UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended:
March 31, 2010
[ ] 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)
|
|
(604) 648-2090
|
|
Registrant’s telephone number
(including area code)
|
_________________________________________
(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.
|
Large accelerated filer [ ]
|
Accelerated filer [ ]
|
|
Non-accelerated filer [ ] (Do not check if a 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 May 3, 2010 was 35,837,412.
SYNTEC BIOFUEL INC.
(A Development
Stage Company)
FORM
10-Q
3
PART I – FINANCIAL
INFORMATION
Item
1. FINANCIAL STATEMENTS
SYNTEC BIOFUEL INC
.
(A Development Stage Company)
INTERIM FINANCIAL STATEMENTS
March 31, 2010
Unaudited
4
SYNTEC BIOFUEL INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
Unaudited
|
ASSETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
Cash
|
$
|
6,852
|
|
$
|
10,228
|
|
|
Amounts receivable
|
|
15,071
|
|
|
23,328
|
|
|
|
|
21,923
|
|
|
33,556
|
|
|
|
|
|
|
|
|
|
|
Equipment (Note 4)
|
|
148,451
|
|
|
169,658
|
|
|
|
|
|
|
|
|
|
|
Intellectual property (Note 3)
|
|
5,100,000
|
|
|
5,100,000
|
|
|
Intangible assets (Note 3)
|
|
20,000
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,290,374
|
|
$
|
5,323,214
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
190,101
|
|
$
|
198,717
|
|
|
Current
portion of obligation under capital lease (Note 4)
|
|
5,604
|
|
|
10,634
|
|
|
Due
to related parties (Note 5)
|
|
1,217,088
|
|
|
1,107,077
|
|
|
Notes payable (Note 6)
|
|
423,059
|
|
|
411,603
|
|
|
|
|
|
|
|
|
|
|
|
|
1,835,852
|
|
|
1,728,031
|
|
|
|
|
|
|
|
|
|
|
Commitments and
Contingencies (Notes 4, 5 and 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock:
|
|
|
|
|
|
|
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Authorized: 20,000,000
with a par value of $0.0001
|
|
|
|
|
|
|
|
Issued and outstanding:
None
|
|
-
|
|
|
-
|
|
|
Common stock (Note 7):
|
|
|
|
|
|
|
|
Authorized: 100,000,000
with a par value of $0.0001
|
|
|
|
|
|
|
|
Issued and outstanding:
35,837,412 (December 31, 2009: 35,237,412)
|
|
3,583
|
|
|
3,523
|
|
|
Additional paid-in capital
|
|
6,651,217
|
|
|
6,501,277
|
|
|
Deferred compensation (Note
7)
|
|
(67,416)
|
|
|
-
|
|
|
Accumulated other
comprehensive loss
|
|
(49,494)
|
|
|
(15,165)
|
|
|
Deficit accumulated during
the development stage
|
|
(3,083,368)
|
|
|
(2,894,452)
|
|
|
|
|
|
|
|
|
|
|
|
|
3,454,522
|
|
|
3,595,183
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,290,374
|
|
$
|
5,323,214
|
|
SEE ACCOMPANYING NOTES
5
SYNTEC BIOFUEL INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
|
|
|
|
|
|
|
|
|
March 15,
|
|
|
|
|
|
|
|
|
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
Three months ended
|
|
|
Inception) to
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Consulting
fees
|
$
|
87,584
|
|
$
|
-
|
|
$
|
372,442
|
|
|
Depreciation
|
|
21,207
|
|
|
15,885
|
|
|
152,554
|
|
|
Development fees (Note
3)
|
|
-
|
|
|
105,459
|
|
|
518,538
|
|
|
Filing fees
|
|
1,248
|
|
|
1,109
|
|
|
51,919
|
|
|
Financing charges
|
|
-
|
|
|
7,000
|
|
|
284,719
|
|
|
Foreign exchange (gain)
loss
|
|
(9,893)
|
|
|
36,649
|
|
|
77,166
|
|
|
Interest expense
|
|
23,333
|
|
|
15,514
|
|
|
192,694
|
|
|
Management fees (Note 5)
|
|
49,813
|
|
|
56,225
|
|
|
725,538
|
|
|
Marketing
|
|
-
|
|
|
591
|
|
|
55,881
|
|
|
Office and miscellaneous
|
|
649
|
|
|
2,744
|
|
|
76,771
|
|
|
Professional fees
|
|
8,897
|
|
|
8,520
|
|
|
354,639
|
|
|
Rent (Note 5)
|
|
5,769
|
|
|
4,821
|
|
|
54,882
|
|
|
Rights and licenses
costs
|
|
-
|
|
|
-
|
|
|
25,015
|
|
|
Travel
|
|
309
|
|
|
2,496
|
|
|
124,008
|
|
|
Write-down of website
|
|
-
|
|
|
-
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(188,916)
|
|
|
(257,013)
|
|
|
(3,071,766)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of equipment
|
|
-
|
|
|
-
|
|
|
(14,237)
|
|
|
Loss on sale of equipment
|
|
-
|
|
|
-
|
|
|
(6,275)
|
|
|
Other income
|
|
-
|
|
|
-
|
|
|
8,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(188,916)
|
|
$
|
(257,013)
|
|
$
|
(3,083,368)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per
share
|
$
|
(0.01)
|
|
$
|
$ (0.01)
|
|
|
|
|
|
Weighted average shares
outstanding – basic and diluted
|
|
35,457,412
|
|
|
33,194,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(188,916)
|
|
$
|
(257,013)
|
|
$
|
(3,083,368)
|
|
|
Foreign currency
translation adjustment
|
|
(34,329)
|
|
|
6,977
|
|
|
(49,494)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
$
|
(223,245)
|
|
$
|
(250,036)
|
|
$
|
(3,132,862)
|
|
SEE ACCOMPANYING NOTES
6
SYNTEC BIOFUEL INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
|
|
|
|
|
|
|
|
|
March 15,
|
|
|
|
|
|
|
|
|
|
|
2000
|
|
|
|
|
Three months ended
|
|
|
(Date of Inception) to
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(188,916)
|
|
$
|
(257,013)
|
|
$
|
(3,083,368)
|
|
|
Non-cash
items:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
21,207
|
|
|
15,885
|
|
|
152,554
|
|
|
Financing
charges
|
|
-
|
|
|
7,000
|
|
|
169,492
|
|
|
Accrued
interest on notes payable
|
|
23,333
|
|
|
1,584
|
|
|
100,816
|
|
|
Foreign
exchange on notes payable
|
|
-
|
|
|
-
|
|
|
33,981
|
|
|
Interest
on capital lease obligation
|
|
340
|
|
|
897
|
|
|
4,917
|
|
|
Shares
issued for consulting
|
|
82,584
|
|
|
-
|
|
|
92,184
|
|
|
Legal
and organizational expenses
|
|
-
|
|
|
-
|
|
|
8,000
|
|
|
Rights
and licenses costs
|
|
-
|
|
|
-
|
|
|
24,751
|
|
|
Share
subscriptions receivable
|
|
-
|
|
|
-
|
|
|
575
|
|
|
Write-down
of website
|
|
-
|
|
|
-
|
|
|
5,000
|
|
|
Write-off
and loss on sale of equipment
|
|
-
|
|
|
-
|
|
|
20,512
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
8,257
|
|
|
7,368
|
|
|
(15,071)
|
|
|
Accounts
payable and accrued liabilities
|
|
(8,616)
|
|
|
(29,793)
|
|
|
190,099
|
|
|
Amounts
due to related parties
|
|
98,134
|
|
|
(6,051)
|
|
|
349,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) operating activities
|
|
36,323
|
|
|
(260,123)
|
|
|
(1,946,406)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
Investment
in equipment
|
|
-
|
|
|
-
|
|
|
(33,667)
|
|
|
Proceeds
on sale of equipment
|
|
-
|
|
|
-
|
|
|
2,636
|
|
|
Repayment
of debt assumed
|
|
-
|
|
|
-
|
|
|
(350,000)
|
|
|
Rights
and licenses
|
|
-
|
|
|
-
|
|
|
(1)
|
|
|
Website
cost
|
|
-
|
|
|
-
|
|
|
(5,000)
|
|
|
Net cash used in investing
activities
|
|
-
|
|
|
-
|
|
|
(386,032)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash
|
|
-
|
|
|
|
|
|
1,422,767
|
|
|
Proceeds
from notes payable
|
|
-
|
|
|
-
|
|
|
326,102
|
|
|
Payments
under capital lease obligation
|
|
(5,370)
|
|
|
(3,295)
|
|
|
(54,799)
|
|
|
Payments
to related parties
|
|
-
|
|
|
(20,811)
|
|
|
-
|
|
|
Proceeds
from related parties
|
|
-
|
|
|
279,280
|
|
|
694,714
|
|
|
Net cash provided by (used
in) financing activities
|
|
(5,370)
|
|
|
255,174
|
|
|
2,388,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on
cash
|
|
(34,329)
|
|
|
6,977
|
|
|
(49,494)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash
|
|
(3,376)
|
|
|
2,028
|
|
|
6,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning
|
|
10,228
|
|
|
1,419
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, ending
|
$
|
6,852
|
|
$
|
3,447
|
|
$
|
6,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Interest
|
$
|
-
|
|
$
|
-
|
|
$
|
40,540
|
|
SEE ACCOMPANYING
NOTES
7
SYNTEC BIOFUEL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
Unaudited
|
Note 1
|
Nature and Continuance
of Operations
|
|
|
|
|
|
Syntec Biofuel Inc. (the “Company”) was incorporated
in the State of Washington on March 15, 2000 and is a development stage
company. The Company is a renewable energy company focusing on the development
and commercialization of second generation biofuel technology and processes to
convert waste cellulosic biomass into ethanol and other alcohols.
The accompanying consolidated financial statements
have been prepared on the basis of a going concern, which assumes that the
Company will be able to meet its obligations and continue its operations for its
next fiscal year. At March 31, 2010, the Company had not yet achieved
profitable operations and has accumulated losses of $3,083,368 since its
inception and has a working capital deficiency of $1,813,929. The continuing
operations of the Company are dependent upon its ability to raise adequate
financing to develop its catalyst technology for production.
Realization values may be substantially different from
the carrying values shown on these consolidated financial statements. These
consolidated financial statements do not give effect to adjustments that would
be necessary to the carrying values and classification of assets and
liabilities should the Company be unable to continue as a going concern. Since
internally generated cash flow will not fund development and commercialization
of the Company’s technology, the Company will require significant additional
financial resources and will be dependent on future financings to fund its
ongoing operations as well as other working capital requirements. The Company’s
future capital requirements will depend on many factors including the rate and
extent of progress in its development and commercialization program. There can
be no assurance that the Company will be successful in its efforts to raise
additional financing or if financing is available, that it will be on terms
that are acceptable to the Company.
Management is addressing going concern remediation
through raising additional sources of capital for operations and planned
commercialization. Management’s plans are intended to increase the Company’s
financial stability and to improve the efficiency of continuing operations. The
Company intends to generate money from future production of ethanol, the sale
and licensing of its intellectual property and raising funds from investors via
equity. Management is aware that material uncertainties exist, related to
current economic conditions, which could cast doubt about the entity’s ability
to continue to finance its activities. It is to be expected that the Company may
incur further losses in the development of its business, all of which casts
reasonable doubt about the Company’s ability to continue as a going concern.
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, 2009 filed with the U.S. Securities and Exchange
Commission.
|
8
SYNTEC BIOFUEL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
Unaudited
|
Note 2
|
Recently Adopted
Accounting Guidance
|
|
|
In June 2009, the FASB issued the
Accounting Standards Codification, which establishes a sole source of US authoritative GAAP. The Codification is meant to simplify user access to all
authoritative accounting guidance by reorganizing US GAAP pronouncements into
approximately ninety accounting topics within a consistent structure; its
purpose is not to create new accounting and reporting guidance. The adoption of
this guidance did not have an effect on the Company’s results of operations,
financial position or cash flows.
Other pronouncements issued by the FASB or
other authoritative accounting standards groups with future effective dates are
either not applicable or are not expected to be significant to the financial
statements of the Company.
|
|
|
|
|
Note 3
|
Intellectual Property
and Intangible Assets
|
|
|
Pursuant to a purchase and assignment agreement and an
asset purchase agreement (the “Asset Purchase Agreement”) entered into during
the year ended December 31, 2007, the Company acquired a 100% ownership
interest in certain intellectual property and intangible assets. The
intellectual property in the amount of $5,100,000 relates to the development
and a method of producing catalysts and processes that convert biomass waste
material into ethanol and the intangible assets in the amount of $20,000 relate
to a website. At December 31, 2009, management has tested the intellectual
property and intangibles for recoverability and no events or changes in
circumstances indicated that the carrying values may not be recoverable.
Therefore, there was no impairment of these assets at December 31, 2009.
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 was for an initial
term of two years commencing November 1, 2007 and was terminated on September 30, 2009.
On September 25, 2009, and as amended on October 9, 2009 and March 26, 2010, the Company entered into a Collaborate Research
Agreement (the “Research Agreement”) with the University of British Columbia (“UBC”) whereby UBC will perform research and testing of the Company’s
catalyst. No payments become due until Natural Sciences and Engineering
Research Council of Canada (“NSERC”) funding approval is obtained by UBC. Pursuant
to the amended Research Agreement, the Company will pay UBC the following consideration,
which is expensed as development fees:
|
9
SYNTEC BIOFUEL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
Unaudited
|
Note 3
|
Intellectual Property
and Intangible Assets
(cont’d…)
|
|
|
|
|
|
-
$10,836 (CDN $10,375) upon
execution of the Research Agreement (paid);
-
CDN $14,000 on receipt of NERC’s approval of funding;
-
CDN $14,000 on receipt of progress report for year 1;
-
CDN $10,375 on March 15, 2011(if applicable);
-
CDN $14,000 on June 15, 2011(if applicable); and
-
CDN $14,000 on September 15, 2011(if applicable); and
-
CDN $8,000 on receipt of final report.
|
|
|
|
|
|
The Company is also obligated to donate
laboratory equipment, currently owned by the Company, with an approximate value
of CDN $150,000 to UBC. Ownership of the laboratory equipment will transfer in
August 2010, if the Research Agreement is not terminated. The Research
Agreement can be terminated upon 30 days written notice.
|
|
|
|
|
Note 4
|
Equipment
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
March 31, 2010
Net Book Value
|
|
|
December 31, 2009
Net Book Value
|
|
|
Laboratory equipment
|
|
245,395
|
|
|
126,075
|
|
|
119,320
|
|
|
136,366
|
|
|
Equipment under capital lease
|
|
55,486
|
|
|
26,355
|
|
|
29,131
|
|
|
33,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
300,881
|
|
$
|
152,430
|
|
$
|
148,451
|
|
$
|
169,658
|
|
|
|
The Company leases laboratory equipment
under capital lease that expires June 17, 2010. At March 31, 2010, the Company has recorded the obligation under capital lease of $5,604 (December 31, 2009 - $10,634). 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, 2010
|
|
|
|
|
Lease
payment
|
$
|
5,745
|
|
|
Amount
representing interest
|
|
(141)
|
|
|
Total
obligation under capital lease
|
$
|
5,604
|
|
|
|
|
|
|
|
|
Note 5
|
Related Party
Transactions
|
|
|
|
|
|
During the period ended March 31, 2010, the Company incurred management fees of $49,813 (March 31, 2009 - $56,225) which were charged by directors and officers and a company
controlled by a director and officer of the Company.
During the period ended March 31, 2010, the Company incurred rental expense of $5,769 (March 31, 2009 - $4,821) which was charged by a
company controlled by a director and officer of the Company.
|
10
SYNTEC BIOFUEL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
Unaudited
|
Note 5
|
Related Party
Transactions
(cont’d…)
|
|
|
|
|
|
These transactions were in the normal course of
operations and were measured at the exchange amount, which was the amount of
consideration established and agreed to by the related parties.
As at March 31, 2010, an amount of $253,616 (December 31, 2009 – $175,500) is owing to directors and officers of the Company. This
amount is unsecured, non-interest bearing and has no set terms of repayment.
The Company also has the following notes payable to
related parties:
|
|
|
|
a)
|
During the year ended December 31, 2008 the Company had received $246,300 (CDN $300,000) from CAJ Business Solutions Ltd. (“CAJ”), (formerly Impulse Advertising Ltd.), a company controlled by
the spouse of a director and officer of the Company.
The loan bears interest at 10% per annum and is
secured by a 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 and accrued interest is
payable by the Company on June 30, 2010, with extension fees of 10% of the
capital debt.
In fiscal 2008, in consideration for extending the
loan, CAJ received one fully paid, worldwide, single use, royalty free,
non-exclusive license for use of the Company’s intellectual property. The fair
value of the license is undeterminable.
During the year ended December 31, 2009, the Company was charged an additional $27,382 in interest and $52,542
in financing fees. The Company also repaid $44,402 (CDN $53,472) of the
principal balance in addition to $93,082 in accrued interest and financing
fees. The Company recorded a foreign exchange loss of $32,673 on the CAJ loan at December 31, 2009.
Included in the due to related
parties balance at March 31, 2010 is the principal amount of $242,682 (CDN - $246,528) (December 31, 2009 - $234,571) and accrued interest of $9,560 (December 31, 2009 - $3,456).
|
|
|
|
|
|
|
|
|
b)
|
As of March 31, 2010, 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 $172,270
(CDN $175,000) (December 31, 2009 - $166,512) comprised of:
|
|
|
|
|
|
|
|
|
|
-
$98,440 (CDN $100,000) received on March 13, 2009;
-
$49,220 (CDN $50,000) received on April 14, 2009; and
-
$24,610 (CDN $25,000) received on June 19, 2009.
|
|
|
|
|
|
|
|
|
|
These loans are unsecured and bear interests ranging
from 8% to 10% per annum. Repayment of the principal and accrued interest is
payable by the Company on June 30, 2010, with extension fees of 10% of the
capital debt.
|
11
SYNTEC BIOFUEL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
Unaudited
|
Note 5
|
Related Party
Transactions
(cont’d…)
|
|
|
|
|
TargetBar has the option to convert the $98,440 note
payable, pursuant to a Convertible Promissory Note (the “Convertible Note”), at
any time during the initial term of the Convertible Note which was due on August 31, 2009, 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 was
expensed to finance charges during fiscal 2009.
Included in the due to related parties balance at March 31, 2010 is accrued interest and finance charges of $34,211 (December 31, 2009 - $28,963).
|
|
|
|
|
|
|
|
|
c)
|
As of March 31, 2010, 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, 2009 - $341,500) comprised of:
|
|
|
|
|
|
|
|
|
|
-
$56,500 received on July 26, 2006;
-
$85,000 received on September 28, 2006;
-
$100,000 received on January 7, 2009; and
-
$100,000 received on January 20, 2009.
|
|
|
|
|
These loans are unsecured and bear interests ranging
from 5% to 10% per annum. Repayment of the principal and accrued interest is
payable by the Company on June 30, 2010, with extension fees of 10% of the
capital debt.
During the year ended December 31, 2009, in consideration for extending the loans, Iris received one fully paid, worldwide, single
use, royalty free, non-exclusive license for use of the Company’s intellectual
property. The fair value of the license is undeterminable.
Included in the due to related parties balance at March 31, 2010 is accrued interest and financing charges of $163,249 (December 31, 2009 - $156,575).
|
|
|
|
a)
|
As of March 31, 2010, the Company had received loans
from Montilla Capital Inc.(“Montilla”), totaling $171,286 (CDN $174,000) (December 31, 2009 - $165,561) comprised of:
|
|
|
|
|
|
|
|
|
|
-
$53,158 (CDN $54,000) received on May 21, 2008;
-
$59,064 (CDN $60,000) received on July 29, 2009; and
-
$59,064 (CDN $60,000) received on November 25, 2009.
|
|
|
|
|
These loans are unsecured and bear interests ranging
from 5% to 10% per annum. Repayment of the principal and accrued interest is
payable by the Company on June 30, 2010, with extension fees of 10% of the
capital debt.
During the year ended December 31, 2009, in consideration for extending the due date of the $53,158 loan, Montilla received one fully
paid, worldwide, single use, non-exclusive license
|
12
SYNTEC BIOFUEL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
Unaudited
|
Note 6
|
Notes Payable
(cont’d…)
|
|
|
|
|
for use of the Company’s intellectual property which
is subject to a royalty fee of 1.5% of sales. The fair value of the license is
undeterminable.
Management has recognized that the
interest rate on the notes payable to Montilla are below fair market value, and
has recorded a discount on the funds received from Montilla during the year
ended December 31, 2009 of $2,620. This value was recorded as additional
paid-in capital and is being deferred and amortized over the term of the notes.
During the year ended December 31, 2009, the carrying value of the notes
payable has been accreted to its face value and $2,620 was expensed as finance
charges.
Included in the notes payable balance at March 31, 2010 is accrued interest and financing fees of $24,697 (December 31, 2009 - $21,264).
|
|
|
|
|
|
|
|
|
b)
|
As of March 31, 2010, the Company had received loans totaling $144,000 (December 31, 2009 - $144,000) from Hokley Limited (“Hokley”) comprised of:
|
|
|
|
|
|
|
|
|
|
-
$4,000 received on August 4, 2004;
-
$5,000 received on September 24, 2004;
-
$5,000 received on December 23, 2004;
-
$40,000 received on February 26, 2007;
-
$30,000 received on May 28, 2007;
-
$30,000 received on July 18, 2007, and
-
$30,000 received on September 26, 2007.
|
|
|
|
|
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 June 30, 2010, with extension fees of 10% of the
capital debt.
During the year ended December 31, 2009, in consideration for extending the due date of the loans, Hokley received one fully paid,
worldwide, single use, non-exclusive license for use of the Company’s
intellectual property which is subject to a royalty fee of 1.5% of sales. The
fair value of the license is undeterminable.
Management recognized that the interest
rate on the notes payable from Hokley are below fair market value, and recorded
a discount on the funds received from Hokley during fiscal 2007. As of December 31, 2008, the carrying value of the notes payable had been accreted to its face
value over the original term of the notes payable.
Included in the notes payable balance at March 31, 2010 is accrued interest and financing charges of $83,076 (December 31, 2009 - $80,778).
|
|
Note 7
|
Capital Stock
|
|
|
|
|
|
On February 26, 2010, the Company issued 600,000 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 $0.25 per share as
consulting fees expense and deferred compensation.
|
13
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
Syntec has entered into a Collaborative
Research Agreement with the University of British Columbia (UBC) who have
validated Syntec’s laboratory results and will be working on improving
efficiencies and 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 has also in
discussion with the Energy & Environmental Research Center (EERC), part of the University of North Dakota, to
enter into a Joint Development Agreement to develop a process
to produce bio-butanol. Both programs are dependant on Syntec contributing
towards the costs.
Syntec is in discussion with the US. National Renewable Energy Laboratory (NREL), which is part of the Department of Energy
(DOE) to test our catalysts in their Pilot Plant
which they will be able to perform by the end of 2010. In the interim UBC will
be improving productivity which will enhance the results at the Pilot level.
The NREL program is expected to cost approximately $1 million which is
substantially less than building our own pilot plant. We believe that we will
be ready to start licensing our technology as soon as their testing is complete
by the end of the first quarter of 2011. Syntec is currently in discussion with
two financial groups to raise up to $5 million for carrying out the pilot
program and working capital. We have also recently filed an LOI with SDTC
(Canadian equivalent of the DOE) for funding our own pilot plant in
collaboration with a Canadian gasification company.
14
The future of biofuel is almost guaranteed
with the US Government mandating 21 billion gallons of cellulosic biofuel by
2035 with the expectation that the EPA will agree to a 15% ethanol blend.
Syntec has been fortunate in having
Sud-Chemie, one of the largest catalyst companies in the world produce a
commercial batch of our catalysts for pilot testing. We are currently in
discussion with two high profile biofuel companies that wish to test our
catalysts.
Syntec is still very bullish on achieving
success as a leader in the thermo-chemical race. Producing ethanol and other
alcohols from waste biomass is still very compelling and our projected
production cost of $0.88 per gallon is still one of the lowest in the biofuel
industry. Our technology is far simpler and more stable than using enzymes and
fermentation to break down cellulose and should consistently be able to be
produced at a much lower price.
We have not currently generated any revenue
from operations and do not expect to report any significant revenue from
operations until research and development efforts mature and we have completed
the demonstration plant. Even after the completion of a demonstration plant, there
can be no assurance that we will generate positive cash flow and there can be
no assurances as to the level of revenues, if any, that we may actually achieve
from the Syntec technology.
Since inception, we
have funded operations through common stock issuances, related and non-related
party loans in order to meet our strategic objectives. However, there can be
no assurance that we will be able to obtain further funds to continue with our
efforts to establish a new business.
We expect to continue to
incur substantial losses in our efforts to establish a new business. We are a
development stage company. In a development stage company, management devotes most
of its activities to establishing a new business. As of March 31, 2010, we had a working capital deficit of $1,813,929. We are in immediate
need of further working capital and are considering options with respect to
financing in the form of debt, equity or a combination thereof.
RESULTS OF
OPERATIONS
The following discussion of the financial condition
and results of operation of the Company should be read in conjunction with the
Financial Statements and the related Notes included elsewhere in this report.
THREE MONTHS ENDING MARCH 31, 2010
The Company had no revenue for the three
months ended March 31, 2010 and 2009. The total expenses decreased to $188,916 in
2010 as compared to $257,013 in 2009. In 2010, the Company incurred consultant
and management fees of $137,397 as compared to $56,225 in 2009 as consultants
were hired for investor relations and investment consulting. The development
fees decreased from $105,459 in 2009 to $nil in 2010 because of the transition
of the research to UBC. The decrease of office and miscellaneous expenses from
$2,744 in 2009 to $649 in 2010 is mainly due to reduced traveling. Our net loss
per share is at $0.01 for 2010 and 2009.
FINANCIAL CONDITION AND LIQUIDITY
Our cash position was $6,852 at March 31, 2010 and was $10,228 at December 31, 2009.
Our working capital
deficit at March 31, 2010 was $1,813,929 as compared to $1,694,475
at December 31, 2009.
The Company's ability to continue as a going
concern and fund operations through the remainder of 2010 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.
15
CRITICAL ACCOUNTING POLICIES AND ESTIMATE
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 March 31, 2010, 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.
16
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2010,
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
None
Item 3. DEFAULTS UPON SENIOR
SECURITIES
None.
Item 5. OTHER
INFORMATION
None.
17
Item 6. EXHIBITS
(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
18
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
SYNTEC
BIOFUEL INC.
(Registrant)
|
/s/
Michael Jackson
|
|
Date:
May 20, 2010
|
|
Michael
Jackson
Director,
CEO
|
|
|
|
|
|
/s/
Janet Cheng
|
|
Date:
May 20, 2010
|
|
Janet Cheng
Director,
CFO
|
|
|
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