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, 2006
[_] 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
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
|
237 Main Street, Box 880, Niverville, Manitoba R0A1E0
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of issued and outstanding shares of the registrant's common stock as of May 19, 2006 was 26,332,933
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART-I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements......................................................................F-1
Item 2 Plan of Operation.........................................................................3
Item 3 Controls and Procedures...................................................................8
PART-II OTHER INFORMATION PAGE
Item 1 Legal Proceedings..........................................................................8
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds ...............................8
Item 3 Defaults Upon Senior Securities............................................................9
Item 4 Submission of Matters to a Vote of Security Holders........................................9
Item 5 Other Information..........................................................................9
Item 6 Exhibits and Reports on Form 8-K...........................................................9
Signature..................................................................................9
|
Hybrid Fuels, Inc.
(A Development Stage Company)
March 31, 2006
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
|
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(expressed in U.S. dollars)
March 31, June 30,
2006 2005
$ $
(unaudited)
ASSETS
Current Assets
Cash 14,459 946
--------------------------------------------------------------------------------------------------------------------
Total Assets 14,459 946
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable 74,606 52,084
Accrued liabilities 18,122 62,136
Note payable and other advances (Note 3) 45,410 93,153
Due to related parties (Note 4) 202,537 204,099
Due to a former director (Note 5) 326,701 326,701
--------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 667,376 738,173
Redeemable and Restricted Common Shares (Note 7(b)) 222,767 223,000
--------------------------------------------------------------------------------------------------------------------
Total Liabilities 890,143 961,173
--------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 7)
Stockholders' Deficit
Common Stock (Note 6): $0.001 par value; 50,000,000 shares authorized
26,033,933 and 25,174,980 shares issued and outstanding, respectively 26,034 25,175
Additional Paid-in Capital 956,779 847,311
Common Stock Subscribed (Note 8) 23,689 -
Donated Capital 520,147 438,464
Deferred Compensation (38,750) (78,500)
Deficit Accumulated During the Development Stage (2,363,583) (2,192,677)
--------------------------------------------------------------------------------------------------------------------
Total Stockholders' Deficit (875,684) (960,227)
--------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit 14,459 946
====================================================================================================================
|
(The Accompanying Notes are an Integral Part of the Consolidated Financial Statements)
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(expressed in U.S. dollars)
(unaudited)
Accumulated from
January 28, 1998 For the Three For the Nine
(Date of Inception) Months Ended Months Ended
to March 31, March 31, March 31,
2006 2006 2005 2006 2005
$ $ $ $ $
Revenue - - - - -
---------------------------------------------------------------------------------------------------------------------------
Expenses
Deposits and advances written-off 305,512 - - - -
Foreign exchange loss (gain) 12,121 (77) (235) 2,875 4,779
General and administrative (Note 4) 1,579,378 35,261 102,254 119,348 181,443
Imputed interest (Notes 4 and 5) 460,147 19,727 19,728 59,183 59,183
Research and development 16,925 - - - -
---------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 2,374,083 54,911 121,747 181,406 245,405
---------------------------------------------------------------------------------------------------------------------------
Operating Loss (2,374,083) (54,911) (121,747) (181,406) (245,405)
Other Income
Gain on settlement of debt 10,500 - - 10,500 -
---------------------------------------------------------------------------------------------------------------------------
Net Loss (2,363,583) (54,911) (121,747) (170,906) (245,405)
===========================================================================================================================
Net Loss Per Share - Basic and Diluted - (0.01) (0.01) (0.01)
===========================================================================================================================
Weighted Average Shares Outstanding 26,014,000 24,326,000 25,829,000 23,759,000
===========================================================================================================================
|
(The Accompanying Notes are an Integral Part of the Consolidated Financial Statements)
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
(unaudited)
For the Nine
Months Ended
March 31,
2006 2005
$ $
Operating Activities
Net loss (170,906) (245,405)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization of deferred compensation 39,750 100,549
Donated services 22,500 22,500
Imputed interest 59,183 59,183
Gain on settlement of debt (10,500) -
Change in operating assets and liabilities
Accounts payable and accrued liabilities 21,508 4,973
-------------------------------------------------------------------------------------------------------------------
Net Cash Used In Operating Activities (38,465) (58,200)
-------------------------------------------------------------------------------------------------------------------
Investing Activities - -
-------------------------------------------------------------------------------------------------------------------
Financing Activities
Advances to related parties (1,562) (19)
Common stock subscribed 23,689 -
Proceeds from issuance of common stock 27,594 46,622
-------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 49,721 46,603
-------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 2,257 -
-------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash 13,513 (7,463)
Cash - Beginning of Period 946 7,907
-------------------------------------------------------------------------------------------------------------------
Cash - End of Period 14,459 444
===================================================================================================================
Non-cash Investing and Financing Activities
Common shares issued to settle debt 82,500 -
===================================================================================================================
Supplemental Disclosures
Interest paid - -
Income taxes paid - -
===================================================================================================================
|
(The Accompanying Notes are an Integral Part of the Consolidated 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". The Company trades on the OTC Bulletin Board under the symbol HRID.
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 involve 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 generate significant revenue. There is no guarantee that the Company will be able to complete any of the above objectives. At March 31, 2006, the Company had a working capital deficit of $652,917 and an accumulated deficit of $2,363,583. 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 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.
(e) Foreign Currency Translation
The Company's functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with SFAS No. 52 "Foreign Currency Translation", using the exchange rate prevailing at the balance sheet date. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financials 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, 2006 and 2005, 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 value of financial instruments, which include cash, accounts payable, accrued liabilities, notes and advances payable, due to related parties and due to a former director approximate their carrying values due to the immediate or short-term maturity of these financial instruments.
(h) Income Taxes
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. The potential benefits 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
Prior to January 1, 2006, the Company accounted for stock-based awards under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" using the intrinsic value method of accounting, under which compensation expense was only recognized if the exercise price of the Company's employee stock options was less than the market price of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R "Share Based Payments", using the modified retrospective transition method. The Company has not issued any stock options or share based payments since its inception. Accordingly, there was no effect on the Company's reported loss from operations, cash flows or loss per share as a result of adopting SFAS No 123R.
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) Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, "Accounting Changes and Error Corrections - A Replacement of APB Opinion No. 20 and SFAS No. 3". SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle and applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS 154 requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The provisions of SFAS No. 154 are effective for accounting changes and correction of errors made in fiscal years beginning 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 did not have a material effect on the Company's results of operations or financial position.
The FASB has also issued SFAS No. 155 "Accounting for Certain Hybrid Financial Instruments" and SFAS No. 156 "Accounting for Servicing of Financial Assets", 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 and financial position have not been disclosed.
(k) Reclassifications
Certain reclassifications have been made to the prior period's financial statements to conform to the current period's presentation.
3. Note Payable and Other Advances
(a) In fiscal 2001, the Company issued a note for $42,840 (Cdn$50,000) payable which bears interest at 8% per annum, is unsecured and due on demand.
(b) Cash advances totalling $2,570 (Cdn$3,000) from unrelated parties are non-interest bearing, unsecured and due on demand.
4. Related Party Transactions
(a) A shareholder is owed $199,371 (June 30, 2005 - $199,371) for payment of rent, office expenses and professional fees on behalf of the Company. Imputed interest of $22,429 (2005 - $22,429), calculated at a rate of 15% per annum, was charged to operations and treated as donated capital. This amount owing is unsecured, non-interest bearing and due on demand.
(b) During the nine month period ended March 31, 2006, the Company recognized a total of $22,500 (2005 - $22,500) for donated services provided by the President of the Company.
(c) At March 31, 2006, the Vice-President of the Company is owed $3,166 (June 30, 2005 - $4,728) for expenses paid on behalf of the Company. This amount is unsecured, non-interest bearing and due on demand.
Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
5. Amounts Owing to a Former Director
The former President, who was also a director of the Company, is owed $326,701 as at March 31, 2006. This amount is unsecured, non-interest bearing and due on demand. For the nine-month period ended March 31, 2006, imputed interest of $36,754 (2005 - $36,754), calculated at a rate of 15% per annum, was charged to operations and treated as donated capital.
6. Common Shares
(a) Private Placements
(i) In April 2006, the Company issued 299,000 shares of common stock at a price of $0.17 per share for proceeds of $50,460 (Cdn$58,486). The Company received proceeds of $23,689 prior to March 31, 2006.
(ii) On February 23, 2006, the Company issued 30,000 shares of common stock at a price of $0.15 per share for cash proceeds of $4,506 (Cdn$5,192).
(iii) On February 8, 2006, the Company issued 12,000 shares of common stock at a price of $0.14 per share for cash proceeds of $1,734 (Cdn$1,990).
(iv) On January 6, 2006, the Company issued 6,600 shares of common stock at a price of $0.13 per share for cash proceeds of $863 (Cdn$1,000).
(v) On January 6, 2006, the Company issued 15,500 shares of common stock at a price of $0.14 per share for cash proceeds of $2,153 (Cdn$2,500).
(vi) On December 13, 2005, the Company issued 30,000 shares of common stock at a price of $0.08 per share for cash proceeds of $2,539 (Cdn$3,000), and 20,000 shares of common stock at a price of $0.13 per share for cash proceeds of $2,585 (Cdn$3,000).
(vii) On December 9, 2005, the Company issued 50,400 shares of common stock at a price of $0.10 per share for cash proceeds of $5,051 (Cdn$5,990).
(viii)On October 5, 2005, the Company issued 30,000 shares of common stock at a price of $0.08 per share for proceeds of $2,532 (Cdn$3,000), and 56,700 shares of common stock at a price of $0.10 per share for proceeds of $5,631 (Cdn$6,590).
(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 August 16, 2005, the Company issued 375,000 shares of common stock at a fair value of $82,500 to settle an outstanding debt of $50,000 and accrued interest of $43,000, resulting in a gain on debt settlement of $10,500.
Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
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 have been delivered to a broker for possible resale, the broker has informed 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. Restricted shares 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. 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. 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
In April 2006, the Company issued 299,000 shares of common stock at a price of $0.17 per share for proceeds of $50,460 (Cdn$58,486). The Company received proceeds of $23,689 prior to March 31, 2006.
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 fiscal year ended June 30, 2005. 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 fiscal year ending June 30, 2006.
As at June 30, 2005, our independent auditors raised a substantial doubt about our ability to continue as a going concern because we have not generated any revenues and have conducted operations at a loss since inception. As of March 31, 2006, the Company has a working capital deficit of $(652,917).
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 intends to 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 Company expects to lease or acquire the completed facility before the fiscal year ends June 30, 2006.
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 acquire the facility.
An operating facility includes the cattle barn, ethanol-producing plant, gasifier/burner (manure burning unit), and a hydroponics 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.
The barn at the Oyama facility has been designed to accommodate 200 head of cattle and the hydroponics barley-grass growing system. Once the facility is operational, we expect to 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, it is intended that the cattle will be sold at auction.
The 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 to be 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 hydroponics feed system.
Ethanol produced by the first facility in the first two to three months of its operation is expected to 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 hydroponics 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. We believe 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 $930,000. An estimated $630,000 of this cost is for foundations and flooring, buildings, the gasifier/burner, the ethanol-producing equipment, the hydroponics unit, 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 $150,000. Approximately $150,000 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), will have limited access to banks, trust companies, and other traditional lending sources.
The aforementioned builders group has encountered delays in completing the facility that are largely attributable to ongoing financial requirements and testing of various components of the facility including the hydroponics unit, air exchange system and the gasifier/burner(manure burning unit).
Additional financing has been required from the shareholder group in order to complete the testing process and implement necessary improvements to the facility. This process is time consuming and has contributed to the delay in completing the facility and commencing operations.
Operations are expected to commence once the initial testing of the facility's gasifier/burner, air exchange and feed system are completed and ready for the first delivery of cattle. Management currently anticipates that this will be completed before or during the second half of calendar year 2006. However, any delay in the completion of these tasks will also delay commencement of our operations. It is difficult to establish the start date of operations since we are relying on third parties to complete the facility which includes work by testing consultants and timely provision of equipment and installation. Therefore, completion of these tasks is not entirely under our control.
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.
Assuming operations can commence before the end of the fiscal year June 30, 2006, operating costs to the end of the fiscal year are estimated at $275,000. This estimate includes $120,000 for cattle and feed, $60,000 for payables (excluding related party loans and accrued executive salaries), $25,000 for research and development, $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 operating cost estimate of $275,000 would not adequately cover the cost of acquiring an operating facility if the Company chooses and enters into a purchase agreement as opposed to a lease agreement.
It is expected that 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 expect to sell the first group of finished cattle, we will have sufficient data to enable us to estimate cash flows and generate a comprehensive business plan.
Until the end of the next fiscal year 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.
Once we have a fully operational facility, and have proven the technology and processes, we intend that 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 utilize data from operations of the first facility based in Oyama, BC.
The net loss for the present quarter is $(54,911) compared to $(121,747) for the comparable quarter last year. The decrease in the net loss is mainly attributable to a decrease in stock-based compensation expense of $60,000 compared to the same period last year.
At the end of the quarter, the Company had cash of $14,459 compared to $205 at the end of the previous quarter. During the quarter we received $32,082 in cash pursuant to private placements of restricted common stock issued/to be issued. As at March 31, 2006, the Company had a working capital deficit of $(652,917) compared to $(737,227) as at June 30, 2005.
The President and CEO of the Company donated services in the amount of $7,500 in the current quarter.
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.
The following factors have affected or could affect the Company's actual results and could cause such results to differ materially from those expressed in any forward-looking statements made by the Company. Investors should consider carefully the following risks and speculative factors inherent in and affecting the business of the Company and an investment in the Company's common stock.
1. Our cash reserves may not be adequate to cover our costs of operations. To
date, we have covered our operating losses by loans from shareholders or
privately placing securities. We expect to fund our general operations and
marketing activities in the near term with our current cash, that was
obtained from loans from shareholders and/or the sale of securities.
However, our cost estimates may not include enough provisions for any
contingency, unexpected expenses or increases in costs that may arise.
2. We will need to raise additional capital to develop operations and to pay
ongoing expenses. If additional funds are raised through the issuance of
equity, our shareholders' ownership will be diluted. There can be no
assurance that additional financing will be available on terms favorable to
us or at all. If funds are not available on terms acceptable to us, we may
not be able to continue our business.
3. We have not sought protection of our intellectual property through any
patents, but have elected to protect it through non-disclosure agreements.
Our intended business may be adversely affected if we are unable to
adequately protect our intellectual property. Because our intellectual
property is not protected by patents, others may seek to discover and use
our intellectual property. We cannot provide assurance that our
intellectual property rights will not be invalidated, circumvented or
challenged. If we are found to infringe on the intellectual property rights
of others, we may not be able to continue to market our process, or we may
have to enter into costly license or settlement agreements. Third parties
may allege infringement by us with respect to past, current or future
intellectual property rights. Any claim of infringement, regardless of
merit, could be costly, time consuming and require us to develop
non-infringing technology or enter into royalty, licensing or settlement
agreements. These agreements could be on terms unfavorable or unacceptable
to us and could significantly harm the development of our business. In the
future, we may also have to enforce our intellectual property rights
through litigation. Any such enforcement could also result in additional
costs and could materially affect our financial condition and our business.
4. We have a history of operating losses and an accumulated deficit, as of
March 31, 2006, of $2,363,583
5. Our ability to begin operations and to generate revenues and profits is
subject to the risks and uncertainties encountered by development stage
companies. Our future revenues and profitability are unpredictable. We
currently have no operating activities that will produce revenue.
Furthermore, we cannot provide assurance that we will be successful in
raising the money necessary to begin or expand operations.
6. The production of ethanol is being strongly encouraged by governments and
private parties as a way to reduce water and air pollution that could lead
to rapidly changing technology. If we are unable to adapt to rapidly
changing technologies, our intended business could be adversely affected.
7. We have no operating history which makes an evaluation of our future
prospects very difficult. Once we succeed in completing the construction of
the first operating facility, there can be no assurances that we will be
able to develop operations that are profitable or will operate as intended.
If the market for our facilities fails to develop, or develops more slowly
than anticipated, we may not be able to meet our expenses and may not
achieve profitable results.
8. Our common stock is not widely traded, and, as a result, the prices quoted
for our stock may not reflect its fair market value. Because of the low
volume of trading in our common stock, our stockholders may find it
difficult to sell their shares.
9. We currently have no insurance covering our operations, potential products,
services or directors and officers.
10. Future performance depends on the ability to attract, train, and retain
management, technical and marketing personnel. In the future, loss of one
or more key employees could negatively impact us, and there is no "key man"
life insurance in force at this time. Competition for qualified personnel
is intense, and there can be no assurance that we will attract or maintain
key employees or other needed personnel.
11. The production of beef 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.
12. The continual shift in supply and demand factors create volatility in
cattle pricing that could result in a loss on cattle finishing.
13. 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. No written contracts have been
made. 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.
14. Since May 2003, the Canadian beef market has suffered as a consequence of
the United States limiting imports from Canada because of an isolated case
of Bovine Spongiform Encephalopathy (BSE). If beef sales do not return to
earlier levels, this could have an adverse effect on the Company although
the age of finished cattle raised within our controlled facilites are
expected to be under the current 30-month age restriction on beef imported
into the U.S..
Based on an evaluation as of the end of the period, the Company's Acting Principal Executive Officer and Acting Principal Financial Officer has 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, 2006. No such sales involved an underwriter and no commissions were paid in connection with the sale of any securities.
On January 6, 2006, 15,500 shares of restricted common stock were issued for cash received January 5, 2006 at a price of $0.14 per share for total proceeds of $2,153 (CAD$2,500).
On January 6, 2006, 6,600 shares of restricted common stock were issued for cash received December 9, 2005 at a price of $0.13 per share for total proceeds of $863 (CAD$1,000).
On February 8, 2006, 12,000 shares of restricted common stock were issued for cash received January 31, 2006 at a price of $0.14 per share for total proceeds of $1,734 (CAD$1,990).
On February 23, 2006, 30,000 shares of restricted common stock were issued for cash received February 13, 2006 at a price of $0.15 per share for total proceeds of $4,506 (CAD$5,192).
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.
N/A
N/A
N/A
Exhibit 31.1 Acting Principal Executive Officer Certification (section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 31.2 Acting Principal Financial Officer Certification (section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.1 Acting Principal Executive Officer Certification (section 906 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.2 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/ Douglas Dickie ---------------------- Name: Douglas Dickie Title: Acting President/CEO/CFO Dated: May 22,2006 |
Exhibit 31.1 CERTIFICATION OF ACTING PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Douglas Dickie, 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 22, 2006 /s/ Douglas Dickie ----------------------------------------------------- Douglas Dickie Acting Principal Executive Officer |
Exhibit 31.2 CERTIFICATION OF ACTING PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Douglas Dickie, 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 22, 2006 /s/ Douglas Dickie ----------------------------------------------------- Douglas Dickie Acting Principal Financial Officer |
Exhibit 32.1 CERTIFICATION OF THE ACTING PRINCIPAL EXECUTIVE 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 Acting Principal Executive 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 22nd day of May 2006:
By: /s/ Douglas Dickie -------------------------------- Douglas Dickie Acting Principal Executive 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.
Exhibit 32.2 CERTIFICATION OF THE 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 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 22nd day of May 2006:
By: /s/ Douglas Dickie -------------------------------- Douglas Dickie 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.