UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Amendment # 3)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended June 30, 2001
[] 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 0-29351
HYBRID FUELS, INC.
(Name of small business issuer as specified in its charter)
NEVADA 88-0384399
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(State of incorporation) (IRS Employer Identification No.)
PO Box 41118, Winfield B.C., V4V 1Z7
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(Address of Principal Executive Offices) (Zip Code)
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Issuer's Telephone Number (250) 868-0600
Securities registered pursuant to section 12 (b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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 last 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The number of shares issued of the registrant's common stock as of October 5, 2001 is 20,623,600
The number of shares outstanding of the registrant's common stock as of October 5, 2001 is 21,056,353
Amount of revenue for most recent fiscal year $0.00
TABLE OF CONTENTS
PART I...........................................................Page 3
Item 1. DESCRIPTION OF BUSINESS...............................Page 3
Item 2. DESCRIPTION OF PROPERTY...............................Page 18
Item 3. LEGAL PROCEEDINGS.....................................Page 19
PART II .........................................................Page 20
Item 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS................Page 20
Item 6. MANAGEMENT DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION.....................................Page 21
Item 7. FINANCIAL STATEMENTS..................................Page 28
Item 8. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS..........Page 39
PART III ........................................................Page 39
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS...................................Page 39
Item 10. EXECUTIVE COMPENSATION...............................Page 41
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................Page 42
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....Page 42
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K...............................Page 43
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
This Form 10-KSB contains forward-looking statements. The words "anticipate", "believe", "expect", "plan", "intend", "estimate", "project", "could", "may", "foresee", and similar expressions identify forward-looking statements that involve risks and uncertainties. You should not place undue reliance on forward-looking statements in this Form 10-KSB because of their inherent uncertainty. The following discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto and other financial information included in this Form 10-KSB. Actual results could differ materially from the results discussed in the forward-looking statements.
Except for disclosures that report the Company's historical results, the statements in this document are forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company assumes no obligation to update forward-looking statements or comments or the reasons why actual results may differ therefrom.
(a) BUSINESS DEVELOPMENT
The Company is a developmental stage company that has had no income since the acquisition of the hybrid fuels technology in June 1998. Until such time as the Company sells an ethanol plant or otherwise earns revenue, necessary financing will be obtained from loans or the sale of securities. If the Company is unable to obtain funds from external sources, it is unlikely that it will be able to pursue its program and it may not be able to continue to operate in the long term. It is uncertain if and when it will develop any significant cash flow.
The Company was originally incorporated in the state of Florida on February 16, 1960 as Fiberglass Industries Corporation of America. On September 3, 1966, the Company changed its name to Rocket-Atlas Corp. It changed its name again on December 1, 1966 to Rocket Industries, Inc. On January 28, 1994, the Company changed its name to Polo Investment Corp. of Missouri, Inc., and on October 7, 1995 the name changed to Medical Advanced Systems, Inc. Then, on June 3, 1993, the Company changed its name to Polo Equities, Inc., and increased its authorized capital to 50,000,000 shares with a par value of $0.001. In May 1998, the Company changed its domicile to Nevada and changed to its current name, Hybrid Fuels, Inc., on June 10, 1998.
In May of 1998, the Company recalled 12,000,000 shares held by 3 individuals:
Justeen Blankenship, Shane Duffin, and Danni Uyeda, 4M shares each. So far as
the Company is aware, no consideration was paid to those three individuals in
return for the cancellation of the shares. Then, in a stock for stock exchange,
the Company issued 12,000,000 shares to Donald Craig to acquire all of the
issued and outstanding shares of Hybrid Fuels, U.S.A., Inc. and 330420 B.C.
Ltd., (which subsequently changed its name to Hybrid Fuels (Canada) Inc.) At
the time of the acquisition, Donald Craig held all of the issued and
outstanding shares of Hybrid Fuels, U.S.A., Inc., and Hybrid Fuels (Canada)
Inc., as Trustee for a group of individuals and companies that had contributed
to the development of the Hybrid technology. At the time of the acquisition,
Hybrid Fuels (Canada) Inc., owned the rights to the technology, with the result
that, as a part of the acquisition, the Company
(a) BUSINESS DEVELOPMENT (con't) acquired control over the technology necessary for the Company's intended operations.
Prior to the acquisition of Hybrid Fuels, U.S.A., Inc. and Hybrid Fuels (Canada) Inc., the Company had no significant operations and was seeking a business opportunity.
(b) BUSINESS OF THE ISSUER
Hybrid Fuels intended business is to sell integrated farm scale facilities that combine ethanol production with a beef finishing operation. This integration is achieved through certain procedures, process improvements and mechanical devices the company has discovered or developed. The Company also expects to act as the marketing agent for the hybrid fuel and the finished animals to control quality and present a unified marketing presence as a way of generating better returns from the sale of the products.
SOME CONCERNS ABOUT PRESENT FINISHING METHODS
The Company believes beef cattle do not do well using what may be referred to as "factory farming methods". In "Diet For A New America", John Robbins describes how, in most conventional beef feedlots, antibiotics are fed to the animals daily to prevent them from becoming sick. In addition, growth hormones are implanted or fed to increase weight gains and toxic chemicals are used to kill flies and to protect the animals from parasites that might interfere with weight gains. He also reviewed the evidence pointing to growing health concerns that seem to be the result of those substances remaining in the meat, and being ingested when consumers eat the end product.
Further, according to a report by noted security analyst, Edward Luttwalk, recently published in the February 12, 2001 edition of the Toronto Globe and Mail, factory farming involves the crowding, of thousands of animals, into an area about the size of a city block. The report states, "to put it plainly, nearly all beef cattle in North America and Europe survive in a chronic state of low level sickness with the use of large amounts of antibiotics. Because they are cheap and induce water retention that increases weight, antibiotics are just the thing for feedlot operators whose animals could not survive a week without them." Luttwalk goes on to say, "At a time when old diseases such a tuberculosis are reappearing, along with bacteria strains that have become highly resistant to antibiotics, their use in mass quantities by cattle raisers is a real problem. Until recently, it was thought that humans couldn't absorb antibiotics from cooked meat, but research prompted by bovine spongiform encephalopathy (BSE) has disproved all that "These findings are further supported by recent research at the University of Illinois, according to a Canadian Press report. This research has documented the transfer of antibiotic resistant genes from large-scale hog facilities to surrounding water and soil. These scientists are reported to have concluded that this is evidence to tie antibiotic resistance in humans to widespread use of antibiotics in the livestock industry. Rustam Aminov, one of the scientists, is reported to have said, "Its' not an unreasonable conclusion with 75% of all the antibiotics in the US finding their way into meat and poultry."
SOME CONCERNS ABOUT PRESENT FINISHING METHODS (con't)
has raised troubling questions about water quality and threats to public health from coast to coast. Manure from factory farms often contains a variety of heavy metals, lake-choking nutrients and deadly pathogens such as e coli 0157." This article says, in describing the resulting groundwater pollution problem in great detail: "In the US, the EPA estimates that agricultural runoff from animal factories and traditional farms is the leading source of water pollution in that country." The article then quotes Les Klapatiuk, who runs a firm specializing in water treatment, that there isn't a single government in Canada with adequate legislation to deal with these volumes of animal waste. The article says: "The leakage from lagoons is incredible, and when you spread millions of gallons of waste on a field it just runs into the surface water. If a city or oil company operated in this way, they would be shut down."
These concerns and others about:
1. declining farm income and the number of family farms;
2. declining fossil fuel reserves;
3. increasing ground water contamination from animal finishing operations;
4. the increase in antibiotic resistant "super bugs" as a result of over- use
of antibiotics; and
5. threats of global warming from use of fossil fuels; led the development of
this "farm integration" plan.
This business is intended to be proactive in reducing air pollution and conserving fossil fuels, reducing ground pollution through the destruction of animal waste, producing cleaner food, and perhaps reducing some of the cause behind the spread of auto-immune diseases. At the same time, it is intended to create a new source of income for farmers.
SOME HISTORY
The technology was developed over more than a decade. Pilot testing of the first proprietary developments relating to fermentation techniques and distillation procedures of ethanol were carried out in Kelowna, B. C., Canada in the early 1990's. After initial tests, a confinement type barn and adjoining buildings were leased at Dalum, Alberta in 1994 for full- scale testing. These facilities were utilized for animal feed test trials, fermentation testing, and other associated full-scale research and testing on all aspects of the system for a period of two and a half-years. The Company does not have written records of the test results, as those records were lost when that plant was shut down. However, those test results persuaded us to begin commercialization of the process.
The hybrid fuels technology was acquired by the Company in a reverse takeover in June 1998 as described above, and a plant that was intended to be the first commercial plant was constructed near Cardston, Alberta. Improvements to the technology installed in that plant included an innovative separation column that added a Company developed, vegetable based emulsifier and diesel fuel at the point of condensation of the ethanol vapor.
THE PROPOSED FACILITIES
he proposed plants are planned to consist of a barn in which the cattle are kept, a second building housing the ethanol making equipment and the gasifier, which will be set up next to the barn and ethanol plant. The ethanol making equipment consists of feedstock handling and preparation tanks, water tanks, fermentation tank, separation columns, a spin dryer, necessary pumps and the tanks to hold the ethanol. It is expected to cost about $500,000 CDN ($350,000 US) for all anticipated development costs and to complete construction of a plant (including the barn, the ethanol making plant, the gasifier and all related equipment) and to provide working capital to operate it until it begins to generate cash flow. This does not include the cost of the cattle or the consumables such as grain, bedding, water, etc.
In the Company's intended facilities, approximately 200 animals are kept in a warm, dry and clean barn during the finishing process of approximately 100 to 120 days. The farm operator supplies the feedstock, which is to be used first to make the ethanol and then to feed the animals. The operator is to supply the cattle, straw or other bedding, electricity, diesel, emulsifier and about 2500 gallons of water per day. These barns have been designed to raise beef cattle under controlled atmospheric conditions. The buildings are prefabricated metal, insulated sufficiently to keep them warm in cold weather and cool in warm weather. Each barn is to be divided into eight pens, 20 feet by 30 feet, 1 of which is empty and 7 of which have animals in them. This means that there will be approximately 29 animals per pen, depending on the size of the animals.
These barns are intended to include air to air heat exchangers that, in cold weather, exchange the warm, heavily moisture-laden barn air with fresh outside air, that is heated and dried as it passes through a heat exchanger. Del Air Systems, Humbolt, Saskatchewan, manufacture the heat exchanger equipment we plan to use. Their calculations estimate heat losses from the barn at a total of 404,052 BTU per hour with gain from animal heat production of 407,078 BTU per hour at -17 Degrees F outside temperature. At this outside temperature, the inside building temperature should remain around 50 Degrees F. Management believes that these heat exchangers will keep the barn warm and dry in winter and that simple "swamp type" coolers common to the greenhouse industry will be adequate to provide summer cooling.
The barns are to be equipped with Ultra Violet (UV) type fly control units - Johnson Wax Co. Model 200A or 601T that are designed to control flies under the worst conditions, according to the manufacturer. The Company believes that regular removal and burning of the waste will also help to control flies and other parasites and thus eliminate the need for toxic chemicals to control those pests.
Cattle being finished generally average about 12 pounds of manure and urine each day, containing about 80% moisture. (See Saskatchewan Agriculture 1988, ISBN 0-88656-475-1) Moisture content in the waste is controlled by spreading bedding, in the form of chopped straw, wood shavings, or sawdust (depending on price and availability) into the pens to soak up moisture from the manure and urine. The amount of bedding is adjusted so that one weeks accumulation of manure and urine in the bedding will generate waste with moisture content of approximately 45%, which is ideal for the gasifier, according to the manufacturer.
THE PROPOSED FACILITIES (con't)
Each day the empty pen is cleaned and new bedding is placed in the clean pen. Then the animals from the next occupied pen are moved into the newly cleaned pen. When the manure and used bedding is removed, it is shoveled into a central waste removal system which carries it into a gasifier/burner to be transformed into heat.
This commercially available gasifier unit is rated by its manufacturer at 900,000 BTU per hour and daily waste removal from one pen is estimated by the company to yield +/- 6.5MM BTU. Estimated energy need for distillation and cooking totals +/- 4MM BTU leaving a surplus for other uses, including a greenhouse if desired. This gasifier has five burning stages and, according to the manufacturer, is expected to burn waste such as manure and bedding virtually free of emissions and residual waste to cause pollution.
The plants are designed to run in a balanced state, producing 200 Imperial (240 US) gallons of ethanol per day. The amount of feedstock that is necessary to make 200 gallons of ethanol results in the production of enough distillers grains to supply enough food for 200 cattle.
The cattle are expected to be started between 600 and 1000 pounds and finished to about 1100 to 1400 pounds. Not all of the cattle are brought in to the barn at the same time and so are at various weights and stages of finishing; the lighter ones eat less and the heavier ones eat more, generating an average that achieves a balance that management believes will average out over the whole operation.
These plants are expected to be operated manually by 2 people, which would usually be the operator and one employee. Thus trained people are expected to be in contact with the animals several times a day, while they are being fed, or moved from one pen to another. These operators should be able to detect any illness or disease early, separate any ill animal from the rest of the herd, and treat it for that specific illness, rather than giving a general course of antibiotics to all the animals as a precautionary measure. As a result, Company intends to have a policy that permits antibiotics only as required on any sick animal.
In the proposed facilities, grains, which will be referred to as feedstocks, are to be used for the dual purpose of ethanol production and as livestock feed. Grains such as barley, wheat, rye, corn, etc., are all suitable. Barley is most attractive because of its abundance and high starch content. It ferments well and has long been used for alcohol production.
GENERAL ETHANOL INFORMATION
The history of ethanol production for fuel worldwide is well documented, and covers a period of more than 75 years. The term "energy balance" associated with ethanol production, means the relationship between the energy used to produce ethanol and the energy recovered in the ethanol and is generally expressed in British Thermal Units or BTU's.
GENERAL ETHANOL INFORMATION (con't)
The Peoria, IL pilot plant built by the US Department of Agriculture illustrates that energy consumed for distillation is only 30% of the product energy. The commercial Peoria plant indicates a more favorable energy balance in the range of 2:1. Management believes that a ratio of around 4:1 is probably fairly representative of newly built ethanol making facilities.
Aside from the capital costs of the plant, the two major costs of ethanol production are the feedstocks and the input energy for production. For ethanol to be accepted as a fuel extender, it must be available in a practical price range. By using the grain for the dual purpose of making ethanol and feeding cattle, the process creates the ethanol at very little cost and also generates another stream of income, thereby making the operation more economical. Also, by using the heat from burning the waste as an energy source for the fermentation and distillation processes, the Company believes it will significantly reduce the input energy cost. Because of the small amount of energy from outside sources required to operate these plants, we have called them Micro Energy Food Facilities or MEFFs for short.
HYBRID FUELS ETHANOL PRODUCTION
The Hybrid Fuels process starts with the feedstock grain being soaked in water overnight, crushed and then heated to prepare it for fermentation. An enzyme reaction is then started, using commercially available enzymes. The entire fermentation process is carried out in the feedstock preparation tanks, which are part of the ethanol plant. A proprietary, trade secret process is then used to promote rapid fermentation. This process, which is not patented, will be protected by non-disclosure agreements that each operator will be required to sign. The total cost of all the enzymes and other fermentation additives are expected to cost the operator about $500.00 per month.
At the completion of fermentation, the "beer" is drained off for distillation and the solids mash is passed through a centrifugal type separator or "spinner", which dries these "distiller grains" to a satisfactory moisture level appropriate for feeding, and they are then conveyed to the animal feed troughs.
Distillation of the ethanol from the "beer" is the next step in the process. The Company uses a proprietary separation column that is inexpensively produced and has no moving parts. The beer from the fermentation is run through this column and heat from the gasifier is used to separate, or "distill", the ethanol from the stillage water. This ethanol, containing approximately five percent (5%) water, is hydrous. To produce anhydrous (dry) ethanol, either molecular sieves or azeotropic distillation equipment is required. This equipment, and the energy costs associated with operating it are expensive, and are not necessary for the Hybrid Fuels process, because we use the ethanol wet.
The combination of the proprietary fermentation process and the distillation column, results in completion of the whole process in about 12 to 15 hours. In most typical distillation operations, the process takes around 60 hours. See "Biomass Energy Monograph" published by Texas Engineering Station, Texas A & M University System, page 121, or "Saccharification and Fermentation of Barley", by Drs. M.Wayman, R.S.Parekh, O.Trass, and E.Gondolfi, Dept of Chemical Engineering, University of Toronto, Canada.
HYBRID FUELS ETHANOL PRODUCTION (con't)
The distillers grains that are left over from the ethanol making process have a low moisture content around 5% and are fed as wet distillers grains (WDGs). In more typical ethanol producing plants, these WDGs are dried so that they can be transported without becoming mouldy. The energy and other costs of drying the WDGs to make dry distillers grains, (DDGs) and then transporting them elsewhere are eliminated in the hybrid process by using the wet distillers grains onsite. Using such "co-products" onsite are important in reducing costs and improving the economics of the operations.
At the completion of distillation, the de-alcoholized liquid (called stillage water) is recovered and stored for delivery to appropriate feed containers for the animals in the barn. According to the research described below under the heading "Feeding Wet Distillers Grains and Stillage Water", the feeding of stillage water to cattle promotes weight gains. In addition, feeding the distillers grains and stillage water to the animals in the adjacent barn is very important because it uses another co-product on-site, eliminates transport and drying costs and addresses the challenge of stillage disposal. The Biomass Energy Monograph by Edward Hiler and Bill Strout of Texas A. & M. University, states: "If the nation were to replace 10 percent of its gasoline consumption with ethanol, the liquid stillage from ethanol fuel production would constitute a biochemical oxygen demand (BOD) load equivalent to all its domestic sewage. Therefore, expensive water pollution controls must be major goals of the emerging fuel-alcohol industry." These "expensive water pollution controls" are not necessary in our process, as the stillage becomes a valuable animal feed supplement, not a by-product destined for disposal.
FEEDING WET DISTILLERS GRAINS AND STILLAGE WATER
There is a considerable body of literature which indicates that the feed value of the distillers grains is superior to that of ordinary grain. For example, see Dr. T. J. Klopfenstein of the University of Nebraska, reporting to the 31st Distillers Feed Conference on the "Digestibility of Distillers Grains", and G. M. Erickson and G. R. Tisher, writing in a Beef Science article #72-980 in 1989; "Barley Distillers Grains As Supplements For Beef Cattle". These articles generally indicate a significantly higher feed value of dried distillers grains (DDG) over ordinary grain, and higher still for wet distillers grains (WDG), which our process uses, over DDG.
The Company believes the results mentioned in the last paragraph, related to feeding wet distillers grains, are born out in the results of Cargill's kill record dated September 23, 1994, for 123 heifers from the Dalum facility. The kill record is a record of the number of animals processed, and the weight and grade of the carcass. In addition, we have the Slaughter Sale Summary for these animals dated September 13, 1994 which shows the price paid for the animals and their average weight, along with the information for all of the other animals sold at that auction on that day. Those documents show that these animals brought the highest price of the day at that auction and by comparing the average weight at auction to the carcass weight from the kill record, we can calculate the average live weight to carcass ratio.
FEEDING WET DISTILLERS GRAINS AND STILLAGE WATER(con't)
the meat, and the size of the rib eye. AA is a lower level of these factors, A
is less desirable still, and B is less desirable than A.
Processors, like Cargill, and consumers, pay higher prices for the superior grades because they are generally more tender and taste better.
The packout grade for these 123 animals was higher than average in the AAA category according to statistics published by The Canadian Cattleman's Association. Their figures typically show industry average of about 48% AAA, 48% AA and 4% A. From those same records, the conversion rate from live weight to carcass was 60%, meaning there was more edible meat per carcass, and therefore also less waste, than the industry average of 57 to 58%, according to the Canadian Cattleman's Association. Both these figures mean higher returns to those who raised the animals because they represent more meat at higher grades which means higher prices.
The same kill report showed there was no death loss, no liver damage and none were condemned. Industry average for death loss and rejected animals is about 1% according to the Canadian Cattleman's Association. Because of these processing results, Cargill offered a premium of $0.10 per pound FOB the plant for all animals that could be produced using this process, which eliminates trucking and auction costs. The Company sees no reason why operators should not be able to achieve similar results using this system, or better results if good beef cattle are used.
HORMONE FREE BEEF
There are a growing number of stores that are offering hormone free beef. For example, Laura's Lean Beef is now available in 3000 grocery stores in 33 states in the US, according to their website, www.laurasleanbeef.com. Consumers generally pay higher prices for this beef, and the cattle raiser receives a higher price per pound as well. The Company wishes to have its operators use the process to raise hormone free beef for this market, partly because of these higher prices.
In order to access the hormone free beef market, the Company intends to require that when the operators bring animals in for finishing they be certified hormone free in accordance with an existing certification protocol. This program requires that calves be registered and ear-tagging records be kept of the ancestry, ranch of origin and every inoculation, injection and implant. The Company anticipates accessing such animals in order to assure our operators of receiving the type and quality of beef we require. Company policy will also require compliance with the hormone-free protocol and that antibiotics not be used generally on the animals, although use on an ill animal as prescribed by a vet will be allowed.
MISCELLANEOUS NEW TECHNOLOGIES
During the period between the loss of the Cardston-area facility and the
present time, the Company has developed a simple to operate, hydroponics-
growing system that will be tested for internal housing purposes in the
cattle-feeding barn. This technology has the potential to produce daily rations
of fresh feed grasses for the cattle regardless of outside weather conditions.
Based on current experimental growth results, the Company believes each system
will yield about 1.5 tons of fresh, green barley grass per day. Assuming this
sustained yield volume, a feed ration of 15 pounds per day per animal can be
maintained.
Analyses of the green feed performed by Norwest Labs of Lethbridge, Alberta in May, 2001, indicates that with a barley grass feed ration of fifteen (15) pounds per day for each animal, the company could eliminate the use of feeding hay. When fed along with brewer's mash and stillage water, the
Company believes this green feed will increase daily weight gains in the cattle. The Company also has a feed enrichment process that has been described in reports previously filed with the SEC. As the green grass from this system is expected to be more beneficial to the cattle at less cost than the feed enrichment process, that process will no longer be included in each plant. The equipment to produce this green feed is expected to cost around $15,000 and to fit into the barn so that feeding the green grass is relatively easy.
THE HYBRID FUEL
The ethanol is "de-natured" by mixing about 2% emulsifier and diesel into the ethanol in the vaporization column so there is no pure ethanol accessible in the plant. 200 gallons are intended to be produced each day, and this chemical mixture is stored in an appropriate tank (3500 to 5000 gallons) on site until it is picked up, similar to bulk milk pickup, and delivered to a mixing plant to be further mixed into the final ratio.
In June of 1996, the Company contracted with The British Columbia Institute of Technology (BCIT) to test the hybrid fuel for a fee. The tests were conducted using a 1994 Dodge diesel truck with 215,717 kilometers (134,176 miles) on the odometer. The truck was first tested using regular diesel, then run on the hybrid fuel for 2 days and re-tested. The tests of this fuel showed opacity (black smoke) readings reduced by 65.5% and NOx emissions by 22.2%. These test indicated that this fuel is more effective in reducing particulate and nitrogen oxide emissions from diesel than any other diesel mixture of which the Company is aware. For example, diesel/water mixtures are being independently developed and tested by Elf Acquitane and retired MIT Professor, Keith Johnson, according to an article in the March 13, 1999 edition of New Scientist. The article reports that these mixtures reduce particulate emissions by 45% and NOx by 15%. On its website, The University of Illinois reports similar reductions regarding the use of a mixture of diesel and dry ethanol. Compared to both of those mixtures, Hybrid's mixture showed greater reduction of emissions at 65.5% and 22.2% respectively in the BCIT tests.
THE HYBRID FUEL (con't)
In the beginning, with the small quantities of the fuel from the first plant,
the plan is to mix locally and use the fuel for testing and evaluation by local
users. Two local firms have agreed to evaluate the fuel made by the first plant
as soon as we produce it. This evaluation is expected to generate $1.00 to
$1.40 per gallon in revenue from the sale of the ethanol to the local firms
that have agreed to conduct the evaluation. Although we have not yet agreed on
benchmarks, the price is expected to gradually increase over time as the
evaluation progresses. Handling and mixing costs are expected to be minimal, in
the range of 5 to 7 cents per gallon.
After the first plant is operating, subsequent facilities are expected to be built in the vicinity of commercial mixing plants that have the capacity to handle the production from the MEFFs on a contract basis. The plan is for the Company to purchase the resulting chemical mixture from each plant, and transport it to mixing plants for further mixing to achieve the appropriate ratio. This is designed to ensure control over all of the ethanol produced to ensure the over all best price and equitably distribute that amongst the operators. The Company expects to earn revenue for providing this service.
When a larger number of plants are operating and producing sufficient quantities, the Company intends to sell the mixed fuel to end users and diesel fuel distributors encompassing all industries. Ultimately the Company may consider building and operating its own mixing facilities, if that becomes economically feasible.
Because the hybrid fuel can be used in an unaltered diesel engine, it can be used economically where it is available and no modifications or changes need be made to engines to switch back to regular diesel fuel when the hybrid fuel is not available.
There is research by others which reviews the environmental and other benefits of ethanol-diesel mixes similar to the Company's. For example, see the report of the University of Illinois Agricultural Engineering Department's E-diesel research project written for the 2001 ASEA Annual International Meeting in Sacramento on July 30 & August 1, 2001. This report reviews in detail the findings of scientists working with diesel- ethanol blends starting in 1980, and indicates that there is generally a small loss of power, in the order of 3.5% to 5%, using these blends.
Our fuel is different because it contains a small amount of water, and it will therefore require separate evaluation. The Company believes that the small amount of water in the mix will reduce the power loss from using the blend. The testing that was done at BCIT in June 1996, did not disclose any significant power loss, but further evaluation is required.
EMPLOYEES
Since his appointment on June 28, 1999, Clay Larson has been the President, a Director and the only employee of the Company. He is entitled to a salary of $6000.00 per month which is deferred until the Company has money to pay him. The Company does not have a written employment contract with Mr. Larson. The Company does not intend to hire any other employees for the immediate future. For the short term, until resources permit, services we need to hire, will be supplied by paid consultants, contractors or commissioned salespeople.
SIGNIFICANT CONSULTANTS
Sir Donald Craig is the individual who is most responsible for the development of the concepts and invention of much of the equipment or improvements to the equipment. Mr. Craig is expected to supervise the building of the first plants, and the preparation of the training and operations manuals. He has agreed to donate his time without remuneration until the first plant is generating cash flow. Thereafter, he may provide consulting service as needed at mutually agreeable prices, and the Company intends to pay his Company related expenses. The Company does not have a written employment contract with Mr. Craig.
SUPPLIERS
The Company is not dependent on a limited number of suppliers as most of the equipment and materials required for the plants are readily available in all areas where the Company expects to be operating. The Company plans to contract for the supply of raw materials, and with independent contractors, who have a verbal arrangement with the Company, for the manufacture the columns and separators as necessary. These contracts are expected to be on the basis that the Company will supply the raw materials for each item, and the contractor will fabricate them, to the Company's specifications at an agreed upon price, that may change over time. These independent contractors work from their own premises and management believes they have the capacity to supply all of the items required by the Company for the next 12 to 24 months. These contractors are not material and can readily be replaced.
The Company intends to seek quotes from independent contractors to supply and install the buildings, the flooring materials, pumps, tanks and other "off-the-shelf" items required for each plant. As the Company develops a history of operations and experience with particular sources of supply, the Company may enter into exclusive supply contracts in the future if it is advantageous to the Company and its operators. No such arrangements are being negotiated at this time.
GOVERNMENTAL REGULATION
Each plant will require some form of government permit in order to operate. In the United States, the Bureau of Alcohol Firearms and Tobacco is the appropriate agency and they have verbally indicated to the Company that it would be able to obtain the appropriate permits. In Canada, the appropriate agency is Excise Canada which has taken the position that since the plants produce ethanol, each will require a distillers license. This would require the installation of equipment in each plant which is designed to measure the amount of alcohol.
GOVERNMENTAL REGULATION (con't)
Unfortunately that equipment will not work because the ethanol is denatured by the addition of diesel and the emulsifier in the column which means that it is impossible to detect, access or measure any pure ethanol in the process. The Company is therefore seeking an exemption for its operations and has enlisted the assistance of a number of people and politicians to assist in persuading Excise Canada to issue the necessary exemption. Until such an exemption is made, the plants may be built without the ethanol equipment. The operators of these plants would pay lower royalties until their ethanol equipment was installed. If there are significant delays in obtaining the desired exemption, the Company anticipates that it will commence building plants in the U.S. The prototype plant will have the ethanol making equipment and is expected to operate with a special permit.
COST AND EFFECTS OF GOVERNMENTAL REGULATION
Governmental regulation will affect the Company most in the areas of compliance with environmental regulations and those regarding the production of ethanol. Each jurisdiction will require the Company to obtain the appropriate permits to comply with its specific set of regulations. The Company plans to initially build in those jurisdictions where the process for obtaining the necessary permits to produce the hybrid fuel and to operate in accordance with these regulations, are the easiest and least expensive to comply with. The Company anticipates it will have little difficulty in complying with environmental regulations as the process does not create any pollution. In fact, the Company believes that its process may significantly reduce many of the pollution problems that are associated with beef finishing operations. The Company does not anticipate any significant delays in obtaining the necessary permits for the production of the hybrid fuel in the Province of British Columbia and in most states of the US. The necessary permit has already been issued for the first plant.
During the last two years the Company has spent zero dollars on compliance with environmental regulations. The Company believes that the impact of the cost and effects of the Company's compliance with environmental laws should be minimal as the Company's process is believed to be very environmentally friendly.
TARGET MARKET AND ADVERTISING
The Company's target market for the sale of the MEFFs is the farming communities. The Company intends to advertise its MEFFs in trade journals, local newspapers, on radio and television programs, and through seminars and presentations at trade shows. The Company is also in contact with a number of government agencies and industry organizations whose role it is to locate and promote new opportunities for the economic benefit of farmers.
There appears to be very strong interest in the Company's project from the farming community. Even though we have not been advertising, to date the Company has received applications from more than fifty farmers, and we receive more phone calls each month.
The Company is expecting to have a screening process in place and at least four candidates approved by the time the first MEFF is ready to operate. These individuals will need to qualify for financing in accordance with the requirements of the particular financial institution. Financing will have to be committed before the Company would start construction. It is anticipated that the first operators will be fully trained and qualified by the time the second MEFF is finished and ready to operate.
COMPETITION
The production of food and fuel are both highly competitive. Giant companies compete in both markets with significant competitive advantages. Many competitors of the Company have significantly greater resources and experience than the Company. Additionally, competitors of the Company may have better access to financial and marketing resources superior to those available to the Company. With the resources and name recognition that competitors possess, the Company may face severe adversity entering the markets it is pursuing. There is no assurance the Company will be able to overcome the competitive disadvantages it will face as a small, start-up company with limited capital.
Major oil and petroleum companies as well as alternate energy companies will all be competitors of the Company. The Company is not aware of any competitors who offer farm scale feedlot-fuel plants, although there are several competitors who produce ethanol on a very large scale basis. Generally speaking, they produce dry ethanol for the gasahol market. The tests being done by Archer Daniels Midland suggest they are looking for ways to expand their ethanol production into use in the diesel fuel business. The Company believes it has a competitive advantage because of the quality of its hybrid fuel combined with the potential of significantly reduced environmental impact in both producing and using the hybrid fuel.
According to John Robbins in "Diet For A New America", the production of beef, pork, poultry and dairy products has become focused on giant facilities. In these "factories", antibiotics are used to prevent the animals from becoming sick, growth hormones are implanted or fed to force weight gains and toxic chemicals are used to kill flies and to protect the animals from other pests that might interfere with productivity.
Robbins makes the case for consumers who are becoming concerned about the adverse effects on their immune systems of consuming meat and poultry that has been raised using antibiotics and growth hormones. He also refers to evidence that suggests links between the increasing incidence of a number of diseases to the consumption of meat, dairy products and other foods which contain antibiotics, hormones and toxic chemicals.
The Company plans to promote the beef as being free of antibiotics and hormones. As consumers become more selective about eating "clean" meat, the Company anticipates capitalizing on these products being free of these substances. The Company also intends to "brand" the finished product with a name, trade marks and logos (not yet selected) to make the product more easily recognizable in order to generate consumer loyalty and capitalize on brand quality.
TRENDS THAT MAY EFFECT THE COMPANY'S BUSINESS
The Company has identified the following trends as potentially having an impact on the business of the Company.
Trend toward supporting businesses which have a positive environmental impact. The Company seeks to take advantage of this trend by providing technology that produces a hybrid fuel which reduces diesel engine emissions. In addition, the animal finishing operation will be promoted as having an environmentally positive impact in that it produces no groundwater pollution and virtually no odor.
Over the last three decades, there has been a trend toward reducing consumption of meat generally and beef in particular. Continuation of this trend could have an adverse effect on the Company. However, in January 2000, Successful Farming Online reported the first increase in consumer spending on beef since the early 1970s. This was an increase of 4%. This report further says that consumers will pay more for beef that is guaranteed good quality. The Company believes that it will be able to take advantage of this, and a trend toward consumption of healthier foods.
Management is of the view that if overall beef consumption declines, it should have little or no adverse effect on the Company's business as the MEFFs are expected to produce exceptional quality beef which we anticipate marketing as guaranteed quality beef which is hormone and antibiotic free.
As a result of environmental and fuel price concerns in both Canada and the US, there is a push to increase the production of ethanol. One example is former President Clinton's announcement in August 1999 of incentives to triple the use of ethanol in fuels in the US within 10 years. More recently, a press release issued by Agriculture Canada reads, "Ottawa Has Big Plans For Ethanol." The release says in part that, "government officials state that as part of Canada's commitment to reducing emissions from vehicle exhaust, Ottawa will soon announce a package that includes extension and expansion of a plan to guarantee loans for ethanol plant construction or expansion. There will be provision for direct government aid to build new facilities. Recommending a goal of increasing ethanol production capacity to close to one billion liters by 2005, (250,000,000 US gallons) Agriculture Minister Vanclief said producing alcohol from grain would be "the main ticket" for future rural incomes.
The Company believes that initiatives such as these create a more favorable climate for the expansion of the Company's business, even though the Bush administration seems to have much less enthusiasm for ethanol than the previous administration.
The United States and Canada are signatories to the Kyoto Emission Standards Agreement which requires them to adhere to the Kyoto Protocol commitments to reduce pollution by the year 2010, although the Bush administration has been balking at complying with those commitments. In addition, many states, such as California, have or are considering legislation to eliminate the use of MTBE as an octane enhancer and "clean air" additive. This should work to the advantage of the Company, as most media reports indicate that ethanol appears to have the edge as the product to reduce the use of fossil fuels and the "clean air" additive of choice to replace MTBE.
TRENDS THAT MAY EFFECT THE COMPANY'S BUSINESS (con't)
ethanol and diesel which reduces emissions, without incurring drying costs. Even if there is no market for the hybrid diesel fuel, the ethanol should still be valuable for use in other products such as windshield washer fluid or gasohol.
Another trend that may work to our advantage is the trend of governments and health regulators to mandate environmental clean-ups and reduce pollution. In California and other states, local authorities are implementing stricter environmental clean-up requirements, in particular tighter restrictions on the handling of dairy waste which has been found to contaminate ground water. According to a Press-Enterprise report written by Leslie Berkman, in 1999, the Santa Ana Regional Water Quality Control Board, which enforces state and federal water quality standards in the Santa Ana River watershed, mandated dairy farmers remove stockpiled manure by December 31, 2001. They also established a new 180 day limit for new manure to be cleared from the dairies. The Company's use of gasifier technology and the fuel/feed facilities may assist farmers to comply with this type of regulation.
Another factor is that beef prices are especially volatile as a result of the "mad cow" scare sweeping Europe. Management believes that as a result, prices for hormone free beef, particularly from North America, which is still BSE free, will rise in the short term even though demand is likely to decline. This should work to the benefit of the Company.
In addition, with fuel prices as high as they are, the price of ethanol has increased over the last year. This trend should work to the advantage of the operators and the Company.
RESEARCH AND DEVELOPMENT
Since 1998, the Company has spent $8,000 on research and development. The majority of funds were spent on perfecting the formula for the emulsifier. The balance of the funds were spent on testing at the British Columbia Institute of Technology to quantify the effects of the use of the hybrid fuel in an unaltered diesel engine.
During the next twelve months, the Company anticipates conducting further research and development with respect to the following:
1. Researching the long-term use of the hybrid fuel, particularly in extreme temperatures; plus testing and refinement to obtain the optimum hybrid fuel mixture.
With respect to further testing of the hybrid fuel, the Company has had preliminary discussions with manufacturers of diesel engines and several companies that operate large fleets of diesel powered equipment. This research is expected to cost the Company very little as several local operators such as Oyama Forest Products Ltd., and Mark Tarasewich Trucking Ltd., have expressed interest in using the fuel in their operations and providing testing and evaluation services at no charge to the Company. As of this date, no contracts have been entered into.
The Company is also investigating the availability of grants from various government agencies for support in further testing of the hybrid fuel.
RESEARCH AND DEVELOPMENT (con't)
2. Researching efficiencies in plant construction and operation;
3. Research of training methods and development of training and operations manuals.
The research contemplated in 2 & 3 is not expected to cost much as most of it will be conducted in conjunction with the day to day operations of the plant. No money has been allocated to this research as it will have to be done out of operating revenues when the Company begins to generate those.
PRODUCT PROTECTION
The Company has not patented any of it's proprietary technologies, on the advice of legal counsel. Their reasoning is that obtaining patents tends to publish the discoveries which others can then copy and a small company will have difficulty protecting itself from infringement. As a consequence, the Company has determined that it will protect it's trade secrets and proprietary technologies by careful screening of potential operators and then having them sign non-disclosure agreements. All operators will be well briefed on protecting the proprietary information in their own best interests and all reasonable steps will be taken to ensure that they take all reasonable precautions. Also, the column and the spinner will be manufactured elsewhere, delivered and installed, without the operators knowing how the are constructed. They would essentially have to destroy the column to find out how it was made and how it works. While the Company intends to take all appropriate measures to protect secrecy, as far as the Company is aware, we are the only ones that are developing small scale plants. All of the other ethanol plants that are being considered, of which we are aware, are large operations that will produce millions of gallons per year. Our technology is useless to those operations. Management therefore believes that the risk of not having patent protection is reasonably acceptable.
Item 2. DESCRIPTION OF PROPERTY
The President maintains an office in his home at 740 Westpoint Court, Kelowna, British Columbia, Canada at no cost to the Company and Donald Craig maintains an office at his home in Winfield, B.C., 15 miles north of Kelowna and about 5 miles from the proposed location of the first plant, also at no cost to the Company.
On May 31st, 2001, the office located at #214-2791 Hwy. 97N, Kelowna, British Columbia, Canada was closed. The intention is to have an office in the first plant once it is operating.
The office at #302-855 8th Avenue S.W., Calgary, Alberta, Canada was also closed, as operations will be consolidated in Kelowna for the foreseeable future.
Item 3. LEGAL PROCEEDINGS
No legal proceedings are threatened or pending against the Company or any of its officers or directors. Further none of the Company's officers or directors or affiliates of the Company are parties against the Company or have any material interest in actions that are adverse to the Company's interests.
Although the Company is not involved in any legal proceedings, the following issues may eventually lead to legal action:
(a) On August 4, 1998 and March 23, 1999, the Company's former President authorized the issuance of 1,000,000 and 900,000 shares respectively to individuals without consideration and without Board of Directors resolutions. On August 21, 1999, the then only Director resolved that the share certificates representing ownership of these 1,900,000 shares were issued without adequate consideration being paid to the Company and were therefore not fully paid and non-assessable. The Company first determined that these shares had not been transferred out of the names of the original recipients and then resolved to cancel the share certificates. The Company indemnified the transfer agent, for any costs or liability it may incur in any way arising out of the cancellation of such shares and the transfer agent removed the 1,900,000 shares from the stockholder list effectively reversing the issuance. Six of the cancelled certificates, totalling 550,000 shares, have been endorsed and returned to the Company for cancellation. No formal legal demand for the return of the shares has been made as the former administration has failed to provide addresses despite a number of requests.
The contingencies regarding the cancelled shares relate to anyone who may have subsequent holder rights, and possibly the individuals who were issued those shares who may claim that they were issued for due consideration. The Company has determined that there is no amount to be accrued for future liabilities associated with these shares. The first reason is that all of the shares were still in the names of the original holders when they were cancelled and some of the holders and previous directors were informed verbally of the cancellation. The second reason is that there were no directors resolution issuing the shares and the individuals to whom those shares were originally issued gave no consideration to the Company for those shares. In addition, to date, when a broker has received these shares for possible resale, the broker has phoned the Company or the transfer agent to confirm the status of the shares. Once informed the shares were issued without consideration, the brokers have refused to deal further with the shares.
(b) Unauthorized and/or unsupported payments in the amount of $243,463 were made from Company funds by the past President of the Company during the period May, 1998 to June, 1999. The Company has had no response to requests that the past president provide a full accounting of these amounts. All amounts that were unauthorized by the board of directors or amounts that are not properly documented with invoices and receipts have been accounted for as disputed executive compensation. When the Company has the money available to do so, Company will seek legal advice to determine whether or not it is possible to recover these amounts from the previous administration.
Item 3. LEGAL PROCEEDINGS (c)(con't)
resold to innocent third parties they must be considered outstanding. When the Company has the funds available, it intends to seek legal advice to collect the balance due on the notes. However the Company believes the balance is probably uncollectible.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company has authorized capital of 50,000,000 share of common stock with a par value of $0.001, of which 20,623,600 were issued and 20,053,363 were outstanding as at June 30, 2001 and the Company had 246 shareholders of record.
During the quarter ended June 30, 2000, 3,000,000 shares were issued to investors in return for promissory notes. As those notes had not been paid, the shares were treated as issued but not outstanding. During the quarter ended June 30, 2001, Management learned that that the investors had sold the shares to innocent third parties and not paid the Company. Because those shares have now been sold to innocent third parties, they must be considered issued and outstanding, and are so reflected in the financial statements. For more information regarding the stock, see the Consolidated Statement of Change of Stockholders Equity and Note 7, in the Financial Statements.
The Company's common stock is traded in the National Quotation Bureau's "Pink Sheets" under the symbol "HRID."
The following table sets forth the high and low closing bid prices for the periods indicated, as reported by the National Quotation Bureau.
HIGH LOW
---- ---
1999
----
3rd Quarter 2.00 0.50
4th Quarter 0.75 0.125
2000
----
1st Quarter 3.00 0.50
2nd Quarter 1.875 0.50
3rd Quarter 0.75 0.275
4th Quarter 0.40 0.15
HIGH LOW
---- ---
2001
----
1st Quarter 0.28 0.05
2nd Quarter 0.14 0.045
|
The Company has never paid cash dividends. The Directors of the Company currently anticipate that it will retain all available funds for use in the operation of the business and does not anticipate paying any cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES.
Date, title and amount of securities sold
Date Title Amount ---- ----- ------ August 10, 2000 Common Stock 10,700 shares August 31, 2000 Common Stock 20,100 shares November 28, 2000 Common Stock 42,000 shares June 26, 2001 Common Stock 25,733 shares June 11, 2001 Common Stock 1,300,000 shares |
1. The shares issued August 10, 2000, August 31, 2000, November 28, 2000 and
June 26, 2001 were all made in consideration of shareholders not exercising
their right of rescission which arose from an Offering Memorandum issued in
December 1998 that required a rescission offer as it contained information that
appeared inaccurate. As the Company had no funds to complete a rescission, the
Company offered restricted stock in lieu of such an offer, and these
individuals accepted that offer. The individuals who accepted the offer were
also given an undertaking that they would receive a rescission offer when the
Company had the funds available and they would then have the right to return of
their money plus reasonable interest or they could keep the stock. The money
paid is shown as temporary equity and the stock is shown as issued but not
outstanding until the rescission rights are revoked. The Company relied upon
Section 4(2) of the Securities Act of 1933 to effect the issuance of the
shares. All shares were issued in isolated private transactions not involving
any public solicitation or offering.
2. On June 11, 2001, resolutions were passed to issue 200,000 shares to John Morrison, Director and CFO in return for services rendered to the Company. However, the Transfer Agent did not issue the actual share certificate until September 2001. On June 11, 2001, 100,000 shares were issued to the manager of the packing plant for services rendered to March 15, 2001. A further 1,000,000 shares were issued to an unrelated company which had made payments of $119,468 of Company related expenses. See Note 7 to the Financial Statements. The Company claims exemption from registration pursuant to Sec 4(2), in that the shares were issued in isolated private transactions not involving any public offering.
Item 6. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Historical Results
The loss for the year ended June 30, 2001, was $312,660, compared to $324,144 for the comparable period the previous year. The largest items making up those losses were the deposit of $170,561 on the packing plant which was written off in 2000 and the advances of $84,951 to Blue Mountain which were in written off in 2001. As the deposit was paid in the period ended June 30, 2000, and the audit for that year was completed after the deposit was forfeited, the removal of the deposit as an asset is disclosed as effective the June 30, 2000 year end. The advances to Blue Mountain were written off as of this year end when it became clear in June 2001 that commitments from investors to advance money to the Company, which could have allowed Blue Mountain to begin operating, were unlikely to be fulfilled.
Historical Results (con't)
resulted from the Company filing a registration statement in February 2000, and
becoming fully reporting in April 2000. The accounting and legal fees
associated with responding to comments from the SEC and filing the quarterly
and annual reports were incurred subsequent to the June 2000 year end. These
fees are likely to decline to about $20,000 in the next fiscal period as we are
now caught up on all of the filings, although we have comments to which we will
be responding.
Imputed interest increased from $30,735 in 2000 to $59,202 in 2001. This is interest that is imputed on non-interest bearing amounts that are advanced to, or paid on behalf of the Company, plus deferred executive compensation. The increase results from of increases in deferred executive compensation, plus advances to, or on behalf of the Company. Executive compensation shown is the salary for the President, which is deferred until funds are available.
To date we do not have any operations that generate revenue and have been unable to raise money to begin operations. Until such time as the Company gets the first plant operating, sells and constructs more plants and recognizes revenue, the Company is likely to continue to experience a cash shortage. Because the Company is a developmental stage company, it is unlikely to be able to borrow money from banks and other traditional financial institutions. The lack of long term, adequate financing continues to be of great concern to management. The Company will require additional capital soon in order to continue as a going concern in the long term.
PLAN OF OPERATION
Management recognizes that to generate long-term cash flow, we need to develop operating activities. For this, we need to build and begin operating the first bio-fuel and beef facility. This is essential to create cash flow and to demonstrate to potential operators, lenders and investors that the technology works as described. Prospective operators and those who will approve the financing for the construction of subsequent plants, want to see a facility in operation before they commit themselves.
The Company is concentrating on raising the money to build its first commercial plant and start commercial operations. In an attempt to raise money to build the first plant, the Company, in April, 2001, agreed in principle to sell a license to use the technology in a specified territory. This was done by a combination of letters and telephone discussions. The proposed Licensee is to pay an initial license fee in non-refundable installments, plus a continuing royalty based on the number of plants operating and is to lease all of the columns and spinners from the Company. There would also be a performance requirement. Although negotiations continue as the proposed licensee continues organizational activities, no definitive agreement has been reached and no money has changed hands. If we successfully conclude this deal, the license would be accounted for as having a life span of 10 years and the fee would be recognized proportionately over that period.
It appears there is a reasonable possibility that we will be able to complete the sale of a license before our fiscal year end in June 2002. If we are able to consummate an agreement as presently being discussed, the first installment of the fee would be sufficient to pay the Company's payables and operating costs for the next 12 months.
Management would prefer to build the first plant at Oyama, on farmland just north of Kelowna, British Columbia. This location provides the company the best supervisory ability and site control. This facility is to be a full- scale commercial enterprise, as well as a demonstration and training center for the operators of subsequent facilities.
In June, 2001, an arrangement was made with HF1 Fuels Inc., an independent, arms length contractor, to build a complete facility, designed to our specifications, on a cost plus 10% basis, in Oyama and then lease it to the Company's subsidiary, Hybrid Fuels (Canada) Inc. All of the required government approvals and building permits have been obtained. HF1, which built the Cardston plant, owns and has, by court order, recovered most of the production and holding tanks and other equipment required for ethanol production and has delivered them to the Oyama building site. At year end, 2001, HF1 Fuels Inc., had agreements in principle with a leasing company to finance, and with a contractor to build, the plant and commence operations. Subsequent to year-end, before the final agreements were signed, the contractor was forced to withdraw from the arrangement due to circumstances beyond his control. As of the date of this report, HF1 Fuels Inc., (HF1) is negotiating with another contractor to construct the plant. HF1 is also negotiating with a commercial leasing company to obtain a written commitment to pay out the contractor when construction is complete. The contractor has stipulated that he requires a written commitment from the leasing company, before commencing construction.
Assuming this arrangement is finalized, construction is complete, and the plant operating, the leasing company is expected to pay out the contractor and then lease the plant directly to Hybrid (Canada), which will operate it as a commercial plant, generating revenue from those operations. If this arrangement can be concluded, it should give us an operational facility in the near future.
An operating facility includes the barn, the ethanol making equipment, the bio-furnace or gasifier, "Greener Pastures" grass growing system, and the right to use the proprietary information and technology, as more fully described under "Proposed Facilities" on page 6 above. The cost of building this plant is anticipated to be approximately $350,000. Soft costs are estimated at $60000, approximately $70000 for construction labor and supervision. The balance is for foundations and flooring, buildings, ethanol making equipment, tanks and machinery. Labor for operating is not included as that is the responsibility of the operator and is expected to be paid out of operating revenues.
We anticipate it will take approximately two to four months from the start of construction until the plant is operational and four to five more months before it is generating positive cash flow. The lease is being negotiated to cover all construction costs. Lease payments are to begin when cash flow is achieved. HF1 and the contractor are to pay all costs in connection with the construction and start-up. Hybrid Fuels, Inc., and Hybrid Fuels (Canada) Inc., have no financial obligation to HF1 or the contractor, other than to provide technical oversight, until the plant is actually operating.
Our projections, based on present operating and financing costs compared to the revenue from the sale of beef at going market prices, plus the projected revenue from the sale of the ethanol, indicate the plant should generate positive cash flow. We estimate that positive cash flow will begin in the fifth or sixth month of operation, as it will take that long to bring the first animals to market. The financial institutions that have expressed interest in financing subsequent plants want to see that this first plant will generate sufficient cash flow to pay all operating costs and service the debt to build the plant. We anticipate that the plant will show sufficient cash flow to make it possible for us to get approval for financing subsequent plants. By the time we receive approval for financing of subsequent plants, the Company expects to have selected four operators and once they have been selected and have qualified for financing, they will be trained.
Once the first plant is in production, it is anticipated that it will take approximately 6 months to build the second plant and get it operating. Within 18 to 24 months of the first plant beginning production, we expect to have 15 to 20 plants operating.
To date, the Company has received applications from more than fifty farmers who are interested in acquiring our facilities. The Company is currently developing a screening process to select suitable candidates and expects to assist them in obtaining financing for plant construction.
After the first plant is operating, the Company is expecting to sell future plants to farm operators. We expect that many of these operators will require financing in order to purchase a plant. We have had preliminary discussions with CIBC, Scotiabank, Leaseline, Dominion Leasing and a Swiss broker with connections to several European "ECO" funds, all of whom have expressed interest in providing financing to build these facilities, once we are able to demonstrate sufficient cash flow. We are especially interested in the "ECO" funds which invest in projects that benefit the environment and we have been told that our project should qualify. Again, the operation needs to be demonstrated. Once the first plant is operating the plan is for the Swiss broker to arrange to have the appropriate representatives of these ECO funds inspect the plant and if it qualifies, to use them as a source of funding for financing the plants for the operators.
The Company expects to earn a profit and recognize revenue on the sale of each plant. The profit on the sale of each plant is expected to be based on the value to the operator of having the Company organize and supervise the construction of the plant and train the operator. The profit from the sale of the plants is expected to be sufficient to cover all of the operating costs the Company will incur in qualifying candidates, training operators, supervising construction and start-up, etc., until royalties are received.
The Company expects to receive a royalty for the use of the trade secrets and proprietary information. The royalty, which is expected to be $2500US per month, based on the projected benefits of the use of trade secrets to the operator, will begin when each plant begins operation. Incentives in the form of reduced royalties may be offered to the first 10 to 20 operators who make early commitments to purchase plants.
In addition, the Company intends to lease to the operators, on a permanent basis, the separation column, which is used to distill the ethanol, and the spinner, which is used to separate the mash from the water after the fermentation process. These two items are integral parts of these plants and leasing them is designed to protect the secrecy of these most vital pieces of the technology. The lease payments will generate revenue for the Company and will be payable monthly in amounts yet to be finalized.
The Company expects to enter into contracts with its operators to act as the marketing arm for the beef and fuel. This is expected to generate revenue and give the Company greater quantities of both products than each individual operator would have. The Company believes this will provide us with the ability to make better deals with, and provide more secure delivery to, distributors and other purchasers. This is expected to relieve the operators of these marketing responsibilities, generate greater revenue for them and revenue for Hybrid. Revenue for Hybrid is expected to come from the handling of the fuel and from a portion of any premium that the Company can obtain from the sale of the beef.
Initially it is anticipated that most of the finished beef will be sold at auction, until the Company has control of sufficient quantity to be able to enter into supply contracts that will pay better prices. The Company intends to market directly to retailers that wish to provide hormone free beef to their customers.
The Company anticipates entering into an agreement with its operators to pay the Company an incentive for obtaining premium prices for the sale of the beef. We anticipate this will be in the form of a percentage of the premium realized, in an amount yet to be determined.
Based on the results of the test trials at the Dalum plant, the Company believes it will be able to generate premium prices for the beef because it is hormone free and because of its high quality and taste. There, the purchaser of the 123 heifers agreed to pick up subsequent lots at the plant and pay a premium of $0.10 per pound for all of the beef that could be produced by this process.
Management recognizes that the first step towards generating premium prices, is to produce quality controlled beef. Based on the Dalum results, discussed on pages 9 and 10 above, we believe the process will produce such beef, which we intend to name brand and certify, although no decisions have been made on the name brand or how certification will be accomplished.
Until we have several plants producing beef, our best chance of obtaining premium prices is to ship the beef from the first few plants, to Cargill, which offered a premium for the beef produced by the Dalum operation. Longer term, which will probably take about a year after the first plant is operating, and we have supplies from half a dozen or so plants, and resources such as processing and handling facilities are available, the Company intends to market direct to specialty markets, such as retail outlets that wish to handle hormone free, "natural" beef. Based on discussions which we have had with local retailers such as L & D Meats, and information we have gathered from articles such as "Natural Beef Proves Viable" in the August 17, 2000 edition of Western Producer, we believe such markets will generate premiums.
Once the Company has sufficient quantities and resources, it intends to develop foreign markets that are looking for natural beef and specialty markets like the cruise ship lines. We have also been in contact with a European meat broker, Van Aerde of Belgium, which has cold storage capacity of 84,000 tonnes. Van Aerde has told the Company that they believe we would receive premium prices but that they will need samples of the meat once produced to do quality comparisons. The Company does not have any commitments to sell the beef at premium prices at this time.
How long it will take to establish markets that will pay premium prices is difficult to estimate as it will depend partly on how fast we can build enough plants with sufficient capacity to satisfy the needs of these markets. It is anticipated to be a gradual process. However, the Company anticipates that by the end of the first full year of operations, it will control enough beef to be able to secure markets that will pay premium prices.
The Company believes that ultimately the best way to obtain the best premium, is to control the processing, marketing and distribution of the finished beef. To that end the Company continues to search for money to purchase the packing plant known as Blue Mountain Packers, near Salmon Arm, B.C. This is not likely to happen before our next fiscal year end, but it remains part of our long term plan. No commitment will be made to purchase the packing plant until sufficient money is committed to pay the purchase price and cover operating expenses until positive cash flow is achieved.
In summary, Hybrid anticipates that it will earn revenue from:
1. operating the first facility;
2. profit on the sale of subsequent plants;
3. the lease of the column and spinner to each operator;
4. the royalties and service fees that each operator will pay;
5. the purchase of the ethanol mixture from the operator at 80 % of wholesale
value and the sale to distributors or end-users;
6. an incentive from premiums from marketing the finished animals.
In the absence of operating activities, the Company's general and administrative expenses for the next 12 months are expected to be less than $500 per month, exclusive of executive compensation, which is deferred, and professional fees for legal and accounting services. We do not have any cash reserves and in the absence of cash flow from operating activities, it is anticipated that related parties will continue to pay operating expenses and advance funds to pay legal and accounting fees, but no assurances can be given.
For the coming quarter, management anticipates spending most of its energies on complying with reporting requirements and negotiating agreements to build the first plant and get it generating revenue.
Because of the low stock price, and the fact that we are on the "pink sheets", the Company does not intend to sell any additional shares of its common stock in the immediate future, however that may become necessary if there is no other source of money to pay expenses. Once we can build the demonstration plant and it begins to produce income the Company will need to operate within the constraints of its cash flow. As this first plant is to be operated by Hybrid (Canada), all of the profits will be available to the Company to cover operating expenses. Assuming that it will be necessary to pay market price for grain, bedding and other supplies and that we will receive no more than market price for the finished animals, projections indicate that the plant should generate sufficient revenue to pay all of our operating costs, plus a small surplus which may be used toward development of operating activities.
Once the first plant is operating and generating positive cash flow, the Company believes it will be able to obtain financing from previously identified "ECO" funds to develop operating activities. Until the Company has received money from the sale of a license, or is generating positive cash flow, or has arranged financing, no operating activities are planned. The Company does not anticipate making any commitments to borrow money within the next 12 months, except as necessary to build the first plant.
Item 7. FINANCIAL STATEMENTS
Hybrid Fuels Inc.
Index to Consolidated Financial Statements
Report of Independent Auditors..........................F-1 Consolidated Balance Sheets ............................F-2 Consolidated Statements of Operations...................F-3 Consolidated Statements of Cash Flows...................F-4 Consolidated Statements of Stockholders' Equity.........F-5 Notes to Consolidated Financial Statements..............F-6-F-10 |
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors of Hybrid Fuels, Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of Hybrid Fuels, Inc. (A Development Stage Company) as of June 30, 2001 and 2000 and the related statements of operations, stockholders' equity and cash flows accumulated for the period from February 16, 1960 (Date of Inception) to June 30, 2001 and the years ended June 30, 2001 and 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards used in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
We previously reported on the consolidated financial statements of Hybrid Fuels, Inc. for the year ended June 30, 2000 in our audit report dated April 17, 2001. We expressed a qualified opinion with respect to the inability to audit certain unauthorized payments to former directors. We subsequently examined additional documentation to satisfy ourselves that these payments to former directors were in fact unauthorized and unsupported. The Company discusses these unauthorized payments in Note 7(b) to the consolidated financial statements. Certain other adjustments came to light during our subsequent review of the additional information. As discussed in Note 10 to these financial statements certain income statement items have been restated. We therefore reissue this audit report dated September 21, 2001.
In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the financial position of Hybrid Fuels, Inc. (A Development Stage Company), as of June 30, 2001 and 2000, and the results of its operations and its cash flows accumulated for the period from February 16, 1960 (Date of Inception) to June 30, 2001 and the years ended June 30, 2001 and 2000 in conformity with generally accepted accounting principles used in the United States.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not generated any revenues and has conducted operations at a loss since inception. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
MANNING ELLIOTT
CHARTERED ACCOUNTANTS
Vancouver, Canada
September 21, 2001
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(Restated - See Note 10)
June 30, June 30,
2001 2000
$ $
-------------------------------------------------------------------------------
ASSETS
Current Assets
Cash 2 485
Total Assets 2 485
------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 14,807 3,111
Accrued liabilities (Note 6(d)) 15,000 -
Note payable (Note 4) 33,638 42,013
Shareholder loan payable (Note 6(a)) 196,255 163,748
Amounts owing to a Director (Note 6(b)) 152,111 74,432
------------------------------------------------------------------------------
411,811 283,304
------------------------------------------------------------------------------
Temporary Equity (Note 7(d)) 223,000 223,000
Stockholders' Equity (Deficit)
Common Stock (Note 7): $0.001 par value;
50,000,000 shares authorized 20,623,600
and 19,523,600 shares are issued and
outstanding respectively 20,624 19,524
------------------------------------------------------------------------------
Additional Paid-in Capital 285,842 162,474
------------------------------------------------------------------------------
Donated Capital -
Imputed Interest (Notes 5 and 6) 115,937 56,735
------------------------------------------------------------------------------
Deficit Accumulated During
the Development Stage (1,057,212) (744,552)
------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit) (634,809) (505,819)
------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity 2 485
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Nature of Operations and Continuance of Business (Note 1) Other Contingencies (Note 8)
(See Accompanying Notes to the Consolidated Financial Statements)
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
Accumulated from (Restated -See Note 10)
February 26, 1960 Years ended
(Date of Inception) June 30, June 30,
to June 30, 2001 2001 2000
$ $ $
------------------------------------------------------------------------------
Revenue - - -
------------------------------------------------------------------------------
Expenses
Advances to Blue Mountain Packers
written-off (Note 3) 84,951 84,951 -
Deposit on plant written-off
(Note 3) 170,561 - 170,561
Disputed compensation (Note 8(b)) 243,463 - -
Executive compensation (Note 6(b)) 144,000 72,000 72,000
Filing and regulatory fees 15,530 5,092 5,438
General and administration 58,949 2,973 3,045
Imputed interest (Notes 5 and 6) 115,937 59,202 30,735
Interest 2,129 2,129 -
Investor relations 16,698 4,092 12,606
Professional fees 141,368 72,419 22,008
Rent and telephone 41,922 6,699 6,535
Research and development 8,000 - -
Travel and promotion 13,704 3,103 1,216
------------------------------------------------------------------------------
1,057,212 312,660 324,144
------------------------------------------------------------------------------
Net Loss (1,057,212) (312,660) (324,144)
------------------------------------------------------------------------------
Net Loss Per Share (.02) (.02)
------------------------------------------------------------------------------
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Weighted Average Shares Outstanding 19,524,000 14,609,000
(See Accompanying Notes to the Consolidated Financial Statements)
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
Accumulated from (Restated - See Note 10)
February 26, 1960 Years ended
(Date of Inception) June 30 June 30
to June 30, 2001 2001 2000
$ $ $
------------------------------------------------------------------------------
Cash Flows To Operating Activities
Net loss (1,057,212) (312,660) (324,144)
------------------------------------------------------------------------------
Non-cash items
Shares issued for services 12,000 - -
Other adjustment (502) - -
Imputed interest 115,937 59,202 30,735
Deposit on plant written-off 170,561 - 170,561
Advances written-off 84,951 84,951 -
------------------------------------------------------------------------------
Adjustment to reconcile net loss to cash
Accounts payable and accrued liabilities 29,807 26,695 3,111
Net Cash Used In Operating Activities (644,458) (141,812) (119,737)
------------------------------------------------------------------------------
Cash Flows To Investing Activities
Deposit on plant (170,561) - (170,561)
Advances to Blue Mountain Packers Ltd. (79,951) (79,951) -
------------------------------------------------------------------------------
Net Cash Used By Investing Activities (250,512) (79,951) (170,561)
------------------------------------------------------------------------------
Cash Flows From Financing Activities
Note payable 33,638 33,638 -
Advances payable 119,468 77,455 42,013
Amounts owing to a Director 152,111 77,679 74,432
Shareholder loans payable 196,255 32,508 24,338
Temporary equity and redeemable shares 223,000 - -
Issuance of common stock 170,500 - 150,000
------------------------------------------------------------------------------
Net Cash Provided By
Financing Activities 894,972 221,280 290,783
------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 2 (483) 485
------------------------------------------------------------------------------
Cash - Beginning of Period - 485 -
------------------------------------------------------------------------------
Cash - End of Period 2 2 485
------------------------------------------------------------------------------
Non-Cash Financing Activities
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A total of 12,000,000 common shares were issued for services in 1993 12,000 - - A total of 1,100,000 restricted common shares were issued to settle debt
124,468 124,468 -
------------------------------------------------------------------------------
Supplemental Disclosures
Interest paid in cash - - -
Taxes paid in cash - - -
(See Accompanying Notes to the Consolidated Financial Statements)
==============================================================================
F-5
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Equity
Deficit
Accumulated
# of Additional During the
Shares Par Paid-in Donated Development
Issued Value Capital Capital Stage
and
Outstanding Total
$ $ $ $ $
------------------------------------------------------------------------------
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Cumulative from February 16, 1960 (Date of Inception) to June 30, 1997
15,000,000 15,000 3,398 - (18,398) -
Shares returned to treasury for cancellation (Note 7(a))
(12,000,000)(12,000) 12,000 - - -
Shares issued to effect a reverse merger (Note 7(a))
12,000,000 12,000 (12,000) - - -
Net loss for
the year - - - - (93,633) (93,633)
Balance at June 30, 1998
15,000,000 15,000 3,398 - (112,031) (93,633)
Issuance of 1,900,000 shares (Note 7(b))
1,900,000 1,900 (1,900) - - -
Issuance of shares for cash
23,600 24 13,576 - - 13,600
Imputed Interest (Note 5)
- - - 26,000 - 26,000
Net loss for the year (308,377) (308,377)
Balance at June 30, 1999
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16,923,600 16,924 15,074 26,000 (420,408) (362,410)
Cancellation of shares previously issued (Note 7(b))
(1,900,000) (1,900) 1,900 - - -
Issuance of shares for no consideration (Note 7(c))
3,000,000 3,000 (3,000) - - -
Issuance of shares pursuant to a subscription agreement (Note 7(c))
1,500,000 1,500 148,500 - - 150,000
Imputed Interest (Notes 5 and 6)
- - - 30,735 - 30,735
Net loss for the year (Restated - See Note 10) (324,144) (324,144)
Balance at June 30, 2000
19,523,600 19,524 162,474 56,735 (744,552) (505,819)
Issuance of shares in June 2001 to settle debt (Notes 7(e) and (f))
1,100,000 1,100 123,368 - - 124,468
Imputed Interest (Notes 5 and 6)
- - - 59,202 - 59,202
Net loss for the year (312,660) (312,660)
Balance at June 30, 2001
20,623,600 20,624 285,842 115,937 (1,057,212) (634,809)
As at June 30, 2001 an additional 237,853 shares were issued but not outstanding as these shares were issued with rescission rights attached (Note 7(d)).
1. Nature of Operations and Continuance of Business The Company was originally incorporated in the State of Florida on February 16, 1960. After a number of name changes the Company changed its name to Polo Equities, Inc. on June 3, 1993. Prior to May, 1998 the Company had no business operations. In May 1998, the Company caused a Nevada corporation to be formed under the name Polo Equities, Inc., (Polo) (a Nevada corporation), with authorized capital of 50,000,000 common shares of $.001 par value. The two companies then merged pursuant to Articles of Merger adopted May 28, 1998 and filed with the State of Nevada on June 10, 1998, which changed its domicile to Nevada. On May 28, 1998, the Company acquired, by issuing 12,000,000 shares, Hybrid Fuels, USA, Inc. and 330420 B.C. Ltd., which changed its name to Hybrid Fuels (Canada) Inc. This acquisition was accounted for as a reverse merger whereby the shareholder of Hybrid Fuels, USA, Inc. and Hybrid Fuels (Canada) Inc. gained control of Polo Equities Inc. which changed its name to Hybrid Fuels, Inc. All historical financial statements are those of Hybrid Fuels, USA, Inc. and Hybrid Fuels (Canada) Inc. As part of the acquisition, three shareholders representing 12,000,000 previously issued shares returned their shares for cancellation. For accounting purposes the acquisition was treated as a reverse merger business purchase of Polo Equities Inc. by Hybrid Fuels, USA, Inc. and Hybrid Fuels (Canada) Inc. No amount was allocated to the intellectual asset as it was acquired from a related party and the transfer had no cost basis associated with it. There was no public market for the shares of Polo Equities, Inc. at the time of the reverse merger. The Company operates through these two wholly-owned subsidiaries. On May 29, 1998 the Company changed its name to Hybrid Fuels, Inc., herein "the Company". On June 10, 1998 the Company began trading on the OTC Bulletin Board under the symbol "HRID" and in December, 1999 was moved to the "Pink Sheets". From May 1998 to June 1999 the Company operated out of an office in California which was set up for investor relations and to raise additional capital. This office was shut down in June and the new President and directors are operating out of Kelowna, BC, Canada after the Calgary, Alberta, Canada office was shut down on May 3, 2001. Pursuant to the acquisition, the Company acquired a number of proprietary technologies with the primary objective of the business being to build small farm scale ethanol facilities which involves a number of proprietary technologies exclusively owned by the Company. Other proprietary technology involves the use of a bio-gas burner which burns manure and bedding straw. This technology eliminates ground and ground-water contamination and produces most of the energy required for the facility by supplying heat for fermentation and vaporization and for the operation of a greenhouse, if desired. Another exclusive proprietary technology is a vegetable based formula which allows diesel and ethanol to emulsify. This hybrid fuel reduces particulate emissions without reduction in power when used in an unaltered diesel engine. The Company is in the early development stage. In a development stage company, management devotes most of its activities in investigating business opportunities and further advancing its technologies. Because of a deficiency in working capital and other current commitments and significant operating losses, there is substantial doubt about the ability of the Company to continue in existence unless additional working capital is obtained. The Company will need to rely on the forbearance of some creditors and related parties have agreed to continue to fund working capital as needed. The Company has entered into discussions with third parties to directly finance a facility in which the Company will then commence with its business plan.
2. Summary of Significant Accounting Policies
(a) Consolidated Financial Statements These consolidated financial statements
represent the consolidation of the Company and its two subsidiaries Hybrid
Fuels, U.S.A., Inc, and Hybrid Fuels (Canada) Inc.
(b) Cash and Cash Equivalents The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
(c) Use of Estimates The preparation of financial statement in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
(d) Accounting for Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that stock awards granted be recognized as compensation expense based on fair values at the date of grant. Alternatively, a company may account for stock awards granted under Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and disclose pro forma income amounts which would have resulted from recognizing such awards at their fair value. The Company has elected to account for stock-based compensation for employees under APB No. 25 and make the required pro forma disclosures for compensation expense. Stock based compensation for non-employees are accounted for using SFAS No. 123.
3. Deposit on Plant
The Company deposited Cnd$250,000 ($170,561), with Mega Holdings, Inc., pursuant to an option agreement to purchase a beef processing plant owned by Mega Holdings, Ltd. The Company agreed to purchase the beef processing plant facility including land, buildings and equipment for Cnd$3,000,000 which was below appraised value. The purchase agreement required an additional payment of Cnd$150,000 on June 24, 2000, the parties agreed to extend the deadline for the payment until March 15, 2001. This payment was not made and the deposit was forfeited and the option agreement terminated. Upon anticipated completion of the purchase, this beef processing plant was to be operated by Blue Mountain Packers, Ltd. (a related company). The Company intended to acquire the issued and outstanding common shares of Blue Mountain Packers, Ltd. for a nominal amount and operate it as a wholly-owned subsidiary. Blue Mountain Packers, Ltd. had recently received certification by the Canadian Food Inspection Agency of the Government of Canada, Department of Agriculture for the processing of Canadian beef. Blue Mountain Packers is a related party due to having one common director. The Company advanced $84,951 to Blue Mountain Packers for plant refurbishing. These advances bear interest at 8%. Due to the termination of the option agreement these advances are considered uncollectible and have been charged to operations.
4. Note Payable
5. Advances Payable
A non-related company coordinated investor relations services for the Company and paid expenses of $69,248 on behalf of the Company and loaned the Company Cnd$78,000 ($50,220) for a total amount owing of $119,468. This debt was settled in June 2001 by the issuance of 1,000,000 restricted common shares of the Company. These advances were non-interest bearing and unsecured until the settlement date. Imputed interest of $13,326 (2000 - $2,965), calculated at a rate of 15% per annum, was charged to operations and treated as donated capital.
6. Related Party Transactions/Balances.
(a) Cash loans of $499,059 were advanced to the Company by the major shareholder. A total of $365,590 was repaid with cash. The controlling shareholder also paid office, rent and professional fees totalling $62,786 on behalf of the Company. The balance of $196,255 is currently owing without interest or specific repayment terms. Imputed interest of $29,041 (2000 - $20,800), calculated at a rate of 15% per annum, was charged to operations and treated as donated capital.
(b) The President who is also a Director of the Company, has paid office and related expenses from personal funds in the amount of $14,411 of which $6,300 has been reimbursed with cash. Effective July 1, 1999 the President is entitled to a deferred salary of US$6,000 per month and was owed a total of $144,000 at June 30, 2001. These amounts are unsecured, non- interest bearing and due on demand. Imputed interest of $16,835 (2000 - $6,970), calculated at a rate of 15% per annum, was charged to operations and treated as donated capital.
(c) See Note 3 for advances to Blue Mountain Packers Ltd.
(d) On June 11, 2001 pursuant to a directors' consent, a total of 200,000 shares will be issued to a director/officer of the Company to settle $10,000 owing as at June 30, 2001. This amount has been accrued and is included in accrued liabilities.
7. Stockholders' Equity
(a) On May 28, 1998, the Company acquired, by issuing 12,000,000 shares, Hybrid Fuels, USA, Inc. and 330420 B.C. Ltd., which changed its name to Hybrid Fuels (Canada) Inc. This acquisition was accounted for as a reverse merger whereby the shareholder of Hybrid Fuels, USA, Inc. gained control of Polo Equities Inc. As part of the acquisition three shareholders representing 12,000,000 previously issued shares returned their shares for cancellation. For accounting purposes the acquisition was treated as a business purchase by Hybrid Fuels USA Inc. of Polo Equities, Inc. No amount was allocated to the intellectual asset as it was acquired from a related party and the transfer had no cost basis associated with it. There was no public market for the shares of Polo Equities, Inc. at the time of the reverse merger.
7. Stockholders' Equity (b)(con't)
Company and were therefore not fully paid and non-assessable. The Company cancelled the share certificates and indemnified the transfer agent, for any costs or liability it may incur in any way arising out of the cancellation of such shares and the transfer agent removed the 1,900,000 shares from the stockholder list effectively reversing the issuance. Six of the cancelled certificates, totalling 550,000 shares, have been endorsed and returned to the Company for cancellation. The contingencies regarding the cancelled shares relate to anyone who may have subsequent holder rights, and possibly the individuals who were issued those shares who may claim that they were issued for due consideration. The Company has determined that there is no amount to be accrued for future liabilities associated with claims by subsequent shareholders. To date when these shares are delivered to a broker for possible resale the broker phones the Company or the transfer agent and the shares are kept and cancelled. The Company will continue to monitor this issue. No other contingent liabilities have been included as some of the previous directors have been informed verbally of the cancellation. No formal legal demand has been made as the former administration has failed to provide addresses despite a number of requests.
(c) On May 17, 2000 the Company issued 1,500,000 shares for $150,000 cash pursuant to a subscription agreement dated February 17, 2000. On February 17 and 18, 2000, the Company accepted subscription agreements and notes whereby the Company would receive $300,000 for 3,000,000 shares. The 3,000,000 shares were issued and were then held in escrow . These shares were subsequently released from escrow to the investors to facilitate financing. The notes were to bear interest at 8% and were to be paid within 60 days or at the discretion of the President. In June 2000 the President extended the time for repayment to one week of the Company being re-listed on the Over-The-Counter Bulletin Board or other suitable exchange. When it became apparent there were going to be long delays the notes were demanded to be repaid by February 21, 2001. The notes were not paid as demanded, and the 3,000,000 shares have since been sold by the investors to innocent third parties. The investors did not and have not paid the Company for these shares, despite demands. Since these shares have been resold to innocent third parties they must be considered outstanding. The Company intends to sue the investors for the balance due on the notes, however the Company believes the balance is uncollectible.
(d) Between October 1998 and June 1999, the previous administration sold a total of 351,053 common shares of the Company to 34 subscribers on the basis of an Offering Memorandum that contained a significant number of inaccuracies. A total of $223,000 was raised pursuant to this Offering. The current administration has concerns regarding possible misstatements, omissions and misleading statements. On the advice of legal counsel, the Company offered these 34 subscribers the option of receiving restricted stock as the Company did not and does not have the funds to repay these subscribers. Those who opted to receive restricted stock were also given an undertaking that they would receive a rescission offer when the Company was in a position to repay their money plus appropriate interest, in return for a return of the restricted stock, or they could elect to retain the stock. To date, 23 subscribers, have, pursuant to this offer received 237,853 shares, representing $158,000. These shares are issued but not considered outstanding. The remaining 11 subscribers, who paid $65,000 for 113,200 shares, have not responded to the offer. These subscriptions are recorded as temporary equity until rescission rights have been revoked.
7. Stockholders' Equity (con't)
(e) See Note 5 for 1,000,000 restricted common shares issued to a non-
related company to settle debt of $119,468.
(f) A total of 100,000 restricted common shares, valued at $5,000, were issued to the plant manager of Blue Mountain Packers Ltd. for plant refurbishing work to March 15, 2001.
8. Legal Issues
Although the Company is not involved in any legal proceedings, several issues may eventually lead to the Company instituting legal action as follows:
(a) See Note 7(b) for contingencies relating to improperly issued shares that were later cancelled.
(b) Unauthorized and/or unsupported payments in the amount of $243,463 were made from Company funds by past officers of the Company during the period May, 1998 to June, 1999. The Company has requested a full accounting from the past president. All amounts that were unauthorized by the board of directors or amounts that are not properly documented with invoices and receipts have been accounted for as disputed executive compensation. At such time as Company resources permit, the Company will seek legal advice to determine whether or not it is possible to recover all such disputed and unauthorized amounts from the previous administration.
(c) See Note 7(d) for temporary equity and related rescission rights for subscribers of 351,053 shares of the Company.
9. Subsequent Events
On September 19, 2001, 200,000 shares were issued to settle debt referred to in Note 6(d).
10. Restatements
The Company has restated its financial statements for the year ended June 30,
2000. The nature of the restatements and the effect on net income and earnings
per share are as follows:
$
Net loss for the year as previously reported (80,835)
Corrections effecting net income:
(a) Inclusion of imputed interest at a rate of 15% per annum on non-interest
bearing loans (30,735)
(b) Deposit on plant written-off (170,561)
(c) Recognition of a liability owing to a non-related company for expenses paid
on behalf of the Company (42,013)
Net loss for the year as restated (324,144)
$
Loss per share as previously reported (.01)
Loss per share on restatements (.01)
Loss per share as restated (.02)
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ITEM 8. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS
On July 25, 2000 the Company terminated James E. Slayton, CPA as its independent accountant, and appointed William L. Butcher CPA PS as its independent accountant. The form 8-K regarding the reasons for that change was filed with the SEC on August 28, 2001. (See Item
On February 5, 2001, the Company terminated William L. Butcher CPA PS as its independent accountant, and appointed Manning Elliott as its independent accountant.
During the Company's two fiscal years ended June 30, 2000 and 2001, and any subsequent interim period, there were no "reportable events" requiring disclosure pursuant to Item 304 of Regulation S-B.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth as of June 30, 2001, the name, age, and position of each executive officer and director and the term of office of each director of the Corporation.
NAME AGE POSITION DIRECTOR OR OFFICER SINCE
Clay Larson 60 President and Director, June 28, 1999
John Morrison 67 Director, Secretary and August 6, 2000
Chief Financial Officer,
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Gordon Colledge 57 Director and Vice-President. September 26, 2000
Information about the Offices and Directors
Clay Larson
Prior to becoming a Director and President, Mr. Larson was a practicing lawyer
for 25 years. Prior to leaving the profession in February 1997, he was the
senior and managing partner in the law firm. He has extensive business
experience involving dealing with government agencies, financial institutions,
client services, personnel, computer equipment and operating systems. After
leaving the practice of law, he worked as a business consultant, leaving that
to become President and Director of the Company. Mr. Larson has no other
directorships in any reporting companies.
John Morrison
Mr. Morrison has an extensive accounting background with over thirty years
experience with KPMG ("KPMG"). He passed his CPA exams in 1966, and was
appointed to Beta Alpha Psi as a result of receiving a GPA in excess of 3.5 and
graduated Summa Cum Laude. He received his CA designation in 1968 and then
worked his way from partner in KPMG's Winnipeg Office in 1972 to a senior
partner in KPMG's Vancouver office in 1979. From 1980 to 1989, Mr. Morrison
was the managing partner of KPMG's Kelowna office. He was also Vice-President
of Thorne Ernst & Whinney Inc. from 1980 to 1989. During his tenure with KPMG,
Mr. Morrison was involved in a large number of mergers, acquisitions and
reorganizations. After his retirement from KPMG in 1989, he has provided
ongoing consulting services to a wide range of clients in diverse industries.
Gordon Colledge
Gordon Colledge was appointed a Director and Vice-President on September 26,
2000. Mr. Colledge attended the University of Lethbridge and is currently
taking courses at the University of Great Falls in Montana. During the last
five years, he has been a contract instructor in Family Studies at the
Lethbridge Community College and an international conference keynote speaker
and workshop facilitator. In addition to teaching, Mr. Colledge, along with
his wife, operate two privately held, family owned companies: Advance
Communications Ltd. and Adcomm Research Ltd., both of which are involved in
educational workshops, family mediation and succession planning for small
businesses.
Gordon has earned an international Teaching Excellence Award from the University of Texas at Austin. He has worked with dozens of towns and communities in Western Canada on community development projects through WESTARC, an applied research group at the University of Brandon, Manitoba. An expert in communication, Mr. Colledge was also assigned to work with farm and ranch families and has earned recognition on the Premier's Council in Alberta for his support of those families. Mr. Colledge knows the value of cost effective ranching and farming.
It was in his counseling capacity that Mr. Colledge became knowledgeable with the Issuer's proprietary technology and the positive effect that these technologies have for small to large farms and ranches. Gordon has been an enthusiastic supporter of the Hybrid technology for more than a decade.
All officers hold their positions at the will of the Board of Directors. All directors hold their positions for one year or until their successors are elected and qualified.
ITEM 10. EXECUTIVE COMPENSATION.
Mr. Larson, the Company's President and a Director, began accruing salary in the amount of $6,000 per month as of July 1, 1999, which is being deferred until such time as the Company has adequate funds to pay compensation. The Company also agreed to pay John Morrison $150.00 per hour for work he does for the Company. As at June 30, 2001, the Company issued 200,000 restricted shares to Mr. Morrison for services rendered to year end. At the present time, the Company does not have any other compensation agreements or plans with any other officers and directors of the Company. The Company does intend to enter into such agreements in the future when resources allow.
The Company intends to appoint not more than five new directors who will be remunerated in accordance with their responsibilities with the Company. At year end, no prospective directors had been identified. At such time as new directors and/or officers are appointed, the Company will adopt a compensation plan which will likely include stock options and performance incentives which may be tied to gross sales, increase in sales, gross revenues, increase in gross revenues and profitability.
SUMMARY COMPENSATION TABLE
Annual compensation Long term compensation
-----------------------------------------------------------------------------
Other Restricted Securities LTIP All
Annual stock underlying payouts other
Name & Year Salary Bonus Compen- awards options/SARs ($) Compen-
Principal ($) ($) sation ($) (#) sation
Position
-----------------------------------------------------------------------------
Clay Larson 2001 72,000 -0- -0- -0- -0- -0- -0-
2000 72,000 -0- -0- -0- -0- -0- -0-
President, 1999 36,000 -0- -0- -0- -0- -0- -0-
-----------------------------------------------------------------------------
J. Morrison 2001 $150/hr -0- -0- -0- -0- -0- -0-
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There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in Cash Compensation set out above which would in any way result in payments to any such person upon termination of their employment with the company or its subsidiaries, or any change in control of the Company, or a change in the person's responsibilities following a change in control of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT;
CHANGES IN CONTROL
The following table sets forth as of June 30, 2001, the name and the number of shares of the Registrant's Common Stock, par value $.001 per share, held of record or beneficially by each person who held of record, or was known by the Registrant to own beneficially, more than 5% of the 20,623,600 issued and outstanding shares (see Consolidated Statement of Shareholders Equity in Financial Statements) of the Registrant's Common Stock, and the name and shareholdings of each director and of all officers and directors as a group.
CHANGES IN CONTROL (con't)
Title of Name and Address of Amount and Nature of Percentage of
Class Beneficial Owner Beneficial Ownership Class
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Common Donald Craig 1,850,000 8.97%
12650 Ponderosa Road
Winfield, B.C. V4V 2G8
Common Clay Larson (1) 1,000,000 4.85%
740 Westpoint Crt.
Kelowna, B.C. V1W 2Z4
Common John Morrison (1) 300,000 1.44%
439 Viewcrest Dr.,
Kelowna, B.C. V1W 4K1
Common Gordon Colledge (1) 212,000 1.03%
2213 27th Avenue
Lethbridge, AB T1K 6K4
Common Auchengrey Ltd. 2,000,000 12.1%
Diane Smith, PO Box 3321,
Tortula, BVI.
Common Killaloe Ltd. 2,000,000 12.1%
Don Murray, Drake Chambers,
Tortula, BVI
===========================================================================
Common Total Officers and Directors
as a Group (3 Persons) 1,512,000 7.32%
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(1) Officer and/or director.
There are no contracts or other arrangements that could result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company utilizes office space provided by the President of the Company at no charge.
The Company does not expect to have any significant dealings with affiliates. Presently, other than as described above, none of the officers and directors have any transactions which they contemplate entering into with the Company.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements and Schedules The financial statements as set forth in Item 7 of this report on Form 10-KSB are incorporated herein by reference.
Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.
(b) Reports on Form 8-K. The Company late filed two reports on Form 8-K during the year. The first, to report the change of auditor from James E. Slayton to William L. Butcher on July 25, 2000, was filed on August 28, 2001, amended and re-filed on October 22, 2001. The second, to report the change of auditor from William L. Butcher to Manning Elliott on February 1, 2001, was filed on June 19, 2001.
(c) Exhibit No.
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Specimen stock certificate. (2)
16a Change of Certifying Accountant, James E. Slayton to William L.
Butcher on July 25, 2000.
16b Change of Certifying Accountant, Butcher to Manning Elliott February 1, 2001.
21 List of Subsidiaries
(1) Incorporated by reference from the Company's Form 10SB filed with the SEC on February 7, 2000.
(2) Incorporated by reference from the Company's Form 10-QSB filed with the SEC on May 14, 2001.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this statement to be signed on its behalf, by the undersigned; thereunto duly authorized.
Hybrid Fuels, Inc.
Date: March 5, 2002. By: /s/ John Morrison
----------------------------
Chief Financial Officer
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Exhibits
Exhibit 16a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) July 25, 2000
HYBRID FUELS, INC.
(Exact name of registrant as specified in its Charter)
NEVADA 0-29351 88-0384399
State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification No.)
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PO Box 41118, RPOS Winfield, B.C., Canada V4V 1Z7
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 250-764-0352
#214-2791 Hwy 97 N, Kelowna, B.C., Canada, VIX 4J8
(Former name or former address, if changed since last report)
Item 4. Change of Registrant's Certifying Accountant
On the April 7, 2000, the SEC issued a comment letter regarding the Registrant's Form 10 SB, filed February 7, 2000. A significant number of the comments related to the financial statements prepared by the Company's auditor, James E. Slayton. The Company forwarded a copy of the comment letter to Mr. Slayton in April 2000 and requested that he respond to those comments.
During April, May, June, and July, the Company President had several conversations with Mr. Slayton, requesting that he respond to the comments of the SEC. When he failed to do so, the Company's sole Director passed a resolution dated July 25, 2000 terminating Mr. Slayton's appointment as the Company's independent accountant.
(a) Previous independent accountants.
(i) On July 25, 2000, Hybrid Fuels, Inc., (Hybrid) dismissed James E. Slayton who had previously served as independent accountant for Hybrid.
(ii) The reports of James E. Slayton on the consolidated financial statements of Hybrid as of and for the fiscal years ended June 30, 1998, June 30th 1999, and any subsequent interim period preceding the termination, contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
(iii) The change in independent accountants was approved by Hybrid's President and sole Director.
Item 4. Change of Registrant's Certifying Accountant (a)(con't)
accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of James E. Slayton, would have caused James E. Slayton to make reference to such disagreements in its report on the consolidated financial statements for such periods.
(v) During the fiscal years ended June 30, 1998, and 1999, and any subsequent interim period preceding the termination, there were no "reportable events" as that term is defined in Item 304(a)(1)(v) of Regulation S-K of the Securities and Exchange Commission (the SEC).
(vi) Hybrid has requested that James E. Slayton furnish it with a letter addressed to the SEC stating whether or not James E. Slayton agrees with the above statements. A copy of his letter, dated October 10, 2001, is filed as Exhibit 16 to this Form 8-K/A.
(b) New independent accountants.
On July 25th, 2000, Hybrid engaged William L. Butcher, CPA P.S., (Butcher) as its new independent accountants. The engagement of Butcher, was approved by the sole director of the Company. During the fiscal years ended June 30, 1999 and 2000 and any subsequent interim period, Hybrid has not consulted with Butcher, regarding either:
(i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on Hybrid's financial statements, and neither a written report was provided to Hybrid nor oral advice was provided that Butcher concluded was an important factor considered by Hybrid in reaching a decision has to any such accounting, auditing or financial reporting issue; or
(ii) any matter that was either the subject of a "disagreement" as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of regulation S-K, or a "reportable event" as that term is defined in Item 304 (a)(1)(v) of Regulation SK.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements Not applicable.
(b) Pro Forma Financial Information Not applicable.
(c) Exhibit 16 Letter from James E. Slayton October 10, 2001 regarding change
in certifying accountants.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has this day caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Hybrid Fuels, Inc.
/s/ Clay Larson ---------------------------------------------
Clay Larson
President and Chief Executive Officer.
Dated October 10, 2001
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Securities and Exchange Commission October 10, 2001 Washington, D.C. 20549
Dear madam/sir,
I have been notified that I have been replaced as the accountant for Hybrid Fuels, Inc., (the Company). I previously reported on the Company's financial statements for the periods ending June 30, 1998, June 30th 1999 and the interim period ended November 30, 1999.
The audit report dated December 18, 1999, was unqualified except for an explanatory paragraph stating that there was substantial doubt about the Company's ability to continue as a going concern. There were no disagreements with the company's management on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure during the audit period to the present time.
I have read the Company's statements contained in Form 8-K and agree with them except that I have except that I am not in a position to agree with the Company's statement that the change was approved by the Audit Committee of the Board of Directors or that William L. Butcher, CPA, was not engaged regarding any matter requiring disclosure under Regulation S-K, Item 304 (a)(2).
Sincerely,
/s/ James E. Slayton |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report ( Date of earliest event reported) February 1, 2001
HYBRID FUELS, INC.
(Exact name of registrant as specified in its Charter)
NEVADA
(State or other jurisdiction of incorporation)
0-29351 88-0384399-152512
(Commission File Number) (IRS Employer Identification No.)
#214-2791 Hwy 97 N, Kelowna, B.C., Canada VIX 4J8
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 250-764-0352
Item 4. Change of Registrant's Certifying Accountant
After filing the Form SB-2 in December 2000, the Company learned that William L. Butcher, CPA P.S. (Butcher) the Company's independent certifying accountant, was not a licensed CPA as he had represented. As a result he was not qualified to sign the audit and the Company's Directors therefore passed a resolution dated February 1, 2001 terminating the appointment of Butcher as the Company's independent accountant.
(a) Previous independent accountants.
(i) On February 1st, 2001, Hybrid Fuels, Inc., (Hybrid) dismissed Butcher who had previously served as independent accountant for Hybrid.
(ii) The reports of Butcher on the consolidated financial statements of Hybrid as of and for the fiscal years ended June 30, 1999, June 30, 2000, and any subsequent interim period, contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
(iii) The change in independent accountants was recommended by the Chief Financial Officer and approved by Hybrid's Board of Directors.
(iv) In connection with its audit for the fiscal years ended June 30, 1999, June 30, 2000 and the fiscal period ended December 31, 2001 there were no disagreements with Butcher on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Butcher, would have caused Butcher to make reference to such disagreements in his report on the consolidated financial statements for such periods.
(v) During the fiscal years ended June 30, 1999, and 2000, and the interim fiscal period from July 1st, 2000 through December 31st, 2001 there were no "reportable events" as that term is defined in Item 304 (a)(1)(v) of Regulation S-K of the Securities and Exchange Commission (the SEC).
(vi) Hybrid has requested that Butcher furnish it with a letter addressed to the SEC stating whether or not Butcher agrees with the above statements. A copy of this letter, dated May 15, 2001, is filed as Exhibit 16 to this Form 8-K.
(b) New independent accountants.
On February 1st, 2001, Hybrid engaged Manning Elliott as its new independent accountants. The engagement of Manning Elliott, was approved by the Board of Directors of the Company. During the fiscal years ended June 30, 1998, 1999 and 2000 and the interim period ended December 31, 2000, Hybrid has not consulted with Manning Elliott, regarding either:
(i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on Hybrid's financial statements, and neither a written report was provided to Hybrid nor oral advice was provided that Manning Elliott concluded was an important factor considered by Hybrid in reaching a decision has to any such accounting, auditing or financial reporting issue; or
(ii) any matter that was either the subject of a "disagreement" as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of regulation S-K, or a "reportable event" as that term is defined in Item 304 (a)(1)(v) of Regulation SK.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements Not applicable.
(b) Pro Forma Financial Information Not applicable.
(c) Exhibit 16 Letter from William L. Butcher May 15, 2001 regarding change in
certifying accountants.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Hybrid Fuels, Inc.
By: /s/ Clay Larson Dated May 15, 2001 Clay Larson President and Chief Executive Officer. |
Exhibit 16
May 15, 2001
Securities and Exchange Commission
VIA FACSIMILE
Mail Stop 11-3
(202) 942-9656
450 5th Street, N.W.
& HAND DELIVERY
Washington, D.C., 20549
Dear Sirs/Mesdames:
We have read and agree with the comments in Item 4 of the Form 8-K of Hybrid Fuels, Inc. dated May 15, 2001.
Yours truly,
/s/ William L. Butcher, CPA P.S. |
Exhibit 21
List of Subsidiaries
Hybrid Fuels USA Inc.,
Hybrid Fuels (Canada) Inc.