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:   June 30, 2009

¨
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
 
91-2031335
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)

Suite 206 - 388 Drake Street
Vancouver, British Columbia, Canada
 
V6B 6A8
(Address of principal executive offices)
 
(Zip Code)


Registrant’s telephone number
(including area code)
 
(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.
Yes   x   No   ¨

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.
 


 
Page 1

 

Large Accelerated Filer
¨
Accelerated Filer
¨
Non Accelerated Filer
¨ (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).

Yes   ¨   No   x

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   ¨   No   ¨   Not applicable
 
 
APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares of common stock outstanding as of August 1, 2009 was 33,204,079.

 
Page 2

 

SYNTEC BIOFUEL INC.
(A Development Stage Company)

FORM 10-Q




PART I – FINANCIAL INFORMATION

Ite m 1. FINANCIAL STATEMENTS


SYNTEC BIOFUEL INC.

 (A Development Stage Company)

INTERIM FINANCIAL STATEMENTS

June 30, 2009

Unaudited


SYNTEC BIOFUEL INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
Unaudited

 
ASSETS
 
June 30,
   
December 31,
 
   
2009
   
2008
 
             
Current Assets
           
Cash
  $ 7,983     $ 1,419  
Receivables
    19,078       23,283  
                 
      27,061       24,702  
                 
Equipment (Note 4)
    225,684       254,839  
                 
Intellectual property  (Note 3)
    5,100,000       5,100,000  
Intangible assets  (Note 3)
    20,000       20,000  
                 
    $ 5,372,745     $ 5,399,541  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
                 
Current Liabilities
               
Accounts payable and accrued liabilities
  $ 172,842     $ 193,324  
Current portion of obligation under capital lease (Note 4)
    18,524       16,411  
Due to related parties (Note 5)
    1,038,010       561,209  
Notes payable (Note 6)
    258,919       238,158  
                 
      1,488,295       1,009,102  
                 
Obligation under capital lease (Note 4)
    -       9,175  
                 
      1,488,295       1,018,277  
                 
Commitments and Contingencies (Notes 4, 5 and 6)
               
Subsequent Event (Note 9)
               
Preferred stock:
               
Authorized: 20,000,000 with a par value of $0.0001
               
Issued and outstanding: None
    -       -  
Common stock:
               
Authorized: 100,000,000 with a par value of $0.0001
               
Issued and outstanding: 33,194,079 (December 31, 2008: 33,194,079)
    3,319       3,319  
Additional paid-in capital
    6,344,261       6,328,543  
Accumulated other comprehensive income (loss)
    (53,300 )     104,342  
Deficit accumulated during the development stage
    (2,409,830 )     (2,054,940 )
                 
      3,884,450       4,381,264  
                 
    $ 5,372,745     $ 5,399,541  

SEE ACCOMPANYING NOTES


SYNTEC BIOFUEL INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited

               
March 15,
2000
(Date of
 
   
Three months ended
   
Six months ended
   
Inception) to
 
   
June 30 ,
   
June 30 ,
   
June 30 ,
 
   
2009
   
2008
   
2009
   
2008
   
2009
 
                               
                               
                               
Expenses
                             
Consulting fees
  $ -     $ 3,341     $ -     $ 35,290     $ 251,258  
Depreciation
    16,120       12,374       32,005       24,772       101,319  
Development fees (Note 3)
    54,199       99,217       159,658       237,664       594,609  
Filing fees
    1,941       5,643       3,050       7,792       45,328  
Financing charges
    38,550       58,490       45,550       61,196       141,185  
Foreign exchange (gain) loss
    (107,767 )     -       (71,118 )     -       (10,171 )
Interest expense
    22,244       7,154       37,758       15,382       117,827  
Management fees (Note 5)
    37,825       144,845       94,050       255,198       552,610  
Marketing
    19       7,441       610       11,989       53,724  
Office and miscellaneous
    1,426       73,564       4,170       116,459       70,114  
Professional fees
    28,108       54,451       36,628       66,364       325,658  
Rent (Note 5)
    5,132       -       9,953       -       38,049  
Rights and licenses costs
    -       -       -       -       25,015  
Travel
    80       -       2,576       -       107,215  
Write-down of website
    -       -       -       -       5,000  
                                         
Loss from operations
    (97,877 )     (466,520 )     (354,890 )     (832,106 )     (2,418,740 )
                                         
Other income
    -       135       -       5,949       8,910  
                                         
Net loss
  $ (97,877 )   $ (466,385 )   $ (354,890 )   $ (826,157 )   $ (2,409,830 )
                                         
Basic and diluted loss per share
  $ (0.01 )   $ (0.01 )   $ (0.01 )   $ (0.03 )        
Weighted average shares outstanding – basic and diluted
    33,194,079       32,112,381       33,194,079       33,042,505          
                                         
Comprehensive loss
                                       
Net loss
  $ (97,877 )   $ (466,385 )   $ (354,890 )   $ (826,157 )   $ (2,409,830 )
Foreign currency translation adjustment
    (164,619 )     (6,908 )     (157,642 )     (6,908 )     (53,300 )
                                         
Total comprehensive loss
  $ (275,976 )   $ (473,293 )   $ (512,532 )   $ (833,065 )   $ (2,463,130 )


SEE ACCOMPANYING NOTES


SYNTEC BIOFUEL INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited

               
March 15,
 
               
2000
 
   
Six months ended
   
(Inception) to
 
   
June 30 ,
   
June 30 ,
 
   
2009
   
2008
   
2009
 
Cash flows from operating activities
                 
Net loss
  $ (354,890 )   $ (826,157 )   $ (2,409,830 )
Non-cash items:
                       
Depreciation
    32,005       24,772       101,319  
Financing charges
    45,550       30,646       79,550  
Accrued interest and fees on notes payable
    138,303       15,382       36,585  
Interest on capital lease obligation
    1,548       -       3,185  
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
    4,205       (3,899 )     (19,078 )
Prepaids
    -       27,417       -  
Accounts payable and accrued liabilities
    (20,482 )     50,247       172,840  
Amounts due to related parties
    182,758       174       454,936  
                         
Net cash provided by (used in) operating activities
    28,997       (681,418 )     (1,542,167 )
                         
Cash flows from investing activities
                       
Investment in equipment
    -       (32,867 )     (33,667 )
Repayment of debt assumed
    -       -       (350,000 )
Rights and licenses
    -       -       (1 )
Website cost
    -       -       (5,000 )
                         
Net cash used in investing activities
    -       (32,867 )     (388,668 )
                         
Cash flows from financing activities
                       
Common stock issued for cash
    -       51,155       1,277,767  
Proceeds from notes payable
    -       54,000       204,106  
Payments under capital lease obligation
    (8,610 )     -       (40,147 )
Payments to related parties
    (24,819 )     -       (24,819 )
Proceeds from related parties
    168,638       299,580       575,211  
                         
Net cash provided by financing activities
    135,209       404,735       1,992,118  
                         
Effect of exchange rates on cash
    (157,642 )     (6,908 )     (53,300 )
                         
Net increase (decrease) in cash
    6,564       (316,458 )     7,983  
                         
Cash, beginning
    1,419       509,504       -  
                         
Cash, ending
  $ 7,983     $ 193,046     $ 7,983  
Supplemental cash flow information (Note 7)
                       

SEE ACCOMPANYING NOTES


SYNTEC BIOFUEL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 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
June 30, 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 June 30, 2009, the Company paid or accrued development fees to Syntec Biofuel Research for $ 159,658 (June 30, 2008 - $ 237,664 ). 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
June 30, 2009
Unaudited

Note 4
Equipment

   
Cost
   
Accumulated
Depreciation
   
June 30, 2009
Net Book Value
   
December 31, 2008
Net Book Value
 
Computer equipment
  $ 7,017     $ 3,287     $ 3,730     $ 4,439  
Office equipment
    15,435       5,368       10,067       11,597  
Laboratory equipment
    248,705       75,658       173,047       194,414  
Equipment under capital lease
    55,486       16,646       38,840       44,389  
                                 
    $ 326,643     $ 100,959     $ 225,684     $ 254,839  

The Company leases laboratory equipment under capital lease that expires in fiscal 2010. At June 30, 2009, the Company has recorded the obligation under capital lease of $18,524 (December 31, 2008 - $16,411) as the current portion and $nil (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
  $ 10,036  
2010
    10,036  
Total minimum lease payments
    20,072  
         
Amount representing interest
    (1,548 )
Total obligation under capital lease
  $ 18,524  


Note 5
Related Party Transactions

During the period ended June 30, 2009, the Company incurred management fees of $ 94,050 (June 30, 2008 - $ 255,198 ) which were charged by a company controlled by a director and officer of the Company .

During the period ended June 30, 2009, the Company incurred rental expense of $9,953 (June 30, 2008 - $nil) which was charged by company controlled by a director and officer of the Company.

As at June 30, 2009, an amount of $148,305 (December 31, 2008 – $79,118) is owing to directors and officers of the Company and companies controlled by a director. 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
June 30, 2009
Unaudited

Note 5
Related Party Transactions (cont’d)

On June 20, 2008, the Company received $257,954, (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 finance fees of $24,630 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 October 31, 2009. If the entire outstanding balance is repaid before October 31, 2009, the penalty charge will be reduced to 5%.  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 June 30, 2009 is accrued interest of $26,502 (December 31, 2008 - $13,158).

The Company had received loans from TargetBar Marketing Inc. (“TargetBar”), a company controlled by a director and officer of the Company, in the amount of $167,666 (CDN $195,000) as follows:

 
o
$85,985 received on March 13, 2009 and due on August 31, 2009,
 
o
$42,990  received on April 14, 2009 and due on October 31, 2009,
 
o
$21,495 received on June 19, 2009 and due on December 19, 2009,
 
o
$17,196 received on June 30, 2009 and due on December 30, 2009.

These loans are unsecured and bear interests ranging from 8% to 10% per annum. Included in the due to related parties balance at June 30, 2009 is accrued interest of $3,026 (December 31, 2008 - $NIL). TargetBar has the option to convert the $85,985 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 six months ended June 30, 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) as follows:

 
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.


SYNTEC BIOFUEL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
Unaudited

Note 5
Related Party Transactions (cont’d)

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 October 31, 2009, with extension fees of 10% of the capital debt. If the entire outstanding balance is repaid by October 31, 2009, the penalty charge will be reduced to 5%.  Included in the due to related parties balance at June 30, 2009 is accrued interest and extension fees of $108,775 (December 31, 2008 - $60,322) relating to loans owing to Iris.


Note 6
Notes payable

 
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 June 30, 2009 is accrued interest and loan fees of $9,808 (December 31, 2008 - $7,166).

 
b)
As of June 30, 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 (subsequently extended to December 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.


SYNTEC BIOFUEL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
Unaudited

Note 6
Notes payable   (cont’d)

 
b)
(cont’d)
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 June 30, 2009 is accrued interest and loan fees of $58,679 (December 31, 2008 - $42,658).


SYNTEC BIOFUEL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
Unaudited

Note 7
Supplemental cash flow information

         
March 15,
2000
(Date of
 
   
Six months ended
   
Inception)
 
   
June 30,
   
June 30,
 
   
2009
   
2008
   
2009
 
                   
Cash paid for:
                 
Income taxes
  $ -     $ -     $ -  
                         
Interest
  $ -     $ -     $ 131  
                         
Non-cash investing activities:
                       
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 )

Note 8
Comparative figures

Certain of the comparative figures have been reclassified to conform to the presentation adopted in the current period.

Note 9
Subsequent Event

The $74,000 loans from Hokley have been extended to December 30, 2009 in exchange for a penalty charge of 10% of the capital debt. (Note 5)


Ite 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 EERC (a highly respected non profit technology center- part of the University of North Dakota) to take over the final stage of catalyst testing at their laboratories in Grand Forks North Dakota prior to deployment. Syntec has been using the services of Syntec Biofuel Research Inc. to perform R & D at their laboratory in Burnaby and will cancel this contract as soon as an agreement is in place with EERC who have more sophisticated equipment available for testing the reaction of contaminants with Syntecs catalysts.

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 for a proposed joint venture initiative. Development costs will be raised by this group.


Syntec is part of a consortium which has applied to the DOE for funding a 1 tpd Pilot Plant to be built in Kansas. We expect to hear results of this application by the end of November, 2009.

The Biofuel market has been battered by the financial melt down and low ethanol and methanol pricing tied to the price of oil. We expect these prices 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 $5 a gallon and raise the average price of our combined mix of alcohols above the price of ethanol. This mitigates the risk of developing a process to produce a diverse 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 Pilot plant. Even after the completion of a Pilot 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 June 30, 2009, we had a working capital deficit of $1,461,234. 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.

SIX MONTHS ENDING JUNE 30, 2009

The Company had no revenue for the six months ended June 30, 2009 and 2008. The total expenses decreased from $832,106 in 2008 as compared to $354,890 in 2009. In 2009, the Company incurred consultant and management fees of $94,050 as compared to $290,488 in 2008 as no consultants were hired. The development fees decreased from $237,664 in 2008 to $159,658 in 2009 because of lower research and development expenses. The decrease of office and miscellaneous expenses from $116,459 in 2008 to $4,170 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 $0.03 for 2008.


FINANCIAL CONDITION AND LIQUIDITY

Our cash position was $7,983 at June 30, 2009 and was $1,419 at December 31, 2008.

Our working capital deficit at June 30, 2009 was $1,461,234 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".
 
Item 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.
 
Item 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 June 30, 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 six months ended June 30, 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.

PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None.

Item 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.
 
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 24, 2009, 10,000 shares of common stock were issued to Thomas Fouilland as compensation for consulting services.  Mr. Fouilland provided process engineering services to enable EERC to validate and assess the technology.

I tem 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.


Item 5. OTHER INFOR MATION

None.

Item 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
Michael Jackson
Director, CEO
 
Date: August 14, 2009
 
     
/s/ Janet Cheng
 
Date: August 14, 2009
Janet Cheng
Director, CFO
   
 
 
- 20 -

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