UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2005
[_] 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
NEVADA 88 0384399
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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237 Main Street, Box 880, Niverville, Manitoba R0A 1E0
(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code: (888) 550-2333
Indicate by check mark whether 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 shorter period that registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes [X] No [_]
The number of issued and outstanding shares of the registrant's common stock as of May 20, 2005 was 25,379,733.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
TABLE OF CONTENTS
PART-I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements..........................................................F-0
Item 2 Plan of Operation.............................................................3
Item 3 Controls and Procedures.......................................................5
PART-II OTHER INFORMATION PAGE
Item 1 Legal Proceedings..............................................................6
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds....................6
Item 3 Defaults Upon Senior Securities................................................6
Item 4 Submission of Matters to a Vote of Security Holders............................6
Item 5 Other Information..............................................................6
Item 6 Exhibits and Reports on Form 8-K...............................................6
Signature......................................................................7
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Hybrid Fuels, Inc.
(A Development Stage Company)
Index
Consolidated Balance Sheets.......................................................................F-1
Consolidated Statements of Operations.............................................................F-2
Consolidated Statements of Cash Flows.............................................................F-3
Notes to the Consolidated Financial Statements....................................................F-4
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Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(expressed in U.S. dollars)
March 31, June 30,
2005 2004
$ $
(unaudited) (audited)
ASSETS
Current Assets
Cash 444 7,907
--------------------------------------------------------------------------------------------------------------
Total Assets 444 7,907
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable 55,488 50,265
Accrued liabilities 3,000 3,250
Note payable and other advances (Note 3) 43,566 39,432
Amounts owing to related parties (Note 4) 205,031 205,050
Amounts owing to a former director (Note 5) 326,701 326,701
--------------------------------------------------------------------------------------------------------------
Total Current Liabilities 633,786 624,698
Redeemable and Restricted Common Shares (Note 7(b)) 223,000 223,000
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Total Liabilities 856,786 847,698
--------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 7)
Subsequent Event (Note 8)
Stockholders' Deficit
Common Stock (Note 6): $0.001 par value; 50,000,000 shares authorized
25,046,980 and 23,371,980 shares issued and outstanding, respectively 25,047 23,372
Additional Paid-in Capital 835,775 625,828
Donated Capital 411,237 329,554
Deferred Compensation (91,750) (27,299)
Deficit Accumulated During the Development Stage (2,036,651) (1,791,246)
--------------------------------------------------------------------------------------------------------------
Total Stockholders' Deficit (856,342) (839,791)
--------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit 444 7,907
==============================================================================================================
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(The Accompanying Notes are an Integral Part of the Financial Statements)
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(expressed in U.S. dollars)
(unaudited)
Accumulated from
January 28, 1998
(Date of Inception) Three Months Ended Nine Months Ended
to March 31, March 31, March 31,
2005 2005 2004 2005 2004
$ $ $ $ $
Revenue - - - - -
--------------------------------------------------------------------------------------------------------------------
Expenses
Consulting fees 97,820 - 3,769 - 3,769
Deposit and advances written-off 255,512 - - - -
Donated services (Note 4) 30,000 7,500 - 22,500 -
Executive compensation 573,466 - 6,003 - 42,003
Foreign exchange loss (gain) 9,510 (235) 1,543 4,779 1,543
General and administrative 267,097 14,954 28,486 46,018 31,177
Imputed interest (Note 4 and 5) 381,237 19,728 19,812 59,183 58,639
Professional fees 209,497 6,550 7,714 12,376 8,248
Research and development 16,925 - 1,216 - 1,216
Stock-based compensation (1) 195,587 73,250 45,478 100,549 49,228
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Total Expenses 2,036,651 121,747 114,021 245,405 195,823
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Net Loss (2,036,651) (121,747) (114,021) (245,405) (195,823)
====================================================================================================================
Net Loss Per Share (0.01) (0.01) (0.01) (0.01)
====================================================================================================================
Weighted Average Shares Outstanding 24,326,000 22,041,000 23,759,000 22,011,000
====================================================================================================================
(1) Stock-based compensation is
excluded from the following:
Consulting fees 160,146 73,250 45,478 100,549 49,228
Executive compensation 7,667 - - - -
General and administrative 27,774 - - - -
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195,587 73,250 45,478 100,549 49,228
====================================================================================================================
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(The Accompanying Notes are an Integral Part of the Financial Statements)
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
(unaudited)
Nine Months Ended
March 31,
2005 2004
$ $
Cash Flows To Operating Activities
Net loss (245,405) (195,823)
Adjustments to reconcile net loss to net cash used in
operating activities
Accrued executive compensation - 36,000
Amortization of deferred compensation and other
stock-based compensation 100,549 45,722
Donated services 22,500 -
Imputed interest 59,183 58,639
Change in operating assets and liabilities
Accounts payable and accrued liabilities 4,973 15,687
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Net Cash Used In Operating Activities (58,200) (39,775)
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Net Cash Used In Investing Activities - -
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Cash Flows From Financing Activities
Advances from (to) related parties (19) 2,256
Proceeds from issuance of common stock 46,622 39,886
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Net Cash Provided By Financing Activities 46,603 42,142
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Effect of Exchange Rate Changes on Cash 4,134 1,134
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Net Increase (Decrease) in Cash (7,463) 3,501
Cash - Beginning of Period 7,907 1,247
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Cash - End of Period 444 4,748
=====================================================================================================================
Non-cash Investing and Financing Activities
Common shares issued for services 165,000 86,670
Common shares issued to settle debt - 13,791
=====================================================================================================================
Supplemental Disclosures
Interest paid - -
Income taxes paid - -
=====================================================================================================================
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(The Accompanying Notes are an Integral Part of the Financial Statements)
Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
1. Nature of Operations and Continuance of Business
In May 1998, the Company caused a Nevada corporation to be formed under the name Polo Equities, Inc. 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.
On May 28, 1998, the Company acquired, by issuing 12,000,000 shares, Hybrid Fuels, USA, Inc., with an inception date of January 28, 1998, 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 holding 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.
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". The Company was re-listed on the OTC Bulletin Board in March 2003 and received "active" status in April 2003.
Pursuant to the above acquisition, the Company acquired a number of proprietary technologies with the primary objective of the business being to build small farm-scale ethanol facilities that involves a number of proprietary technologies exclusively owned by the Company. Other proprietary technology involves the use of a bio-gas burner that 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 that 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 a development stage company with management devoting most of its activities in investigating business opportunities and further advancing its technologies. The ability of the Company to emerge from the development stage with respect to any planned principal business activity is dependent upon its successful efforts to raise additional equity financing and/or attain profitable operations. There is no guarantee that the Company will be able to complete any of the above objectives. At March 31, 2005, the Company had a working capital deficit of $633,342 and an accumulated deficit of $2,036,651. These factors, among others, cause substantial doubt about the continuance of the Company as a going concern.
The Company expects that future capital requirements for developing and expanding technologies will be met through stock offerings by way of private placements.
2. Summary of Significant Accounting Policies
(a) Consolidated Financial Statements
These consolidated financial statements represent the consolidation of the Company and its wholly owned subsidiary, Hybrid Fuels (Canada) Inc. The Company's subsidiary is currently inactive and has no material assets, liabilities or operations. The Company's fiscal year end is June 30.
(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 statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from those estimates.
Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
2. Summary of Significant Accounting Policies (continued)
(d) Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with SFAS No. 128, "Earnings per Share" (SFAS 128) which requires presentation of both basic and diluted earnings per shares (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. At March 31, 2005, the redeemable and restricted shares disclosed in Note 7(b) have not been included in either basic or diluted EPS.
(e) Foreign Currency Translation
The Company's functional and reporting currency is the United States dollar. Foreign currency transactions are primarily undertaken in Canadian dollars and are translated into United States dollars using exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-measured at each balance sheet date at the exchange rate prevailing at the balance sheet date. Foreign currency exchange gains and losses are charged to operations. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
(f) Comprehensive Loss
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at March 31, 2005 and 2004, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
(g) Financial Instruments
The fair values of cash, accounts payable, accrued liabilities, notes and advances payable, and amounts due to related parties approximate their carrying values due to the immediate or short-term maturity of these financial instruments.
(h) Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted SFAS No. 109 "Accounting for Income Taxes" as of its inception. Pursuant to SFAS No. 109 the Company is required to compute tax asset benefits for net operating losses carried forward. Potential benefit of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
(i) Stock-based Compensation
The Company accounts for stock-based awards using the intrinsic value
method of accounting in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25).
Under the intrinsic value method of accounting, compensation expense
is recognized if the exercise price of the Company's employee stock
options is less than the market price of the underlying common stock
on the date of grant. SFAS 123 "Accounting for Stock-Based
Compensation" established a fair value based method of accounting for
stock-based awards. Under the provisions of SFAS 123, companies that
elect to account for stock-based awards in accordance with the
provisions of APB 25 are required to disclose the pro forma net income
(loss) that would have resulted from the use of the fair value based
method under SFAS 123.
The Company follows the disclosure requirements of SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure an Amendment of FASB Statement No. 123", which requires more prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As of March 31, 2005, the Company has not issued any stock options.
Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
2. Summary of Significant Accounting Policies (continued)
(j) Interim Financial Statements
These interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
(k) Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, "Share Based Payment". SFAS 123R is a revision of SFAS No. 123, and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees" and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services". SFAS 123R does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans". SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award - the requisite service period (usually the vesting period). SFAS 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The scope of SFAS 123R includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Public entities that file as small business issuers will be required to apply SFAS 123R in the first interim or annual reporting period that begins after December 15, 2005. The adoption of this standard is not expected to have a material effect on the Company's results of operations or financial position.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29". The guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions", is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted and companies must apply the standard prospectively. The adoption of this standard is not expected to have a material effect on the Company's results of operations or financial position.
The FASB has also issued SFAS No. 151 and 152, but they will not have any relationship to the operations of the Company therefore a description and its impact for each on the Company's operations have not been disclosed.
(l) Reclassifications
Certain reclassifications have been made to the prior year's financial statements to conform to the current period's presentation.
3. Note Payable and Other Advances
(a) On September 15, 2000, the Company issued a note for CAD$50,000 (US$33,638) payable on or before September 15, 2001 plus 8% interest. The Company extended repayment of the note until the completion of a financing arrangement. Interest expense of $2,758 has been accrued for the nine months ended March 31, 2005 (2004 - $2,549). The note payable was $41,100 after translation into U.S. dollars at March 31, 2005. For the nine months ended March 31, 2005, the Company incurred a foreign currency translation loss of $3,900 that was charged to operations. Accrued interest from September 15, 2000 of $14,180 is included in accounts payable as of March 31, 2005.
(b) Cash advances totalling CAD$3,000 from unrelated parties is non-interest bearing, unsecured and due on demand.
4. Related Party Transactions/Balances
(a) The controlling shareholder is owed $199,371 (June 30, 2004 - $199,371) for payment of rent, office expenses and professional fees on behalf of the Company. This amount is non-interest bearing, unsecured and without specific terms of repayment. Imputed interest of $22,429 (2003 - $22,560), calculated at a rate of 15% per annum, was charged to operations and treated as donated capital. An amount of $1,890 (June 30, 2004 - $1,890) is owing to another shareholder. This amount is unsecured, non-interest bearing, with no specific terms of repayment.
(b) The President of the Company is owed $nil (June 30, 2004 - $3,789) for advances and expenses paid for on behalf of the Company. This amount is unsecured, non-interest bearing and due on demand. During the nine months ended March 31, 2005, the Company recognized a total of $22,500 for donated services provided by the President of the Company.
(c) The Vice-President of the Company is owed $3,670 for expenses paid on behalf of the Company. This amount is unsecured, non-interest bearing and due on demand.
5. Amounts Owing to a Former Director
The former President, who was also a director of the Company, is owed $2,701 for office and related expenses paid for on behalf of the Company. Effective July 1, 1999 the former President was entitled to a salary of US$6,000 per month or $324,000 in total and was owed a total of $326,701 at March 31, 2005. These amounts are unsecured, non-interest bearing and due on demand. Imputed interest of $36,754 (2004 - $36,079), calculated at a rate of 15% per annum, was charged to operations and treated as donated capital. The Company did not have a written employment contract with the former President.
6. Common Shares
(a) Private Placements
On March 31, 2005, 50,000 shares of common stock were issued for cash at a price of $0.08 per share for total proceeds of $4,144 (CAD$5,000).
On January 21, 2005, 300,000 shares of common stock were issued for cash at a price of $0.08 per share for total proceeds of $24,606 (CAD$30,000).
On October 28, 2004, 120,000 shares of common stock were issued for cash at a price of $0.08 per share for total proceeds of $9,788 (CAD$12,000).
On October 20, 2004, 30,000 shares of common stock were issued for cash at a price of $0.08 per share for total proceeds of $2,387 (CAD$3,000).
On September 1, 2004, 25,000 shares of common stock were issued for cash at a price of $0.08 per share for total proceeds of $1,905 (CAD$2,500).
On August 31, 2004, 50,000 shares of common stock were issued for cash at a price of $0.08 per share for total proceeds of $3,792 (CAD$5,000).
6. Common Shares (continued)
(b) Non-cash Consideration
All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
On March 30, 2005, 400,000 shares of common stock were issued at a price of $0.15 per share in consideration for consulting services rendered and valued at $60,000.
On January 25, 2005, 700,000 shares of common stock were issued at a price of $0.15 per share in consideration for consulting services rendered and to be rendered and valued at $105,000.
7. Commitments and Contingencies
Although the Company is not involved in any legal proceedings, several issues may eventually lead to the Company instituting legal action as follows:
(a) On August 4, 1998 and March 23, 1999, the Company's former Board of Directors authorized the issuance of 1,000,000 and 900,000 shares respectively to individuals without consideration. On August 21, 1999, the current Board of Directors resolved that 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 cancelled the share certificates and indemnified the transfer agent, for any costs or liability that may incur arising out of the cancellation of such shares. The transfer agent removed the 1,900,000 shares from the stockholder list effectively reversing the issuance. Six of the cancelled certificates, totaling 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 former management has failed to provide addresses despite a number of requests.
(b) Between October 1998 and June 1999, the management at that time sold a total of 361,120 common shares of the Company to 34 subscribers on the basis of an Offering Memorandum ("Offering") that contained a significant number of inaccuracies. A total of $223,000 was raised pursuant to this Offering. Management had 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 232,753 shares, representing $158,000. These shares are issued but not considered outstanding. The remaining 11 subscribers, who paid $65,000 for 128,367 shares, have not responded to the offer. These subscriptions are recorded as redeemable and restricted common shares until rescission rights have been revoked.
8. Subsequent Event
On April 1, 2005, 100,000 shares of common stock were issued for cash at price of $0.08 per share for total proceeds of $7,878 (CAD$10,000).
This Form 10-QSB contains forward-looking statements. The words "anticipate", "believe", "expect", "plan", "intend", "estimate", "project", "could", "may", "foresee", and other similar expressions identify forward-looking statements that involve risks and uncertainties. The reader should not place undue reliance on forward-looking statements in this Form 10-QSB 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-QSB and our Form 10-KSB for the year ended June 30, 2004. Actual results could differ materially from the results discussed in the forward-looking statements. Hybrid Fuels Inc. ("the Company") assumes no responsibility to correct or update the forward looking statements as circumstances change and therefore, the forward looking statements should be assumed to speak only as at the date of the filing of this report.
Hybrid Fuels Inc. is a developmental stage company and has had no income since the acquisition of the hybrid fuels technology in June 1998. The Company is unlikely to have any significant cash flow until after the end of the current fiscal year ending June 30, 2005.
In their opinion on our June 30, 2004 annual financial statements, our independent auditors raised substantial doubt regarding our ability to continue as a going concern because we have not generated any revenues and have conducted operations at a loss since inception.
The management of Hybrid Fuels Inc. recognizes the importance of developing existing technologies and creating new opportunities as well. The current Board of Directors, together with several members of our Technical Advisory Committee, has been pursuing the expansion of the Hybrid Fuels technology to meet the changing demands of the agricultural industry and to create additional economic and renewable energy opportunities.
The Company anticipates conducting further research and development with respect to the following:
1. Researching efficiencies in facility construction and operation;
2. Researching new technologies; consulting with various technical researchers
and agriculture officials.
The amount we anticipate spending on research and development for the remainder of the fiscal year ending June 30, 2005 is approximately $20,000.
Although the Company is in the developmental stages, the process behind Hybrid Fuels' intended business has been researched and developed for more than a decade. A facility that integrated the process described below was constructed and operated near Dalum, Alberta from 1994 to 1996. The Dalum facility was designed to prove the concepts and included all of the wet ethanol-producing and cattle-feeding features of a full-scale commercial operation. The Dalum project was also the source of the actual operating results that are referred to later in this report.
After the Dalum facility was closed in 1996, further research enabled us to modify the facility's material requirements, improve the building designs, select the latest equipment, and refine the process.
Currently, the Company's intended principal business is to integrate cattle feeding-to-finish with the production of wet ethanol. The main source of revenue for the Company is expected to come from the sale of finished cattle and a blend of wet ethanol and diesel fuel.
Our subsidiary, Hybrid Fuels (Canada), has entered into a verbal agreement with a group of Hybrid Fuels Inc. shareholders to construct a fully operational facility at Oyama, B.C., Canada on 12 acres of farmland. This group is bearing the financial burden of constructing this commercial facility and retains legal ownership. Once the facility has been completed, the Company will negotiate with this group to acquire or lease the facility on mutually agreeable terms. The land on which the facility is being constructed is owned by an unrelated third party.
The commercial facility being built by the shareholder group is to include all items necessary for a fully operational facility utilizing the Company's technology. The Company has not incurred any costs pertaining to the facility to date and will not be obligated financially until the facility has been completed and the Company enters into a formal agreement to either acquire or lease the facility on mutually agreeable terms.
An operating facility includes the cattle barn, ethanol-producing plant, gasifier/burner (manure burning unit), and a hydroponic barley-grass growing system.
In these facilities, barley is fermented and then distilled to produce the wet ethanol. The ethanol production process also generates a high protein product, called "distillers mash" and a liquid byproduct called "stillage water." The mash and liquid is supplemented by barley grass and creates an excellent feed for the cattle. The expected weight gain is an average of four pounds a day per head during the planned 100-120 day feeding cycle.
We have designed the barn to accommodate 200 head of cattle and the hydroponic barley-grass growing system. Once the facility is operational, we will begin feeding cattle starting with 50 head and adding another 50 approximately every four weeks until the barn is at full capacity. As we gain experience with the facility, we intend to operate the barn continuously at full capacity during the subsequent 100-day feeding cycles. At the end of each feeding cycle, the cattle will be sold at auction.
Each barn includes floor space for six individual pens - five occupied pens and one pen remaining empty and free of manure and bedding waste. Cattle are moved to a clean pen every five days on a rotational basis. The manure and bedding straw is removed from the pens and destroyed in the gasifier/burner that provides heat energy for the ethanol production and the hydroponic feed system.
Ethanol produced by the first facility in the first two to three months of its operation will be used for testing purposes. Once the facility is operating at full capacity, we project that the ethanol production will be approximately 200 US gallons per day.
It is intended that the wet ethanol will be blended with a proprietary emulsifier and diesel fuel. When this newly created fuel was tested in an unaltered diesel engine at the British Columbia Institute of Technology in June 1996, it reduced particulate emissions (black smoke) by over 62% and the smog-causing nitrogen oxide (NOx) emissions by more than 22%. Researchers also noted no measurable loss of engine power when testing this fuel blend.
The hydroponic barley-grass growing system is expected to produce a ration of 10-15 pounds per day of fresh grass per animal, year round, regardless of climate. Each grass unit represents approximately the equivalent of 400 acres of grass growing land.
Current estimates have the final cost of building this facility to be approximately $450,000. An estimated $275,000 of this cost is for foundations and flooring, buildings, the gasifier/burner, the ethanol-producing equipment, tanks and machinery. Soft costs, for such items as permits, engineering and other professional fees, survey and layout costs, site preparation, delivery of buildings and materials, equipment rentals, tools and miscellaneous items, are estimated to cost $75,000. Approximately $100,000 is expected to cover construction labour and supervision expenses.
The Company has no immediate funding source except through private sources and until one facility is fully operational and demonstrates cash flow Hybrid Fuels Inc., and our wholly-owned subsidiary Hybrid Fuels (Canada), has limited access to banks, trust companies, and other traditional lending sources. The completion and operation of the first facility is expected to enable the Company to demonstrate to potential operators and investors that the technology and processes work as described. We do not have any long-term commitments for financing at this time.
Barring any unforeseen circumstances, operations are projected to commence before June 30, 2005, the end of the current fiscal year. By that time it is expected that the initial testing of the facility's gasifier/burner and feed system will be completed and ready for the first delivery of cattle.
Operating costs to the end of the first quarter (September 30, 2005) are estimated at $250,000. This estimate includes $120,000 for cattle and feed, $60,000 for payables (excluding related party loans and accrued executive salaries), $40,000 for technical support and labor and $30,000 for contingencies and other operating expenses. These estimates are subject to change based on conditions outside of management's control and actual experience with operating the first facility.
The facility will not be run at full capacity until approximately four months have passed from the facility becoming operational. We believe that at the end of the fourth month of operations, when we sell the first group of finished cattle, we will have sufficient data from which to prepare pro forma information for purposes of estimating cash flows and generating a comprehensive business plan.
Once we have a fully operational facility, and have proven the technology and processes, our subsidiary, Hybrid Fuels (Canada) Inc., will operate it and will earn revenue from the sale of the finished cattle and wet ethanol.
It is intended that future facilities will be constructed, for the Company, by independent contractors on privately owned farms. The intention is for these facilities to be operated by the farmer(s) under terms of an agreement that will be determined once the Company has the data from operations of the first facility.
The loss for the present quarter is $121,747 compared to $114,021 for the comparable quarter last year.
The difference is mainly attributable to an increase in stock-based compensation in the amount of $27,772 and a decrease in general and administrative expenses of $13,532 compared to the comparable quarter last year. The Company issued 1,100,000 shares in the current quarter for consulting services rendered and to be rendered at a fair value of $165,000, of which $73,250 was charged to operations and $91,750 was recorded as deferred compensation.
There was no executive compensation during the quarter compared to $6,003 for the comparable quarter last year. The President and CEO of the Company donated services in the amount of $7,500 in the current quarter.
At the end of the quarter, the Company had cash of $444 compared to $548 at the end of the previous quarter. During the quarter we received $28,750 in cash from the issuance of restricted common stock. As at March 31, 2005, the Company had a working capital deficit of $(633,342) compared to $(640,823) as at December 31, 2004.
Although we currently do not have significant cash reserves, related parties have indicated a willingness to provide operating capital in exchange for restricted common shares. These related parties are under no obligation and no assurances can be given that they will continue to do so.
Based on an evaluation as of the end of the period, the Company's Principal Executive Officer and Acting Principal Financial Officer have concluded that the Company's disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act 1934 (the "Exchange Act") are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weakness, and therefore there were no corrective actions taken.
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.
Set forth below is information regarding the issuance and sales of our securities without registration during the three months ended March 31, 2005. No such sales involved an underwriter and no commissions were paid in connection with the sale of any securities. All shares were issued with restrictive legends. Restricted securities must be owned and fully paid for at least one year. After the one-year holding period, the number of shares non-affiliates may sell during any three-month period cannot exceed 1% of the outstanding shares of the same class being sold. If the shares have been owned for two years or more, no volume restrictions apply to non-affiliates.
On January 24, 2005, 300,000 shares of restricted common stock were issued for cash at a price of $0.08 per share for total proceeds of $24,606 (CAD$30,000).
On January 25, 2005, 700,000 shares of restricted common stock were issued at a price of $0.15 per share in consideration for consulting services rendered and to be rendered and valued at $105,000.
On March 30, 2005, 400,000 shares of restricted common stock were issued at a price of $0.15 per share in consideration for consulting services rendered and valued at $60,000.
On March 31, 2005, 50,000 shares of restricted common stock were issued for cash at a price of $0.08 per share for total proceeds of $4,144 (CAD$5,000).
The foregoing issuance of common stock were made in reliance upon the exemption from registration set forth in Regulation S promulgated under of the Securities Act of 1933 for transactions not involving a US person.
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Exhibit 31.1 Principal Executive Officer and Acting Principal Financial Officer
Certification (section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.1 Principal Executive Officer and Acting Principal Financial Officer
Certification (section 906 of the Sarbanes-Oxley Act of 2002)
In accordance with the requirements of the Securities Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HYBRID FUELS, INC.
By: /s/ Paul Warkentin ---------------------- Name: Paul Warkentin Title: President/CEO/Acting CFO Dated: May 23, 2005 |
Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND ACTING PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul Warkentin, certify that:
1. I have reviewed this report on Form 10-QSB of Hybrid Fuels Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: May 23, 2005 /s/ Paul Warkentin --------------------------------- Paul Warkentin President/Principal Executive Officer/Acting Principal Financial Officer |
Exhibit 32.1 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND ACTING PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
By signing below, the Principal Executive Officer and Acting Principal Financial Officer hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, (i) this report on Form 10-QSB fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Hybrid Fuels Inc.
Signed this 23rd day of May 2005:
By: /s/ Paul Warkentin -------------------------------- Paul Warkentin President/CEO/Acting CFO (Principal Executive Officer and Acting Principal Financial Officer) |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Hybrid Fuels Inc. and will be retained by Hybrid Fuels Inc. and furnished to the Securities and Exchange Commission or its staff upon request.