed paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(10,250
|
)
|
On May 1,
2009, the Company signed a loan extension agreement with Iris to extend
repayment of all loans from April 30, 2009 to October 31, 2009 in exchange for a
penalty charge of 10% of the capital debt. If the entire outstanding balance is
repaid before the new due date, the penalty charge will be reduced to
5%.
SYNTEC
BIOFUEL INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2009
Unaudited
Note
8
|
Subsequent events
(cont’d)
|
On May 1,
2009, the Company signed a loan extension agreement with CAJ to extend repayment
of the loan from April 30, 2009 to October 31, 2009 in exchange for a penalty
charge of 10% of the capital debt. It the entire outstanding balance is repaid
before the new due date, the penalty charge will be reduced to 5%. In the event
the Company fails to pay the capital debt and outstanding interest by the due
date, CAJ will receive, as penalty, one fully paid, worldwide, royalty free,
non-exclusive license for use of the Company’s catalyst technology, including a
full copy of the intellectual property, with up to date supporting research
materials.
Note
9
|
Comparative
figures
|
Certain
of the comparative figures have been reclassified to conform to the presentation
adopted in the current period.
I
te
m 2. MANAGEMENTS’ DISCUSSION AND ANLAYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In
preparing the management’s discussion and analysis, the registrant presumes that
you have read or have access to the discussion and analysis for the proceeding
fiscal year.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
document includes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform
Act"). All statements other than statements of historical fact
are “forward-looking statements” for purposes of federal and state securities
laws, including, but not limited to, any projections of earning, revenue or
other financial items; any statements of the plans, strategies and objectives of
management for future operations; any statements concerning proposed new
services or developments; any statements regarding future economic conditions of
performance; and statements of belief; and any statements of assumptions
underlying any of the foregoing. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of Syntec Biofuel Inc. to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: our ability to raise capital and the terms thereof;
technical obstacles during the commercialization of the process; lack of
improvement in the performance of the catalyst; competitive technology may drive
ethanol prices down; adverse changes in the biofuels market due to changes in
government regulations or polices; and other factors referenced in the Form
10-Q.
The use
in this Form 10-Q of such words as "believes", "plans", "anticipates",
"expects", "intends", and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying such
statements. These forward-looking statements present the Company’s estimates and
assumptions only as of the date of this report. Except for the
Company’s ongoing obligation to disclose material information as required by the
federal securities laws, the Company does not intend, and undertakes no
obligation, to update any forward-looking statements.
Although
the Company believes that the expectations reflected in any of the
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed or any of the Company’s
forward-looking statements. The Company’s future financial condition
and results of operations, as well as any forward-looking statements, are
subject to change and inherent risks and uncertainties.
PLAN
OF OPERATIONS
Having
achieved a yield of 110 gallons of alcohol per ton of biomass, Syntec's next
undertaking is to build a 1 ton per day Pilot plant to validate their technology
and use the facility as a showcase for viewing by potential licensees and
investors. Syntec is in discussion with a few groups who either have developed
gasifiers or are also looking to validate their technology, or have biomass
available with access to funding. Such a Pilot plant is expected to cost between
US$6 million and $10 million.
Syntec is
continuously working on improving their catalysts to maximize yield and
productivity and are in discussion with a US University to assist in getting the
catalysts ready for deployment.
We are
also in discussion with an Asian Group who wishes to build a small Pilot plant
for processing the mixed alcohol catalyst in conjunction with a larger scale
bio-methanol demonstration plant. This 150 tpd plant will generate revenue of
approximately $9 million a year to a joint venture initiative.
Syntec
has filed an LOI with the USDA for R & D funding and have also joined a
consortium applying to the DOE for funding a 1 tpd Pilot Plant.
The
Biofuel market has been battered by low ethanol and methanol pricing tied to the
price of oil and we expect the price to increase when oil prices rise. The
future of biofuel is almost guaranteed with the US Government mandating 21
billion gallons of cellulosic biofuel by 2035.
The corn
ethanol producers have been hit hard with increased prices for Corn and a
corresponding drop in price for ethanol. As a result many companies have, and
are, going bankrupt. Fortunately, the Syntec catalyst produces mixed alcohols
which include Propanol and Butanol. These two alcohols sell for greater than $6
a gallon and raise the average price of our combined mix of alcohols. There is
the added tax credit incentive of $1.01 a gallon which will be shared with the
refinery blenders and which would increase our revenue by $0.50 per
gallon.
Syntec is still very bullish on
achieving success as a leader in the thermo-chemical race. Producing ethanol and
other alcohols from waste biomass is still very compelling and our projected
production cost of $0.88 per gallon is still one of the lowest in the biofuel
industry. Our technology is far simpler and more stable than using enzymes and
fermentation to break down cellulose and should consistently be able to be
produced at a much lower price
.
We have
not currently generated any revenue from operations and do not expect to report
any significant revenue from operations until research and development efforts
mature and we have completed the demonstration plant. Even after the completion
of a demonstration plant, there can be no assurance that we will generate
positive cash flow and there can be no assurances as to the level of revenues,
if any, that we may actually achieve from the Syntec technology.
Since
inception, we have funded operations through common stock issuances, related and
non-related party loans in order to meet our strategic
objectives. However, there can be no assurance that we will be able
to obtain further funds to continue with our efforts to establish a new
business.
We expect
to continue to incur substantial losses in our efforts to establish a new
business. We are a development stage company. In a development stage company,
management devotes most of its activities to establishing a new business. As of
March 31, 2009, we had a working capital deficit of $1,205,272. We are in
immediate need of further working capital and are considering options with
respect to financing in the form of debt, equity or a combination
thereof.
RESULTS
OF OPERATIONS
The
following discussion of the financial condition and results of operation of the
Company should be read in conjunction with the Financial Statements and the
related Notes included elsewhere in this report.
THREE
MONTHS ENDING MARCH 31, 2009
The
Company had no revenue for the three months ended March 31, 2009 and 2008. The
total expenses decreased from $365,586 in 2008 as compared to $257,013 in 2009.
In 2009, the Company incurred consultant and management fees of $56,225 as
compared to $142,302 in 2008 as no consultants were hired. The development fees
decreased from $138,447 in 2008 to $105,459 in 2009 because of lower research
and development expenses. The decrease of office and miscellaneous expenses from
$36,923 in 2008 to $2,744 in 2009 is mainly due to reduced traveling,
conferences and trade show expenses and regulatory filings. Our net loss per
share is at $0.01 for 2009 and 2008.
FINANCIAL
CONDITION AND LIQUIDITY
Our cash
position was $3,447 at March 31, 2009 and was $1,419 at December 31,
2008.
Our
working capital deficit at March 31, 2009 was $1,205,272 as compared to $984,400
at December 31, 2008.
The
Company's ability to continue as a going concern and fund operations through the
remainder of 2009 is contingent upon its ability to raise funds through equity
or debt financing.
The
Company has arranged loans from third party lenders in order to fund the on
going operations of the business. These loans have been secured by way of
Promissory Notes.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
We have
adopted various accounting policies that govern the application of accounting
principles generally accepted in the United States of America in the preparation
of our financial statements which requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes.
Although
these estimates are based on our knowledge of current events and actions we may
undertake in the future, they may ultimately differ from actual results. Certain
accounting policies involve significant judgments and assumptions by us, which
have a material impact on our financial condition and
results. Management believes its critical accounting policies reflect
its most significant estimates and assumptions used in the presentation of our
financial statements. Our critical accounting policies include debt
management and accounting for stock-based compensation. We do not
have off-balance sheet arrangements, financings, or other relationships with
unconsolidated entities or other persons, also known as "special purpose
entities".
I
te
m 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.
I
te
m 4.
CONTROLS AND
PROCEDURES
Disclosure Controls and
Procedures
There are
controls and procedures that are designed to ensure that information required to
be disclosed by Syntec Biofuel Inc. in the reports it files or submits under the
Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed,
summarized, and reported within the time periods specified by the Commission’s
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to provide reasonable assurance that
information required to be disclosed by Syntec Biofuel Inc. in the reports it
files or submits under the Exchange Act is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure.
Under the
supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, Syntec Biofuel, Inc. has
evaluated the effectiveness of its disclosure controls and procedures (as such
term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of
March 31, 2009, and, based upon this evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that these controls and procedures are
effective in providing reasonable assurance of compliance.
Inherent
limitations on effectiveness of controls
Internal
control over financial reporting has inherent limitations which include but is
not limited to the use of independent professionals for advice and guidance,
interpretation of existing and/or changing rules and principles, segregation of
management duties, scale of organization, and personnel factors. Internal
control over financial reporting is a process which involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Internal control over financial reporting also can be
circumvented by collusion or improper management override. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements on a timely basis, however these inherent limitations
are known features of the financial reporting process and it is possible to
design into the process safeguards to reduce, though not eliminate, this risk.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate
Changes in Internal Control
over Financial Reporting
During
the three months ended March 31, 2009, management took steps to improve the
internal controls over financial reporting by (1) utilizing existing office
staff in order to remedy the segregation of duties deficiencies, (2) writing
accounting and financial reporting procedures to comply with the requirements of
US GAAP and SEC disclosures, and (3) following the newly written accounting and
financial reporting procedures in (2) which tightens the control over the period
ends.
Management
and directors will continue to monitor
and evaluate the effectiveness of
our internal controls and procedures and our internal controls over
financial reporting on an ongoing basis and
are committed to
taking further action and implementing
additional enhancements or improvements, as necessary and as funds
allow.
P
AR
T II – OTHER INFORMATION
I
te
m 1. LEGAL PROCEEDINGS
None.
I
te
m 1A. RISK FACTORS
We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.
I
te
m 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None
I
te
m 3. DEFAULTS UPON SENIOR SECURITIES
None.
I
te
m 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
I
te
m 5. OTHER INFORMATION
None.
I
te
m 6. EXHIBITS
Exhibit
Number
|
Description
of Exhibit
|
3.1
|
Amended
and Restated Articles of Incorporation dated July 26, 2006
(1)
|
3.2
|
Amended
and Restated Bylaws dated July 12, 2006
(2)
|
4.1
|
Specimen
Stock Certificate for Shares of Common Stock of the Company
(3)
|
10.01
|
License
Agreement
(4)
|
10.02
|
Assignment
of License Agreement
(4)
|
10.03
|
Settlement
Agreement
(5)
|
10.04
|
Manufacturing
Agreement
(5)
|
10.05
|
Acquisition
Agreement of the URL
(6)
|
10.06
|
Asset
Purchase and Assignment Agreement
(7)
|
10.07
|
Amendment
to Asset Purchase and Assignment
(8)
|
10.08
|
Intellectual
Property And Asset Purchase Agreement dated September 28, 2007
(9)
|
|
Amendment
To Intellectual Property And Asset Purchase dated October 25, 2007
(10)
|
10.09
|
General
Security Agreement dated June 20, 2008
(11)
|
10.10
|
Amended
Service agreement dated May1, 2009
(12)
|
|
302
Certification for the Chief Executive Officer
|
|
302
Certification for the Chief Financial Officer
|
|
Certificate
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350
|
|
(1)
|
Filed
on March 18, 2009 as an exhibit to the Company’s report on Form 10-K and
incorporated herein by reference
|
|
(2)
|
Filed
on March 18, 2009 as an exhibit to the Company’s report on Form 10-K and
incorporated herein by reference
|
|
(3)
|
Filed
on October 6, 2000 as an exhibit to the Company’s report on Form SB-2 and
incorporated herein by reference
|
|
(4)
|
Filed
on October 10, 2000 as an exhibit to the Company’s report on Form SB-2/A
and incorporated herein by
reference
|
|
(5)
|
Filed
on January 29, 2001 as an exhibit to the Company’s report on Form SB-2/A
and incorporated herein by
reference
|
|
(6)
|
Filed
on January December 16, 2003 as an exhibit to the Company’s report on Form
SB-2/A and incorporated herein by
reference
|
|
(7)
|
Filed
on April 12, 2006 as an exhibit to the Company’s report on Form 8-K and
incorporated herein by reference
|
|
(8)
|
Filed
on July 17, 2006 as an exhibit to the Company’s report on Form 8-K and
incorporated herein by reference
|
|
(9)
|
Filed
on October 1, 2007 as an exhibit to the Company’s report on Form 8-K and
incorporated herein by reference
|
|
(10)
|
Filed
on October 25, 2007 as an exhibit to the Company’s report on Form 8-K/A
and incorporated herein by
reference
|
|
(11)
|
Filed
on June 26, 2008 as an exhibit to the Company’s report on Form 8-K and
incorporated herein by reference.
|
|
(12)
|
Filed
on May 5, 2009 as an exhibit to the Company’s report on Form 8-K and
incorporated herein by reference
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
SYNTEC
BIOFUEL INC.
(Registrant)
/s/
Michael Jackson
|
|
Date:
May 13, 2009
|
Michael
Jackson
Director,
CEO
|
|
|
|
|
|
|
|
|
/s/
Janet Cheng
|
|
Date:
May 13, 2009
|
Janet
Cheng
Director,
CFO
|
|
|
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