UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

S
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
EXCHANGE ACT OF 1934

For the quarterly period ended:   September 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      S                      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.

Large Accelerated Filer
£
 
Accelerated Filer
£
Non Accelerated Filer
£ (Do not check if smaller reporting company)
 
Smaller Reporting Company
S

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      £                      No      S

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 November 1, 2009 was 35,237,412.
 
 
Page 1
 
 
SYNTEC BIOFUEL INC.
(A Development Stage Company)

FORM 10-Q


 
PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

 
SYNTEC BIOFUEL INC.
 
 (A Development Stage Company)
 
INTERIM FINANCIAL STATEMENTS
 
September 30, 2009

Unaudited
 

SYNTEC BIOFUEL INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
Unaudited
 
ASSETS
 
September 30,
   
December 31,
 
   
2009
   
2008
 
             
Current Assets
           
Cash
  $ 127,365     $ 1,419  
Receivables
    28,038       23,283  
                 
      155,403       24,702  
                 
Equipment (Note 4)
    205,102       254,839  
Intellectual property  (Note 3)
    5,100,000       5,100,000  
Intangible assets  (Note 3)
    20,000       20,000  
                 
    $ 5,480,505     $ 5,399,541  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY      
                 
Current Liabilities
               
Accounts payable and accrued liabilities
  $ 191,877     $ 193,324  
Current portion of obligation under capital lease (Note 4)
    15,371       16,411  
Due to related parties (Note 5)
    1,189,792       561,209  
Notes payable (Note 6)
    335,111       238,158  
                 
      1,732,151       1,009,102  
                 
Obligation under capital lease (Note 4)
    -       9,175  
                 
      1,732,151       1,018,277  
                 
Commitments and Contingencies (Notes 4, 5 and 6)
               
Subsequent Events (Note 8)
               
                 
Preferred stock:
               
Authorized: 20,000,000 with a par value of $0.0001Issued and outstanding: None
    -       -  
Common stock (Note 7):
               
Authorized: 100,000,000 with a par value of $0.0001 Issued and outstanding: 33,204,079 (December 31, 2008: 33,194,079)
    3,320       3,319  
Additional paid-in capital
    6,346,360       6,328,543  
Share subscriptions (Note 8)
    145,000       -  
Accumulated other comprehensive income (loss)
    (11,873 )     104,342  
Deficit accumulated during the development stage
    (2,734,453 )     (2,054,940 )
                 
      3,748,354       4,381,264  
                 
    $ 5,480,505     $ 5,399,541  

SEE ACCOMPANYING NOTES


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

   
Three months ended
   
Nine months ended
   
March 15, 2000
(Date of Inception) to
 
   
September 30 ,
   
September 30 ,
   
September 30 ,
 
   
2009
   
2008
   
2009
   
2008
   
2009
 
                               
                               
Expenses
                             
Consulting fees (Note 7)
  $ 2,100     $ 8,926     $ 2,100     $ 44,216     $ 253,358  
Depreciation
    6,758       15,715       38,763       40,487       108,077  
Development fees (Note 3)
    27,019       117,083       186,677       354,747       621,628  
Filing fees
    3,051       1,413       6,101       9,205       48,379  
Financing charges
    49,871       6,160       95,421       67,356       191,056  
Foreign exchange loss
    111,025       -       39,907       -       100,854  
Interest expense (Note 6)
    37,851       23,527       75,609       38,909       155,678  
Management fees (Note 5)
    62,616       44,081       171,811       299,279       630,371  
Marketing
    676       804       1,286       12,793       54,400  
Office and miscellaneous
    1,069       31,923       5,239       148,382       71,183  
Professional fees
    2,098       75,863       23,581       142,227       312,611  
Rent (Note 5)
    5,433       -       15,386       -       43,482  
Rights and licenses costs
    -       -       -       -       25,015  
Travel
    6,759       -       9,335       -       113,974  
Write-down of website
    -       -       -       -       5,000  
                                         
Loss from operations
    (316,326 )     (325,495 )     (671,216 )     (1,157,601 )     (2,735,066 )
Loss on sale of equipment (Note 4)
    (8,297 )     -       (8,297 )     -       (8,297 )
Other income
    -       -       -       5,949       8,910  
                                         
Net loss
  $ (324,623 )   $ (325,495 )   $ (679,513 )   $ (1,151,652 )   $ (2,734,453 )
                                         
Basic and diluted loss per share
  $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.03 )        
Weighted average shares outstanding – basic and diluted
    33,201,253       32,112,381       33,196,497       33,019,043          
                                         
Comprehensive loss
                                       
Net loss
  $ (324,623 )   $ (325,495 )   $ (679,513 )   $ (1,151,652 )   $ (2,734,453 )
Foreign currency translation adjustment
    41,427       29,261       (116,215 )     (29,261 )     (11,873 )
                                         
Total comprehensive loss
  $ (283,196 )   $ (296,234 )   $ (795,728 )   $ (1,122,391 )   $ (2,746,326 )

SEE ACCOMPANYING NOTES


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

               
March 15, 2000
 
   
Nine months ended
   
(Date of Inception) to
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
 
Cash flows from operating activities
                 
Net loss
  $ (679,513 )   $ (1,151,652 )   $ (2,734,453 )
Non-cash items:
                       
Depreciation
    38,763       40,487       108,077  
Financing charges
    28,818       5,146       62,818  
Accrued interest on notes payable
    12,095       61,751       27,919  
Interest on capital lease obligation
    645       -       2,282  
Legal and organizational expenses
    -       -       8,000  
Rights and licenses costs
    -       -       24,751  
Share subscriptions receivable
    -       -       575  
Stock-based expense - consulting
    2,100       -       2,100  
Write-down of website
    -       -       5,000  
Loss on sale  of equipment
    8,297       -       8,297  
Changes in operating assets and liabilities:
                       
Receivables
    (4,755 )     (8,029 )     (28,039 )
Prepaids
    -       31,092       -  
Accounts payable and accrued liabilities
    (1,447 )     80,003       191,875  
Amounts due to related parties
    238,858       59,810       393,495  
                         
Net cash used in operating activities
    (356,139 )     (881,392 )     (1,927,303 )
                         
Cash flows from investing activities
                       
Investment in equipment
    -       (61,069 )     (33,667 )
Proceeds from sale of equipment
    2,677       -       2,677  
Repayment of debt assumed
    -       -       (350,000 )
Rights and licenses
    -       -       (1 )
Website cost
    -       -       (5,000 )
                         
Net cash provided by (used in) investing activities
    2,677       (61,069 )     (385,991 )
                         
Cash flows from financing activities
                       
Common stock issued for cash
    -       51,155       1,277,767  
Share subscriptions
    145,000       -       145,000  
Proceeds from notes payable
    56,040       50,744       260,146  
Payments under capital lease obligation
    (10,860 )     -       (42,397 )
Payments to related parties
    (20,585 )     -       (20,585 )
Proceeds from related parties
    426,028       303,053       832,601  
                         
Net cash provided by financing activities
    595,623       404,952       2,452,532  
                         
Effect of exchange rates on cash
    (116,215 )     29,261       (11,873 )
                         
Change in cash
    125,946       (508,248 )     127,365  
                         
Cash, beginning
    1,419       509,504       -  
                         
Cash, ending
  $ 127,365     $ 1,256     $ 127,365  

SEE ACCOMPANYING NOTES


Note 1
Nature of Business and Basis of Presentation
 
Syntec Biofuel Inc. (the “Company”) was incorporated in the State of Washington on March 15, 2000. The Company is a development stage company.
 
In the opinion of management, the accompanying balance sheets and related interim statements of operations, cash flows, and stockholders’ equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. . Actual results and outcomes may differ from management’s estimates and assumptions.
 
Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s Form 10-K for the year ended  December 31, 2008 filed with the U.S. Securities and Exchange Commission.

Going concern

These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. The continuation of the Company as a going concern and the ability of the Company to emerge from the development stage are dependent upon its successful efforts to raise additional equity financing to continue operations and generate sustainable significant revenue. There is no guarantee that the Company will be able to raise adequate equity financings or generate profitable operations. As at September 30, 2009, the Company has incurred losses of $2,734,453 since inception and had a working capital deficiency of $1,576,748. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

Management of the Company has undertaken steps as part of a plan with the goal of sustaining Company operations for the next twelve months and beyond. These steps include: (a) continuing efforts to raise additional capital and/or other forms of financing; and (b) continued development of its catalyst technology for production. There can be no assurance that any of these efforts will be successful.

 
Note 2
Recently Adopted Accounting Guidance

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Statement of Financial Accounting Standards (“SFAS”) 157-4 (“FSP SFAS 157-4”) which provides additional guidance for estimating fair value in accordance with SFAS 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased.  FSP SFAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP SFAS 157-4 requires the disclosure of the inputs and valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, during the period.  The adoption of this statement did not have a material impact on the Company’s results of operations and financial position.

In June 2009, the FASB issued Financial Accounting Standard (“FAS”) No. 165 “Subsequent Events” (“FAS 165”).  FAS 165 requires companies to recognize in the financial statements the effects of subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.  An entity shall disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued.  Companies are not permitted to recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are issued.  Some non recognized subsequent events must be disclosed to keep the financial statements from being misleading.  For such events a company must disclose the nature of the event, an estimate of its financial effect, or a statement that such an estimate cannot be made.  This Statement applies prospectively for interim or annual financial periods ending after June 15, 2009.  The adoption of FAS 165 did not have a material impact on the Company’s results of operations and financial position.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” – a replacement of FASB Statement No. 162 (“SFAS 168”).  Upon its adoption, the FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative GAAP recognized by the FASB to be applied to nongovernment entities.  On the effective date of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards.  Following SFAS 168, the FASB will not issue new accounting standards in the form of FASB Statements, FASB Staff Positions, or Emerging Issues Task Force abstracts.  SFAS 168 will also modify the existing hierarchy of GAAP to include only two levels – authoritative and non-authoritative.  SFAS 168 will be effective for financial statements issued for interim and annual periods ending after September 15, 2009, and early adoption is not permitted.  The Company does not believe that the adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

Certain other recent accounting pronouncements have not been disclosed as they are not applicable to the Company.


Note 3
Acquisition of Assets

On September 28, 2007, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Montilla Capital Inc. (“Montilla”), whereby the Company acquired 100% ownership interest in certain intellectual property. The intellectual property relates to the development of a method of producing catalysts and processes that convert biomass waste material into ethanol.

 
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  

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 September 30, 2009, the Company paid or accrued development fees to Syntec Biofuel Research for $ 186,677 (September 30, 2008 - $ 354,747 ). The balance has been allocated to the statements of operations under development fees.
 

Note 4
Equipment

   
Cost
   
Accumulated
Depreciation
   
September 30, 2009
Net Book Value
   
December 31, 2008
Net Book Value
 
Computer equipment
  $ -     $ -     $ -     $ 4,439  
Office equipment
    -       -       -       11,597  
Laboratory equipment
    250,455       81,421       169,034       194,414  
Equipment under capital lease
    55,486       19,418       36,068       44,389  
                                 
    $ 305,941     $ 100,839     $ 205,102     $ 254,839  

During the nine months ended September 30, 2009, the Company sold a portion of its computer and office equipment with a net book value of $10,974 (December 31, 2008 - $16,036) and wrote-off the remaining balance after determining that the assets were no longer in feasible use. Accordingly, a loss on equipment of $8,297 (December 31, 2008 - $Nil) has been recorded at September 30, 2009. The Company leases laboratory equipment under a capital lease that expires June 17, 2010. At September 30, 2009, the Company has recorded the obligation under capital lease of $15,371 (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
  $ 5,451  
2010
    10,902  
Total minimum lease payments
    16,353  
         
Amount representing interest
    (982 )
Total obligation under capital lease
  $ 15,371  


Note 5
Related Party Transactions

During the period ended September 30, 2009, the Company incurred management fees of $ 171,811 (September 30, 2008 - $ 299,279 ) 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 September 30, 2009, the Company incurred rental expense of $15,386 (September 30, 2008 - $nil) which was charged by a company controlled by a director and officer of the Company.

 
As at September 30, 2009, an amount of $146,690 (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.

As of September 30, 2009, the Company has the following outstanding loans:

 
a)
On June 20, 2008, the Company received $280,200 (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 October 31, 2009. 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. As of September 30, 2009, CAJ is eligible to receive one such license, as per a prior extension agreement. Included in the amount due to related parties at September 30, 2009 is accrued interest and finance fees of $61,584 (December 31, 2008 - $13,158). Subsequent to September 30, 2009, the loan was extended (Note 8).

 
b)
On September 24, 2009, the Company received $15,878 (CDN $17,000) from 0752147 BC Ltd., a company controlled by the director and officer of the Company. The loan is unsecured and non-interest bearing with a finance fee of $467. The principal and finance fee was repaid in full by the Company subsequent to September 30, 2009.

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 $210,150 (CDN $225,000) comprised of:
 
 
o
$93,400 received on March 13, 2009 and due on June 30, 2010,
 
o
$46,700  received on April 14, 2009 and due on October 31, 2009,
 
o
$23,350 received on June 19, 2009 and due on December 19, 2009,
 
o
$18,680 received on June 30, 2009 and due on December 30, 2009.
 
o
$28,020 received on July 3, 2009 and due on January 3, 2010.

These loans are unsecured and bear interests ranging from 8% to 10% per annum. Included in the amount due to related parties at September 30, 2009 is accrued interest and finance fees of $17,724. TargetBar has the option to convert the $93,400 note payable, at any time during the term of the promissory note, into common shares of the Company at $0.25 per share. 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 has been expensed over the initial 6 month term of the promissory note. During the nine months ended September 30, 2009, the Company recorded accretion of $15,718 (September 30, 2008 - $Nil) against the discount of the promissory note. Subsequent to September 30, 2009, the loan was extended (Note 8).
 
 
 
c)
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:

 
i.
On July 26, 2006, the Company received $56,500 and due on October 31, 2009;
 
ii.
On September 28, 2006, the Company received $85,000 and due on October 31, 2009;
 
iii.
On January 7, 2009, the Company received $100,000 and due on December 15, 2009;
 
iv.
On January 20, 2009, the Company received $100,000 and due on December 15, 2009.

These loans are unsecured and bear interests ranging from 5% to 10% per annum. In the event that the Company fails to pay the total capital and interest for amounts due on the extension date of December 15, 2009, Iris will receive, as penalty, one fully paid, worldwide, non exclusive master license for use of the Company’s intellectual property, for which Iris will pay to the Company a royalty fee of 1.5% of sales. Included in the amount due to related parties at September 30, 2009 is accrued interest and extension fees of $115,599 (December 31, 2008 - $60,322) relating to loans owing to Iris. Subsequent to September 30, 2009, the loan was extended (Note 8).


Note 6             Notes Payable

 
a)
As of September 30, 2009, the Company had received loans totaling $106,476 (CDN $114,000) (December 31, 2008 - $44,334) from Montilla. The loans are unsecured and bear interest at 10% per annum.

The dates on which the loans were received and due dates are as follows:

 
i.
On May 21, 2008, the Company received $50,436 and due on June 30, 2010;
 
ii.
On July 29, 2009, the Company received $56,040 and due on October 31, 2009.

As of September 30, 2009, Montilla is eligible to receive 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 September 30, 2009 is accrued interest and loan fees of $16,606 (December 31, 2008 - $7,166). Subsequent to September 30, 2009, the loan was extended (Note 8).

 
b)
As of September 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 December 30, 2009. These loans are unsecured and bear interests ranging from 5% to 10% per annum. The dates on which the loans were received 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 June 30, 2010. 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; and
 
ii.
On September 26, 2007, the Company received $30,000.

These loans are unsecured and bear interests ranging from 5% to 10% per annum. As of September 30, 2009, Hokley is eligible to 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 September 30, 2009 is accrued interest and loan fees of $68,029 (December 31, 2008 - $42,658). Subsequent to September 30, 2009, the loan was extended (Note 8).

 
Note 7
Capital Stock

On July 27, 2009, the Company issued 10,000 shares of common stock in exchange for consulting services performed on behalf of the Company. The Company recorded the fair value of the shares issued at $0.21 per share as consulting expense.


Note 8
Subsequent Events

On October 1, 2009, amended October 9, 2009, the Company entered into a Collaborative Research Agreement with The University of British Columbia who will perform research and testing on behalf of the Company in order to facilitate licensing of the catalyst technology. The length of this project is estimated to be two years and the cost of the research will be approximately $71,685 (CDN $76,750).

On October 1, 2009, the Company completed a private placement for 1,933,333 shares at a subscription price of $0.075 per share for gross proceeds of $145,000. The amount has been received by the Company and has been included in share subscriptions at September 30, 2009.

On October 1, 2009, the Company entered into a consulting services agreement for a term of 6 months, under which the consultant with provide financial public relations and media relations services for the Company. The terms of the agreement call for the Company to pay $8,000 per month and provide the consultant with 100,000 restricted shares. The shares have been issued subsequent to September 30, 2009.

Subsequent to September 30, 2009, the $280,200 loan received from CAJ has been extended to June 30, 2010 in exchange for a penalty charge of 10% of the capital debt (Note 5).

Subsequent to September 30, 2009, the $46,700 loan received from Targetbar has been extended to June 30, 2010 in exchange for a penalty charge of 10% of the capital debt (Note 5).

Subsequent to September 30, 2009, the $141,500 loan received from Iris has been extended to June 30, 2010 in exchange for a penalty charge of 10% of the capital debt (Note 5).

Subsequent to September 30, 2009, the $56,040 loan received from Montilla has been extended to June 30, 2010 in exchange for a penalty charge of 10% of the capital debt (Note 6).
 
Management has evaluated events occurring between the end of the fiscal quarter, September 30, 2009 and November 16, 2009 when the financial statements were issued.

 
Item 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’s plan is to initially set up the pilot plant to validate production of bio-methanol from biomass derived syngas and to test Syntec’s catalysts using the same syngas. Syntec is also in discussion with a few groups who either have developed gasifiers or are looking to validate their technology, or have biomass available with access to funding. Such a Pilot plant is expected to cost approximately $3 million to $5 million.

On a more pragmatic level, Syntec is planning to test their catalysts using natural gas which is currently used for heat and electricity as well as for production of methanol. Syntec will market their catalyst technology to companies producing methanol such as Methanex, Mitsui, B.P. Mitsubishi, Sabic and others who could increase revenue by producing a mixed alcohol that has a far greater value than methanol.

Syntec is continuously working on improving their catalysts to maximize yield and productivity. Subsequent to September 30, 2009, we have entered into a Collaborative Research Agreement with the University of British Columbia (UBC) who will perform the final stage of testing the effect of contaminants on Syntec’s catalysts and enhancement of efficiencies prior to scale up to Pilot Plant.  Syntec donated laboratory equipment to UBC in lieu of part of the fees.

 
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 2022.

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 $7 a gallon and raise the average price of our combined mix of alcohols well above the price of ethanol. This mitigates the risk of developing a process to produce diverse alcohols and is a hedge against betting on a single biofuel. There is the added tax credit incentive of $1.01 a gallon in the USA which will be shared with the refinery blenders and makes the production of ethanol and methanol an economically viable process.

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 September 30, 2009, we had a working capital deficit of $1,576,748. We are in 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.

NINE MONTHS ENDING SEPTEMBER 30, 2009

The Company had no revenue for the nine months ended September 30, 2009 and 2008. The total expenses decreased from $1,157,601 in 2008 as compared to $671,216 in 2009. In 2009, the Company incurred consultant and management fees of $299,279 as compared to $171,811 in 2008 as no consultants were hired. The development fees decreased from $354,747 in 2008 to $186,677 in 2009 because of lower research and development expenses. The decrease of office and miscellaneous expenses from $148,382 in 2008 to $5,239 in 2009 is mainly due to reduced traveling, conferences and trade show expenses and regulatory filings. Our net loss per share is at $0.02 for 2009 and $0.03 for 2008.

 
FINANCIAL CONDITION AND LIQUIDITY

Our cash position was $127,365 at September 30, 2009 and was $1,419 at December 31, 2008.

Our working capital deficit at September 30, 2009 was $1,576,748 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 September 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 nine months ended September 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.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.


Item 5. OTHER INFORMATION

Shareholder Proposals

The rules of the Securities and Exchange Commission permit stockholders of the Company, after notice to the Company, to present proposals for stockholder action in the Company's proxy statement where such proposals are consistent with applicable law, pertain to matters appropriate for stockholder action, and are not properly omitted by Company action in accordance with the proxy rules published by the Securities and Exchange Commission.

Shareholders may present proper proposals for inclusion in the Company's proxy or information statement and for consideration at the next meeting of its' shareholders by submitting their proposals to the Company in a timely manner. In order to be so considered for inclusion for the next Special or Annual Meeting, shareholder proposals must be received by the Company no later than December 10, 2009.  Shareholder proposals can be mailed to:

Syntec Biofuel Inc.
206-388 Drake Street
Vancouver, BC
V6B 6A8

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: November 14, 2009
 
     
/s/ Janet Cheng
 
Date: November 14, 2009
Janet Cheng
Director, CFO
   
 
 
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