SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
QUARTERLY REPORT UNDER REGULATION SB OF THE
SECURITIES EXCHANGE ACTS OF 1934
For the Quarter Ended Commission File Number:
June 30, 2003 0-24449
INTERNATIONAL BIOFUEL & BIOCHEMICAL CORPORATION
(Exact Name of Registrant as specified in its charter)
Pennsylvania 57-1181668
(State or other jurisdiction) (IRS Employer
of incorporation or organization) Identification Number)
886 N. COFCO CENTER COURT #1135, PHOENIX, AZ 85008
(Address and zip code of principal executive officers)
(602) 369-6935
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reported
required by Regulation SB of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to the filing requirements for
at least the past 90 days. YES (X) NO ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date:
Number of Shares Outstanding Class Date
11,157,700 Common Stock June 30, 2003
$.001 par value
INTERNATIONAL BIOFUEL & BIOCHEMICAL CORPORATION
Index
PART I FINANCIAL INFORMATION
Accountant's Report 3
Balance Sheet June 30, 2003 4
Statements of Operations
Six Months Ended June 30, 2003 and 2002 5
Statements of Cash Flow
Six Months Ended June 30, 2003 and 2002 6
Notes to Unaudited Financial Statements
June 30, 2003 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II
Other Information 20
Signatures 20
Certification 21
2
Caracansi Ramey & Associates, LLC
Certified Public Accountants
77 North Street
Danbury, CT 06810
September 19, 2003
International Biofuel & Biochemical Corporation
886 North Cofco Center Court, #1135
Phoenix, AZ 85008
To the Board of Directors:
We have compiled the accompanying balance sheet of International Biofuel &
Biochemical Corporation as of June 30, 2003 and 2002 and the related statements
of income and cash flows for the six months then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them. Finally, these financial
statements are not designed for those who are not informed about such matters.
/s/ Caracansi Ramey & Associates, LLC
3
INTERNATIONAL BIOFUEL & BIOCHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, 2003
ASSETS:
Cash (Note 1) $ 13,042
Due from J-Bird Records 2,201,442
Security Deposit 20,000
Due from Affiliate 16,728
------------
Total Current Assets 2,251,212
Fixed Assets, Net (Note 1 & 4) 2,030
Other Assets
Deferred Startup Costs (Note 280,600
Investment in ABF (Note 1 & 3) 160,000
------------
Total Assets $ 2,693,842
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Account Payable and Accrued Expenses $ 47,931
Due to I.M.M. International 8,699
Notes Payable (Note 5) 15,000
------------
Total Liabilities 71,630
------------
Stockholders' Equity
Common Stock $.001 Par Value 50,000,000 Shares
Authorized, 11,157,700Issued and Outstanding 54,645
Treasury Stock - 27,500 shares (254,690)
Subscription Agreements (25,000)
Paid in Capital 13,348,285
Retained Earnings/(Deficit) (Note 8) (10,501,028)
------------
Total Stockholders' Equity 2,622,212
------------
Total Liabilities and Stockholders' Equity $ 2,693,842
============
See Accountant's Compilation Report
4
INTERNATIONAL BIOFUEL & BIOCHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
2003 2002
----------- -----------
Sales, Net Returns $ 0 $ (126,989)
Cost of Sales 0 (272,012)
Operating Expenses:
Professional Fees 17,500 151,300
Amortization and Depreciation 2,775 6,793
Salaries-(Note 3) 0 31,503
Administrative Expenses 196,552 62,746
----------- -----------
Net Income/(Loss) Before
Other Income/(Expenses) (216,827) (651,343)
Other Income/(Expenses)
Gain on Exting. Of Debt 17,247 0
Royalties Adjustment 0 6,324
----------- -----------
Net Income/(Loss) $ (199,580) $ (645,019)
=========== ===========
Net Gain/(Loss) per Common Share $ (0.02) $ (0.19)
Weighted Average Common Shares Outstanding 9,941,033 3,474,143
See Accountant's Compilation Report
5
INTERNATIONAL BIOFUEL & BIOCHEMICAL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
2003 2002
----------- -----------
Cash Flows from (Used In) Operating
Activities Adjustments to Reconcile Net
(Loss) to Net Cash From (Used In)
Operating Activities:
Net Income/(Loss) $ 0 $ (645,019)
Amortization and Depreciation 2,775 6,792
Adjustment to Retained Earnings for Spin-Off 2,552,142 0
(Increase)/Decrease in Accounts Receivable (2,068,111) 0
(Increase)/Decrease in Inventory 128,381 (4,551)
(Increase)/Decrease in Security Deposit (20,000) 0
(Increase)/Decrease in Deferred Startup (280,600) 0
(Decrease)/Increase in Accrued Royalties (550,000) (6,324)
(Decrease)/Increase in Accounts Payable (296,909) 182,981
(Decrease)/Increase in Due to Affiliate 0 127,300
Stock Issued For Services 467,490 0
----------- -----------
Net Cash (Used In) Operating Activities (46,165) (338,821)
----------- -----------
Cash Flows from (Used In) Financing Activities
Stock Issued for Cash 160,000 31,000
Increase/(Decrease) in Shareholder Loans (23,337) 18,663
Increase/(Decrease) in Loan Due I.M.M (26,749) 0
Increase/(Decrease) in Mortgage Payable 0 0
Increase/(Decrease) in Note Payable (50,000) 0
----------- -----------
Net Cash from Financing Activities 59,914 49,663
----------- -----------
Net Increase/(Decrease) in Cash 13,749 (289,158)
Cash, Beginning of Period (707) 1,432
----------- -----------
Cash, End of Period $ 13,402 $ (287,726)
=========== ===========
See Accountant's Compilation Report
6
INTERNATIONAL BIOFUEL & BIOCHEMICAL CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2003
Note 1. Organization
The Company was incorporated in the state of Pennsylvania on June 17, 1991. It
is principally involved in the area of developing biodiesel manufacturing plants
in the United States. The majority of its income is through stock subscription
agreements with investors.
The Company has experienced operating losses since its inception and has
experienced significant cash flow problems. The Company is in the process of
raising capital through various sources for its biodiesel division.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The accompanying
financial statements should be read in conjunction with the Company's Form
10-KSB filed for the year ended December 31, 2002.
Earnings (loss) per share are based on the weighted average number of shares
outstanding. Common stock equivalents have not been considered as their effect
would be anti-dilutive.
Basis of Accounting
The books of the Company are maintained on the accrual basis. Using the accrual
method, revenues and related assets are recognized when earned, and expenses and
the related obligations are recognized when incurred.
Cash
For purposes of the statement of cash flows, the Company considers cash as cash
held in operating accounts and all highly liquid investments with a maturity of
three months or less to be cash equivalents.
Investment in Affiliates
The Company accounts for its investments in affiliates by using the equity
method of accounting under which the Company's share of earnings of these
affiliates is reflected in the statement of operations. Investments acquired
through the issuance of the Company's stock are recorded at an average of the
most recent sales price of the stock at the date of acquisition.
7
INTERNATIONAL BIOFUEL & BIOCHEMICAL CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2003
Fixed Assets
Fixed assets are recorded at cost and are being depreciated over their estimated
useful lives (5 to 15 years). The "Modified Accelerated Cost Recovery System"
(MACRS) has been applied to all fixed assets acquired by the Company.
Principles of Consolidation
The consolidated financial statements as of March 31, 2003 include the accounts
of the Company and its wholly owned subsidiary, J-Bird Records Inc. As of April
7, 2003 J-Bird Records, Inc. was spun-off into its own company and therefore is
not reflected in the June 30, 2003 financial statement.
Inventory
Inventory of $128,387 as of June 30, 2002 was stated at the lower of cost or
market (first in, first out), and consisted of musical CDs held by Navarre
Corporation for J-Bird Records, Inc. J-Bird Records, Inc. was a wholly owned
subsidiary of the Company until April 7, 2003.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes." The Company has a net loss
carry forward of approximately $14,000,000, which expires in 2013.
Earnings Per Share
In 1997 the Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share". Earnings per share are based on the weighted average
number of shares outstanding. Common stock equivalents have not been considered,
as their effect would be anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
8
INTERNATIONAL BIOFUEL & BIOCHEMICAL CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2003
Note 3. Other Assets
On December 4, 2002, the Company entered into an agreement with American
Bio-fuels, LLC. The agreement with American Bio-fuels, LLC has given the Company
the opportunity to enter the biodiesel fuel market. This agreement stated that
the Company would maintain a fifty-percent interest in a third LLC in exchange
for a payment of $50,000 and 500,000 shares of the Company's restricted stock.
The result of these transactions is reflected as an Investment in Affiliate for
$160,000 as of June 30, 2003.
Note 4. Fixed Assets
June 30, June 30,
Fixed assets consist of: 2003 2002
-------- --------
Building $ 0 $422,000
Computer equipment and software 0 169,247
Furniture and fixtures 0 40,829
Leasehold improvement 0 8,571
Intangible Assets 2,100 0
-------- --------
Less: Accumulated depreciation 70 201,685
-------- --------
Fixed Assets, Net $ 2,030 $438,962
======== ========
Note 5. Note Payable
On December 4, 2002 the Company entered into an agreement with American
Bio-fuels, LLC in which they were required to pay $50,000 within forty-five days
of signing the agreement. The required payment was made on January 22, 2003.
On August 20, 2002 the Company entered into an agreement with Henry Val, the
former president of J-Bird Music Group, LTD. Mr. Val lent the Company $15,000
payable on demand with interest accruing annually at a rate of 12%.
Note 6. Commitments and Contingencies
Common Stock
During the periods ended June 30, 2003 and 2002, the Company issued shares of
its common stock. These shares were not registered under the Securities Act of
1933 based on the exemption from registration thereunder provided by section
4(2), thereof for offerings not involving a public offering.
9
INTERNATIONAL BIOFUEL & BIOCHEMICAL CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2003
Note 7. Subsequent Events
The effect on the Company's financial statements as a result of this transaction
will be an intercompany receivable of $2,201,442 which is due from J-Bird
Records, Inc. This intercompany receivable is due as a result of the Company
funding various expenses for J-Bird Records, Inc. throughout the years of their
affiliation. The collectibility of this receivable has not been determined as of
the date of this report.
On April 24, 2003 Caracansi Ramey & Associates, LLC, the auditors for the
Company, were subpoenaed by the Securities & Exchange Commission. The Securities
& Exchange Commission required the auditors to deliver copies of all workpapers
and correspondence between themselves and the Company from the period of January
1, 2000 through the date of the subpoena. The auditors have complied with all
requests of the Securities & Exchange Commission. Additionally, the Company has
been served with a similar subpoena and to the best of its knowledge has
complied.
Note 8. Retained Earnings
An adjustment was made to Retained Earnings as of June 30, 2003 to reflect a
prior period adjustment of $268,065. This number represents Direct Costs
incurred by the Company's subsidiary, J-Bird Records, Inc. for the year ended
December 31, 2002. These figures were not available as of December 31, 2002 and
thus, were not reflected on the year-end statement.
10
Managements' Discussion and Analysis of Financial Condition and Results of
Operations.
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the quarter ended June 30, 2003 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2003. The
discussion should be read in conjunction with the Company's consolidated
financial statements and accompanying notes. The Company wishes the reader to
note that the prior year financial statements contain the activity of its former
subsidiary, J-Bird Records, Inc. Please see the accountant's Note 7 in regards
to this issue.
International Biofuel and Biochemical Corporation began in December 2002
as a Joint Venture partner of American Bio-fuels (ABF) and are involved in the
worldwide production, distribution and marketing of biodiesel fuel, fuel
efficiency and emission reduction additives, filtration equipment and other
related bio-products.
Biodiesel (fatty acid alkyl esters) is a cleaner-burning diesel
replacement fuel made from natural, renewable sources such as new and used
vegetable oils and animal fats. Just like petroleum diesel, biodiesel operates
in compression-ignition engines. Blends of up to 20% biodiesel (mixed with
petroleum diesel fuels) can be used in nearly all diesel equipment and are
compatible with most storage and distribution equipment. These low level blends
(20% and less) don't require any engine modifications and can provide the same
payload capacity as petroleum diesel.
Using biodiesel in a conventional diesel engine substantially reduces
emissions of unburned hydrocarbons, Carbon monoxide, sulfates, polycyclic
aromatic hydrocarbons, nitrated polcyclic aromatic hydrocarbons and particulate
matter. These reductions increase as the amount of biodiesel blended into
petroleum diesel fuel increases. The best emissions reductions are seen with
100% biodiesel (B100). Therefore, biodiesel works well with technologies such as
diesel oxidation catalysts (which reduce the soluble fraction of diesel
particulates but not the solid carbon fraction).
Diesel fuels keep the country moving. From consumer goods moved
cross-country to the generation of electric power, to increased efficiency in
the nations farms, diesel fuel plays a vital role in the nation's economy and
standard of living. The major users of biodiesel fuels are:
On-road transportation Off-road uses (mainly mining, construction and logging)
Rail transportation Electric Power generation
Marine shipping Military transportation
11
On-road transportation, primarily trucks, accounts for two-thirds of the diesel
fuel consumed in the United States. Because diesel fuels are used mainly to move
goods from manufacturer to consumer, its sales are linked to the strength of the
economy. Sales of on-road diesel fuels in the U.S. rose from 25 billion gallons
in 1995 to more then 80 billion gallons in 2002, an increase of 5% to 6% a year.
Comparable worldwide figures are not available currently. The International
Energy Agency estimates the worldwide use of diesel fuel in 1994 was 187 billion
gallons. In Europe and Asia, where there is a significant population of
diesel-powered automobiles, the use of diesel fuels nearly equals that of
gasoline.
The term diesel fuels are generic; it refers to any fuel for a compression
ignition engine. However, in common use it refers to the fuels made commercially
for diesel-powered vehicles or equipment.
IBBC will be using a new continuous flow biodiesel refinery technology.
It's a complex combination of interdependent processes, the result of a
fascinating intertwining of advances in chemistry, engineering, and metallurgy,
which exist nowhere in the world today. The technology is protected under a
pending patent application.
It has been critical to the successful development of biodiesel fuels and
diesel-powered vehicles to have consensus among refiners, vehicle and engine
manufactures and other interested parties on the characteristics of diesel fuel
necessary for satisfactory performance and reliable operation. In the United
States, this consensus is reached under the auspices of the American Society for
Testing and Materials (ASTM). Committee D-2 (Petroleum Products and
Laboratories) is responsible for diesel fuel specifications and test methods.
Committee D-2 also turns to groups like the Society of Automotive Engineers
(SAE), Coordinating Research Council (CRC) and the National Biodiesel Board
(NBB) when they need reliable technical data to establish a specification or
develop a test method. IBBC is a registered biodiesel producer with the EPA and
biodiesel refined by the method that the company will use has met with ASTM
standard requirements.
Today it is almost impossible to discuss motor vehicles without
considering air quality. The first federal limits for exhaust emissions from
diesel-powered vehicles started with the 1971 model year. The Clean Air Act of
1996 initiated the federal governments' regulation of air pollution. The stated
purpose of the Act is: "... to protect and enhance the quality of the nations
air resources." The 1970 amendments of the Clean
12
Air Act created the U.S. Environmental Protection Agency (EPA) and made it
responsible for implementing the requirements of the act and its amendments.
California laws governing vehicle emissions are administered by the California
Air Resources Board (CARB), which was established in 1969. The Clean Air Act and
its amendments ".... set deadlines for the EPA, States, Local governments and
businesses to reduce air pollution". Each state is required to develop a State
Implementation Plan (SIP) that explains the actions it will take to meet or
maintain the air quality standard set by the EPA. The company as a registered
biodiesel producer with the EPA is working within the State of California, at DQ
University-Davis (a Tribal Government owned University) to establish a
laboratory and pilot biodiesel plant facilities, to allow the testing, process
simulations, and analytical support that will be attractive to the U.S.
Department of Energy, EPA, and other Federal departments, as well as the
California Air Resources Board (CARB) and local governments. Having secured
Tribal Government interest, these projects are expected to receive high priority
at the National, State, City levels and potentially could establish D-Q
University as a major center (and resource) for biodiesel development and
application. With the aid of IBBC and Tribal Governments throughout the nation,
D-Q University will offer courses on Renewable Energy Development similar to
Universities in Iowa and Idaho and especially develop expertise relative to
processing of lower grade and/or the more unique feed stock resources.
IBBC has already begun positioning itself to take advantage of the new
opportunities for promotion and revenue growth. The Company has acquired
exclusive licensing rights for the States of Arizona, Connecticut, Nevada and
the rights to license the technology to Tribal Nations throughout North America.
IBBC is currently negotiating the application of biodiesel development in China
as well. The company has also acquired the license rights to certain lubricants
and filter technologies.
Consolidated Tribal Investments (CTI), a private Nevada Corporation, will
act as a holding company for all Tribal Government Trusts and Investments made
by Tribal governments throughout North America.
The U.S. Department of Energy (DOE) is trying to help make alternative
fuel vehicle (AFV) purchase decisions easier for fleet managers and companies
across the nation. Many fleets are subject to AFV acquisition requirements under
the Energy Policy Act (EPAct) regulations. On May 19, 1999, the DOE issued the
Biodiesel Fuel Use Credit Interim Final Rule. The Interim Final Rule will allow
fleets required to purchase certain percentages of AFV's under the EPAct to meet
up to 50% of their AFV acquisition requirements through the use of biodiesel in
vehicles weighing in excess of 8500 lbs. Gross vehicle weight. A covered fleet
will be awarded one AFV acquisition for each 450 gallons of biodiesel purchased
up to the point where the fleet has met 50% of its AFV acquisition requirements.
To receive credit for an AFV acquisition the biodiesel must be used in biodiesel
blends that contain, by volume, at least 20% biodiesel.
13
It is estimated that by the year 2008, the U.S. will need 8.8 billion
gallons of biodiesel production per year. IBBC plans to have in production 12
plants, located throughout the U.S., each producing a minimum of 35 million
gallons of biodiesel per year. It is estimated that with all 12 plants in full
production, the company will meet less then 2% of the biodiesel that will be
required. Net return to the company per gallon is estimated at $.20 cents per
gallon produced. The company anticipates reaching profitability after the third
plant goes into full production.
Liquidity and Capital Resources
The company has financed its operations and capital expenditures primarily
from equity financing and loans from shareholders. The Company had issued stock
in exchange for $90,000 from a shareholder and as of April 2003, the company had
issued the stock to the shareholder. The Company expects negative cash flow from
operations to continue for the near foreseeable future, as it continues to
develop plants and market its operations. Inflation has not had any material
impact on the company's operations.
The company will pursue long term financing for its operation activities
and potential acquisitions. No source of long term financing has occurred to
date and there can be no assumption that financing will be available, or if
available that it will be on acceptable terms. Although management believes that
development of such biodiesel facilities may be attractive to various Granting
organizations, especially the Department of Energy, EPA, and other Federal
agencies, as well as State, local and Tribal Governments. The ability to finance
existing and future operations will be dependent upon external sources.
Results of Operations - Six months ended June 30, 2003 compared to six months
ended June 30, 2002
2003 2002
Net Sales $ 0 $ (91,992)
---------
Cost of Sales $ 0 $(250,326)
-------------
Professional Fees $ 17,500 $ 24,000
-----------------
Salaries $ 0 $ 17,100
--------
Administrative Expenses $ 196,552 $ 22,209
-----------------------
The increase in administrative expenses is due to the Company's new focus on the
biodiesel industry and their need to secure consultants to aid them in their
transition.
14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Default upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL BIOFUEL & BIOCHEMICAL CORPORATION
(Registrant)
Dated: September 19, 2003 By: LeeRoy Allen, Jr.
President
15
Certifications
I, LeeRoy Allen, Jr. certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of International
Biofuel & Biochemical Corporation;
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 the other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this report.
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a. designed such disclosure controls and procedures to ensure that
material information regarding the Company, including its
consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
b. evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this report; and
c. presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based upon our evaluation
5. I have disclosed, based upon my most recent evaluation, to the Company's
auditors and the audit committee:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to
record, process, summarize and report financial data and have
identified for the Company's auditors any material weaknesses in
internal control and;
b. any fraud, whether or not material, that involves management or
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: September 19, 2003 By: /s/ LeeRoy Allen, Jr.
President
16