U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
[ ] TRANSITION REPORT PURSUANT SECTION 13 OF 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-26721
SYNERGY TECHNOLOGIES CORPORATION
(Exact name of small business issuer
as specified in its charter)
COLORADO 84-1379164
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 210, 214 11th S.E., Calgary, Alberta Canada T2G 0X8
(888) 378-6633
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes _X_ No __
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date:
21,936,327 Shares of Common Stock, $0.002 par value, as of November 11, 1999.
Transitional Small Business Disclosure Format (check one);
Yes___ No _X_
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
SYNERGY TECHNOLOGIES CORPORATION
Consolidated Balance Sheet
For the Nine Month period ended September 30, 1999
September 30,
1999 1998
ASSETS
Current
Cash $ 10,681 $ 6,958
Receivables (Note 3) 122,619 28,405
Receivable - related parties (Note 4) 1,058 -
Prepaid expenses 47,586 2,024
--------- --------
181,944 37,387
Technology acquisition (Note 8) 1,844,048 1,152,535
Petroleum and natural gas interests (Note 7) 548,391 499,924
Office equipment, computers and
leasehold improvements 4,984 637
Other asset - Organization Costs, net 9,909 6,189
Investments (Note 8) 100,000 -
--------- -------
2,507,332 1,659,285
--------- -------
TOTAL ASSETS $ 2,689,276 $1,696,672
LIABILITIES
Current
Accounts payable and accrued expenses $ 593,497 $ 283,626
Loans payable (Notes 5(a)& 5(b)) 226,556 64,398
--------- -------
820,053 348,024
MINORITY INTEREST $ - $ 1,250
STOCKHOLDERS' EQUITY
Common stock, $0.002 par value
100,000,000 shares authorized,
shares 21,936,327 issued $ 49,873 $ 40,679
Additional paid in capital 2,764,934 1,650,247
Foreign exchange gains - 1,988
Accumulated deficit (945,584) (345,516)
TOTAL STOCKHOLDERS' EQUITY 1,869,223 1,347,398
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 2,689,276 $ 1,696,672
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
Consolidated Statement of Operations and Deficit
For the Nine Month period ended September 30, 1999
September 30,
1999 1998
Revenue
Option income $ 200,000 $ 130
General and administrative expenses
Accounting $ 21,697 $ 7,585
Advertising 5,326 31,208
Association fees 940 -
Bank charges and interest 1,246 1,711
Conference fees and trade shows 8,798 -
Consulting - administrative 22,295 1,370
Consulting - marketing 86,250 35,126
Exchange (1,667) -
Filing, conference and
association fees 130 2,300
Investor relations 49,890 35,579
Lease rentals 718 1,472
Legal fees 52,975 27,058
Management fees 58,500 58,500
Office expense 19,215 16,292
Rent 10,500 4,957
Secretarial 2,400 1,569
Telephone 7,080 5,099
Transfer agent 3,484 1,963
Travel and promotion 22,953 46,841
Total expenses $ 372,730 $ 278,630
Net Income(Loss) for period (172,730) $ (278,500)
Deficit, beginning of year $ (772,854) $ (67,016)
Deficit, end of period $ (945,584) $ (345,516)
SYNERGY TECHNOLOGIES CORPORATION
Consolidated Statement of Changes in Stockholders' Deficit
For the Nine Month period ended September 30, 1999
<TABLE>
Common Stock Additional Paid Accumulated Total Stockholders'
Shares Amount in Capital Deficit Equity (Deficit)
<S> <C> <C> <C> <C> <C>
Balances
December 31, 1999 20,332,526 $40,666 $1,650,247 $(772,854) $918,059
Common Stock Issued $0.50
per share February 10, 1999 86,000 172 42,828 ----- 43,000
Common Stock Issued $0.50
per share February 17, 1999 1,059,314 2,119 527,538 ----- 529,657
Common Stock Issued $0.50
per share March 31, 1999 45,000 90 22,410 ----- 22,500
Common Stock Issued $0.53125
per share March 31, 1999 63,801 128 33,766 ----- 33,894
Common stock Issued $0.50
per share April 7, 1999 309,686 618 154,225 ----- 154,843
Common stock issued $1.00
per share April 30, 1999 40,000 80 39,920 ----- 40,000
Common stock reserved but not
yet issued; deemed value
$0.10 per share 3,000,000 6,000 294,000 ----- 300,000
Net Loss Period ended
September 30, 1999 ----- ----- ----- (172,730) (172,730)
Balances September 30, 1999 24,936,327 $49,873 $ 2,764,934 $(945,584) $1,869,223
</TABLE>
SYNERGY TECHNOLOGIES CORPORATION
Consolidated Statement of Cash Flows
For the Nine Month period ended September 30, 1999
9.30.99 9.30.98
Cash provided by (used for)
operating activities
Loss for the period $ (172,730) $ (278,500)
Changes in non-cash working capital:
Net change in receivables $ 169,421 $ (13,968)
Net change in payables 98,737 245,902
Minority Interest (2,514) 1,250
Organization costs (9,000) (5,000)
Net change in prepaid expenses (45,837) 7,976
Net change in foreign exchange - 1,988
$ 210,807 $ 238,148
Cash provided by financing activities
Issuance of shares $ 1,123,984 $ 1,175,000
Loan proceeds & other liabilities (113,649) 64,398
$ 1,010,245 $ 1,239,398
Cash used for investing activities
Acquisition of petroleum and
natural gas interests $ (170,904) $ (41,844)
Technology Development Costs (776,159) (1,152,535)
Leasehold, equipment and
software acquisition (4,984) (637)
Acquisition of shares (100,000) -
$ (1,052,047) $ (1,195,016)
Increase (Decrease) in cash $ (3,725) $ 4,030
Cash, beginning of year $ 14,406 $ 2,928
Cash, end of period $ 10,681 $ 6,958
1. Summary of Significant Accounting Policies
General
Synergy Technologies Corporation (formerly Automated Transfer Systems
Corporation), was incorporated in Colorado on February 10, 1997. On
November 24, 1997 the Company merged with Stone Canyon Resources, Inc.,
another Colorado corporation. Prior to the merger Automated Transfer
Systems Corporation had no operations. Prior to the merger Stone Canyon had
2,901,007 shares of common stock outstanding and Automated Transfer Systems
had 2,549,500 shares of common stock outstanding. In the merger Stone
Canyon shareholders traded each of their 2,901,007 shares for one share in
Automated Transfer Systems making Stone Canyon Resources Inc. a wholly owned
subsidiary. Also in the merger Automated Transfer Systems issued 4,539,162
new shares of its common stock to extinguish $453,916 of the debt of Stone
Canyon Resources, Inc. At the end of the merger there were 9,989,669 shares
outstanding. The former creditor of Stone Canyon Resources, Inc. became the
controlling party in the Company, owning more than 60% of the Company's
outstanding stock. Synergy Technologies through its subsidiary, Carbon
Resources Limited have acquired a patented and proprietary technology for
the conversion of gas to liquids. Carbon Resources Limited and its wholly
owned subsidiary, Lanisco Holdings Limited have acquired a patented and
proprietary technology for the upgrading of heavy oil. Effective June 25,
1999 Synergy incorporated SynGen Technologies Limited as a wholly owned
subsidiary and transferred all the rights in and to the patented and
proprietary technology for the conversion of gas to liquids from Carbon to
SynGen. Synergy, SynGen, Carbon and Lansico have expended and continue to
expend funds on the continuing research and development of these proprietary
technologies to prove their commercial application, establish market
recognition and generate licensing and royalty revenues through exploitation
of the processes.
Basis of Presentation
These consolidated financial statements include the accounts of the Company
and its subsidiaries, as follows:
(i) Carbon Resources Limited, a Cyprus corporation, formed on April 28
1998, which completed a share exchange agreement with Automated Transfer
Systems Corporation effective June 2, 1998. Under the terms of the
agreement, Carbon Resources Limited became a 75% owned subsidiary of the
Company. On June 25, 1999, Synergy Technologies Corporation negotiated the
acquisition of the remaining twenty-five percent (25%) of the shares of
Carbon Resources Limited and Carbon Resources Limited became a wholly owned
subsidiary of Synergy Technologies Corporation. On June 26, 1999, Synergy
Technologies Corporation executed a share exchange agreement with Texas T
Petroleum Ltd., a Colorado corporation whereby Texas T Petroleum Ltd. has
the right to acquire a 50% in the shares of Carbon. These financial
statements presently include 100% of the accounts and records of Carbon
Resources Ltd. and will continue to reflect a 100% interest until such time
as Texas T Petroleum Ltd. fulfills its obligations to earn 50% of the shares
of Carbon.
(ii) Lanisco Holdings Limited, a Cyprus corporation, formed on September
7, 1998, and acquired by Carbon Resources Limited, to become a wholly
owned subsidiary effective January 6, 1999
(iii) SynGen Technologies Limited., a Cyprus corporation, formed on June
25, 1999 as a wholly owned subsidiary, to which Synergy Technologies
transferred its 100% interest in the gas-to-liquids technology from
Carbon Resources Limited.
(iv) Stone Canyon Resources Inc., a Colorado corporation, formed on
November 7, 1996, which completed a share exchange agreement with
Synergy Technologies effective November 24, 1997. Under the terms of
this agreement Stone Canyon Resources Inc. became a wholly owned
subsidiary of the company.
The Company reports revenue and expenses using the accrual method of accounting
for financial and tax reporting purposes. All reported amounts are in US
dollars.
Use of Estimates
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
Development Stage Company
The Company meets the guidelines of SFAS No. 7 and as such is classified as
a development stage company.
Pro Forma Compensation Expense
The Company accounts for costs of stock-based compensation in accordance
with APB No. 25, "Accounting for Stock Based Compensation" instead of the
fair value based method in SFAS No. 123. No stock options have been issued.
Accordingly, no pro forma compensation expense is reported in these
financial statements.
Foreign Currency Translation
The Company translates its assets and liabilities at the exchange rate
prevailing at the balance sheet date. Revenues and expenses are translated
at the average exchange rate for the year. Foreign exchange gains and
losses are deferred and shown separately in shareholder's equity. At June
30, 1999 net gains and losses have been immaterial and are not shown
separately.
Property and Equipment
Property and equipment, when acquired, are stated at historical cost.
Depreciation, Amortization and Capitalization
The Company records depreciation and amortization, when appropriate, using
both straight-line and declining balance methods over the estimated useful
life of the assets (five to seven years).
Expenditures for maintenance and repairs are charged to expense as incurred.
Additions, major renewals and replacements that increase the property's
useful life are capitalized. Property sold or retired, together with the
related accumulated depreciation, is removed from the appropriate accounts
and the resultant gain or loss is included in net income.
Income Taxes
The company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Under Statement 109, a liability method is used whereby deferred tax assets
and liabilities are determined based on temporary differences between basis
used for financial reporting and income tax reporting purposes. Income
taxes are provided based on tax rates in effect at the time such temporary
differences are expected to reverse. A valuation allowance is provided for
certain deferred tax assets if it is more likely than not, that the Company
will not realize the tax assets through future operations.
Fair Value of Financial Instruments
Financial accounting Standards Statement No. 107, "Disclosures About Fair
Value of Financial Instruments", requires the company to disclose, when
reasonably attainable, the fair market values of its assets and liabilities
which are deemed to be financial instruments. The Company's financial
instruments consist primarily of cash and certain investments.
Per Share Information
The Company computes per share information by dividing the net loss for the
period presented by the weighted average number of shares outstanding during
such period.
2. Provision for Income Taxes
The provision for income taxes for the period ended August 31, 1999
represents the minimum state income tax expense of the Company, which is not
considered significant.
3. Receivables
The receivables as stated on the consolidated Balance Sheet consist of the
following accounts:
Receivable from Stone Canyon Resources Ltd., a company incorporated
pursuant to the laws of the Province of Alberta, and an affiliate of
Synergy Technologies Corporation. On September 30, 1998, Synergy
Technologies entered into an agreement with Stone Canyon
Resources Ltd. ("Stone-Canada"), whereby Stone Canada committed to fund
the design and construction of a 4 bbl per day demonstration facility in
the Province of Alberta in exchange for the Canadian marketing and
licensing rights to Synergy's proprietary Gas to Liquids technology. The
amount recorded as a receivable on the Balance Sheet includes project
development costs chargeable to the 4 bbl per day demonstration facility.
The account bears no interest and is subject to no specific terms of
repayment.
$ 104,401
GST Receivable. Certain expenses for services rendered and supplies
acquired in Canada are subject to a federal Goods and Services Tax of 7%
which is refundable to the Company at fiscal year end. This amount is
refunded to the Company upon filing of a GST return in Canada.
$ 18,218
TOTAL RECEIVABLES: $ 122,619
4. Receivables - Related Parties
This receivable is due from shareholders and bears no interest and is not
subject to any specific terms of repayment.
5. Loans Payable
(a) Loans payable of $84,663 as reported on the consolidated Balance Sheet
reflect amounts advanced to Synergy Technologies and its subsidiaries
from various arms length corporations for general working capital. These
amounts bear no interest and have no stated terms of repayment.
(b) Loans payable of $141,893 as reported on the consolidated Balance Sheet
reflect a total of $44,560 advanced by Texas T Petroleum Ltd. in respect
of the development of the Gas to Liquids technology which amount bears no
interest and is subject to no specific terms of repayment, and a total of
$97,334 advanced in respect of the development of the Heavy Oil Upgrading
process under the terms of an agreement dated June 26, 1999 whereby Texas
T Petroleum Ltd. is required to fund a total of $900,000 towards the
development of the upgrading technology to earn a 50% interest in Carbon
Resources Limited. Funds advanced under the terms of the agreement with
Texas T Petroleum are recorded as a loan payable until such time as the
obligation to fund a total of $900,000 is fulfilled.
6. Commitments and Contingencies
Litigation
The Company has recently been named a Defendant in a legal action brought
forth by a group of founding shareholders in respect of a stop transfer
the Company has placed on their shares. The action was commenced
following Synergy's review of certain oil and gas leases acquired by its
formerly wholly owned subsidiary, Stone Canyon Resources Inc., which
raised several issues of concern. Upon completion of the review the
Company determined that it may not have received valid consideration for
the amounts paid to and subsequently the shares issued to certain
founding shareholders in return for these development leases. The
Company placed a stop transfer on all shares issued to the founding
shareholders pending a legal determination as to valid consideration.
Bataa Oil Inc., its affiliated companies and employees as well as Richard
and Anita Knight (the "Plaintiffs") have commenced action against Synergy
Technologies, Stone Canyon Resources Inc. (formerly a wholly owned
subsidiary) and Stone Canyon Resources Ltd. (an affiliated corporation)
for the release of their shares. The Plaintiffs have claimed breach of
contract and breach of fiduciary duty. The Company intends to respond to
this action and will vigorously defend the litigation. The Company may
commence legal action against those shareholders and certain other
founding shareholders to recover all costs of the lease acquisitions and
the return of any shares issued to the founders.
The Company received notice of a demand for arbitration from the American
Arbitration Association-San Diego which was initiated by North American
Corporate Consultants Inc. ("NACC"). NACC is seeking damages of 325,000
shares of the Company's stock, attorneys fees and punitive damages. The
Company denies of all allegation made by NACC in this claim and intends
to vigorously defend this arbitration.
Licensing and Consulting Agreements
Effective September 30, 1998, Synergy Technologies entered into an
agreement with Stone Canyon Resources Ltd. ("Stone-Canada"), whereby
Stone-Canada committed to fund the design and construction of a 4 bbl per
day demonstration facility in the Province of Alberta in exchange for the
Canadian marketing and licensing rights to Synergy's proprietary Gas to
Liquids technology. (See Note 3 Receivables)
7. Oil And Gas Leases
1999 1998
U.S.A.
50% interest in Meadow Deep, Wyoming
and D-Sand, Colorado, prospects $ 287,060 $ 287,060
15% interest in Rose Creek and Sage Creek prospects,
Wyoming (dry hole costs written off) - 148,045
5% interest in Hell's Canyon prospect, Wyoming - 22,975
(dry hole costs written off)
Canada
38.96 % APO interest in Wilson Creek prospect,
Alberta, drilling and casing expense to date 261,331 41,844
drilling and casing expense to date
$ 548,391 $ 499,924
8. Technology Agreements
On May 5, 1998, Synergy Technologies Corporation (formerly Automated
Transfer Systems Corporation) entered into a share exchange agreement with
Laxarco Holding Limited whereby Synergy acquired 75% of the issued and
outstanding shares of Carbon Resources Limited, a company incorporated
pursuant to the laws of the Republic of Cyprus and holder of a 100% interest
in and to a gas to liquids technology, in exchange for the issuance of
10,000,000 shares of Synergy Technologies Corporation. The shares were
issued at a deemed value of $0.10 per share and pursuant to the share
exchange agreement have been placed in escrow to be released
upon the successful development of the gas to liquids technology. Under the
terms of the agreement Laxarco Holding Limited granted to Synergy
Technologies an irrevocable voting power of attorney until the 10,000,000
shares are released from escrow. The Share Exchange received shareholder
approval on June 5, 1998.
On January 6, 1999, Carbon Resources Limited, a 75% owned subsidiary of the
Company, acquired the shares of Lanisco Holdings Limited, a company
incorporated in the Republic of Cyprus, which holds the rights to a
proprietary technology for the upgrading of heavy oil.
Effective January 8, 1999, Synergy Technologies Corporation reached a verbal
agreement with Texas T Petroleum, Ltd., a Colorado oil and gas corporation,
whereby Lanisco Holdings Limited would acquire 1,000,000 units of common
shares of Texas T Petroleum, Ltd., each unit consisting of one share and one
share purchase warrant entitling Synergy to purchase one additional share of
Texas T Petroleum Ltd. at $0.50 per share within three years from January 8,
1999. Texas T Petroleum Ltd. committed to expend $100,000 towards the
reconstruction of the 1/2 bbl per day heavy oil upgrading pilot plant to be
constructed in Orleans, France.
Effective June 25, 1999 the Company acquired the remaining 25% of the shares
of Carbon Resources Ltd. for the issuance of 3,000,000 shares of the Company
at a deemed price of $0.10 per share. The shares have been allocated and
are included in these statements as reserved for issuance.
Effective June 26, 1999, Synergy Technologies Corporation executed a share
exchange agreement with Texas T Petroleum Ltd., a Colorado corporation,
whereby Texas T Petroleum Ltd. has the right to acquire fifty percent (50%)
of the issued and organised shares of Carbon Resources Limited in exchange
for the issuance of 2,000,000 Units of Texas T Petroleum, each Unit
consisting of one share and one share purchase warrant entitling Synergy to
purchase one additional share of Texas T Petroleum Ltd. at $1.00 per share
within two years from June 26, 1999, and the payment of $900,000 to Carbon
resources for the development of the heavy oil technology.
1999 1998
Issuance of 10,000,000 shares at
$0.10 per share $1,000,000 $1,000,000
Allocation of 3,000,000 shares at
$0.10 per share for the remaining
shares of Carbon Resources Ltd. 300,000 -
Acquisition of 5,000 shares of
Carbon Resources Limited (1998 -
3,750 shares of Carbon Resources Limited) (10,058) (3,750)
GTL and heavy oil technology development
(see Appendix "A") 554,106 156,285
$1,844,048 $1,152,535
9. Name Change
On February 12, 1999, Automated Transfer Systems Corporation filed a
Certificate of Amendment with the Department of State of The State of
Colorado changing its name to Synergy Technologies Corporation. The name
change was accepted by the State of Colorado on March 2, 1999.
10. Subsequent Events - Nil
APPENDIX A
TECHNOLOGY DEVELOPMENT COSTS
1999 1998
Equipment and services 129,288 -
Project management 220,025 83,130
Materials and supplies 73,849 11,159
Patent fees 56,516 -
Travel, meals and accommodation 25,988 -
Engineering 20,858 8,985
Rent 9,734 -
Consulting fees 6,600 45,500
Translation fees 5,084 1,465
Office supplies 2,756 -
Freight and shipping 2,056 -
Equipment rentals 823 -
Insurance 529 6,046
Total Technology Development Costs $ 554,106 $ 156,285
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Registrant has no ongoing primary income source at this time. Capital
from equity issues or borrowings is required to fund future operations.
During the period ended December 31, 1997, the Registrant raised $33,000.00
from its initial placement of common stock. Stone Canyon Colorado, the
Registrant's wholly owned subsidiary, had debt on its balance sheet of
$453,916 which was due and payable to Stone Canyon Canada prior to the
acquisition of Stone Canyon Colorado by the Registrant. Subject to the share
exchange agreement between the Registrant and Stone Canyon Colorado, the
Registrant exchanged a total of 2,901,007 shares of its common stock on a one
for one basis with Stone Canyon Colorado. In addition, the Registrant
retired the loan payable by Stone Canyon Colorado to Stone Canyon Canada
through the issue of 4,539,162 shares of common stock at the time of the
acquisition. As at December 31, 1997, the Registrant had issued and
outstanding 9,989,669 shares of common stock.
During the year ended December 31, 1998, the Registrant raised $175,000
and issued 350,000 shares of common stock from equity private placements.
The Registrant further issued a total of 10,000,000 shares of common stock
at a deemed value of $0.10 per share ($1,000,000) subject to the terms of
a share exchange agreement between the Registrant and Laxarco, whereby the
Registrant acquired 75% of the issued and outstanding shares of Carbon,
the holder of a 100% interest in and to a patented and proprietary gas-to-
liquids technology. Subsequent to the year ended December 31, 1998, and
during the six month period ended June 30, 1999 the Registrant raised an
additional $750,000 (As compared to nil, June 30, 1998) by the issue of
1,500,000 common shares from equity private placements completed under a
Regulation D, Rule 504 offering. A further $40,000 was raised in
relation to the exercise of share purchase warrants attached to the
placements and an additional 40,000 shares of common stock were issued in
respect of same. The Company executed a further agreement with Laxarco
during the nine month period ended September 30, 1999 to acquire the
remaining 25% of the issued and outstanding shares of Carbon whereby the
Company has allocated for issue an additional 3,000,000 common shares at a
deemed value of $0.10 per share. As at the nine month period ended
September 30, 1999, the Registrant had 24,936,327 shares of common stock
(As compared to 20,339,669, September 30, 1998) issued and outstanding
(inclusive of 3,000,000 common shares reserved for issue with respect to
the Carbon transaction). The Company also issued 63,801 shares in
connection with its acquisition of an additional 22.38% after payout
interest in the Wilson Creek property, to add to its previously acquired
16.79 after payout interest (see notes to financial statements).
In addition, the Registrant entered into an agreement with Stone Canyon
Canada, an Alberta corporation and an affiliate of the Registrant, whereby
Stone Canyon Canada is required to fund the design and construction of a 4
bbl per day demonstration facility to test SynGen Technologies' patented
GTL process in return for the Canadian licensing and marketing rights to
the technology. To December 31, 1998 the Registrant and its subsidiaries
had expended a total of $437,435 in relation to the development of the GTL
technology and have invoiced Stone Canyon Canada for reimbursement of
applicable expenses totaling $370,799 (inclusive of a surcharge of 2.5% on
all applicable charges for management of the accounts) in respect of the 4
bbl/day demonstration facility. To December 31, 1998 the Registrant had
received a total of $88,448 in reduction of this account receivable. All
amounts invoiced to Stone Canyon Canada to December 31, 1998 have been
recorded on the financial statements as project income.
To the nine months ended September 30, 1999 Stone Canyon Canada and the
Registrant continued to expend funds on the development of the GTL
technology. Under the terms of the agreement Stone Canyon Canada is
invoiced directly by suppliers for all expenses in relation to the 4
bbl/day demonstration facility. As at September 30, 1999 receivables due
from Stone Canyon Canada in relation to the demonstration facility had
decreased by $177,950 (as compared to $370,799, September 30, 1998) from
December 31, 1998. Subsequent to the year ended December 31, 1998 and
during the nine months ended September 30, 1999 the Registrant expended an
additional $174,081 development of the GTL technology (as compared to
$156,285, September 30, 1998).
Subsequent to the year ended December 31, 1998 and pursuant to the
acquisition of Lanisco Holdings Limited effective January 6, 1999 the
Registrant entered into an option agreement January 8, 1999 with Texas T
Petroleum Ltd., a Colorado corporation, whereby the Registrant received
payment of $100,000 in consideration for the granting of an option to
Texas T Petroleum Ltd. whereby Texas T Petroleum would expend an
additional $100,000 towards the re-construction of a heavy oil upgrading
pilot plant in Orleans France, to earn the right to negotiate to acquire a
50% interest in and to the heavy oil upgrading technology. The option
consideration ($200,000) received is recorded as income on the
Registrant's financial statements to September 30, 1999. The Registrant
expended option funds received to acquire 1,000,000 Units of Texas T
Petroleum Ltd. at $0.10 per Unit effective January 8, 1999 which amount is
recorded as an investment on the balance sheet to September 30, 1999. As
of September 30, 1999 the Registrant and its subsidiaries had expended a
total of $304,592 on development of the heavy oil upgrading technology (as
compared to nil, September 30, 1998). As at the nine month period ended
September 30, 1999 a total of $97,304 over and above the $200,000 advanced
to Synergy to fulfill the terms of the January 8, 1999 option agreement,
had been received from Texas T Petroleum Ltd. in respect of development of
the heavy oil upgrading technology.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant expects that its need for liquidity will increase in 1999
and 2000 in anticipation of expending funds to develop its heavy oil
upgrading and gas-to-liquids technologies.
The primary capital resources of the Registrant are its stock which may
be illiquid because of resale restrictions and/or as a result of unproven
development technologies encompassing the major assets of the Registrant.
As of the date of this filing the Registrant and its subsidiaries had
material commitments within the next year of approximately $3 million.
These commitments are either to finance and/or to arrange to have
financed, continuing research and development relating to its technology.
Certain of these committed expenditures have been financed by divestiture
of certain marketing and licensing rights and/or sale of an interest in
and to one or both of the Registrant's proprietary processes.
The Corporation's working capital at September 30, 1999, was $(638,109),
as compared to $(525,712) at December 31, 1998. Since the Corporation has
no significant source of revenue, working capital will continue to be
depleted by operating expenses.
The Corporation had current liabilities of $820,053 at September 30, 1999,
as compared to $834,965 at December 31, 1998.
RESULTS OF OPERATIONS
In May 1998, the Registrant acquired a seventy-five percent (75%)
interest in Carbon, a Cyprus corporation, through a share exchange
agreement which resulted in the Registrant issuing a total of 10 million
shares of common stock at a deemed value of $0.10 per share. In June 1999,
the Registrant acquired the remaining twenty-five percent (25%) of Carbon
in exchange for the issue of an additional 3 million shares of common
stock at a deemed value of $0.10 per share. The total of 13 million
shares issued in connection with the acquisition of Carbon are currently
being held in escrow pending the Technologies being proven to be
commercially viable. Neither of the two technologies currently under
development by the Registrant and its subsidiaries SynGen Technologies
Limited and Carbon, have been proven commercially viable as yet. All or a
portion of the 13 million shares issued for the acquisition of the two
technologies are subject to verification of commercial viability.
Subsequent to the acquisition and up to the nine months ended September
30, 1999, the Registrant had expended $174,081 (as compared to $156,285,
September 30, 1998) on research and development related to the gas-to-
liquids technology. It is expected that significant expenditures will be
incurred during the next nine to twelve months to prove the efficacy of
the gas-to-liquids technology. All expenses related to the development of
the 4 bbl per day demonstration facility will be incurred by Stone Canyon
Canada in return for the Canadian marketing and licensing rights to the
gas-to-liquids technology. The Registrant anticipates the cost for the
design, engineering and construction of such facility to be approximately
US$2 million. However, the Registrant will continue to be responsible
for, and need to locate funding to the meet the costs of ongoing
development of the gas-to-liquids technology.
The Registrant and Texas T Petroleum Ltd. have entered into a series of
transactions whereby Texas T will fund a significant portion of the costs
associated with the development of the CPJ Technology. The Registrant
intends to transform its current 1/2 bbl per day upgrading facility into a
100 bbl per day unit. The cost of engineering and developing the "scale
up" of the current unit to a 100 bbl per day unit is anticipated to be
$500,000 and the cost of constructing such a facility will be
approximately $2-3 million.
The Registrant's arrangements with Texas T have allowed it to bring the
CPJ Technology to its current level of development and will meet a
significant portion of the costs described in the preceding paragraph. In
total, Texas T is obligated to provide the Registrant (or its subsidiaries
or assigns) with US$1 million in cash and 3 million units of Texas T.
Each Texas T unit consists of one (1) share of common stock and a warrant
to purchase one (1) share of common stock; 1 million of the warrants are
priced at US$0.50 per share and the other 2 million warrants are priced at
US$1.00 per share.
The foregoing arrangements were the result of verbal and written
agreements between the Registrant and Texas T. January 8, 1999, the
Registrant granted Texas T the option to acquire fifty percent (50%) of
the Registrant's interest in the CPJ Technology. In exchange for such
option, Texas T paid US$100,000 towards the development of the CPJ
Technology and a subsidiary of the Registrant acquired 1 million Units of
Texas T, with each Unit priced at $0.10. The Registrant and Texas T then
executed a share exchange agreement dated as of June 26, 1999, whereby
Texas T was granted the right to acquire from the Registrant fifty percent
(50%) of the issued and organized shares of Carbon (which at that time was
owned 100% by the Registrant) and thereby a 50% interest in and to the
proprietary CPJ Process. The consideration for such interest is an
additional US$900,000 and 2 million Texas T Units. The shares of Carbon
to be transferred to Texas T under such agreement, as well as the 2
million Texas T Units, are currently being held in escrow pending
fulfillment of Texas T's $900,000 funding obligation.
The Registrant expects additional development costs, once Texas T has
fulfilled its obligation, of approximately $1.5-$2.5 million which will be
divided equally among the two shareholders of Carbon (i.e. the Registrant
and Texas T). The Registrant expects to be funded by potential licensees,
joint venture partners and/or other financing vehicles.
The Corporation had $200,000 in revenues for the nine months ended
September 30, 1999. For the nine months ended September 30, 1998 the
Corporation had total revenues of $130.
General and administrative expenses for the nine months ended September
30, 1999,were $278,630. General and administrative expenses for the nine
months ended September 30, 1999, included: (i) consulting fees of
$108,545; (ii) management fees of $58,500; (iii) legal fees of $52,975;
(iv) accounting fees of $21,697; and (v) office expenses of $9,215.00.
As compared to the nine months ended September 30, 1998, operating
expenses for the current period increased by 33.8% however, the net loss
from continuing operations for the nine months ended September 30, 1999
decreased by 38% compared to 1998. The Registrant anticipates the fiscal
year ended December 31, 1999 will continue to reflect losses and minimal
revenues. Current budgets and project time lines project revenues from
licensing fees as a result of the marketing of one or both of the
Registrant's development technologies will be generated during the year
ending December 31, 2000.
The increases in expenses are attributable to acquisition and development
of the second technology and thus increased technical and administrative
staffing requirements. The Company's decrease in the amount of its net
loss as compared to the same period in 1998 is attributed to income
realized from the sale of an option to a third party to purchase a capital
position in the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 12, 1999, the Company received notice of a Demand for
Arbitration filed with the San Diego office of the American Arbitration
Association by North American Corporate Consultants Inc. ("NACC"). This
matter involves an agreement for financial public relation services,
entered into by and between the Company and NACC. NACC claims that the
company breached this contract and also committed fraud and negligent
misrepresentation. NACC seeks 425,000 shares of the Company's stock
and/or cash equivalent; punitive and exemplary damages, attorneys fees and
costs. The Company disputes these claims and will vigorously defend this
lawsuit.
The company has recently been named a Defendant in a legal action brought
forth by a group of founding shareholders in respect of a stop transfer the
company has placed on their shares. The action was commenced following
Synergy's review of certain oil and gas leases acquired by its formerly
wholly owned subsidiary, Stone Canyon Resources Inc., which raised several
issues of concern. Upon completion of the review the company determined that
it may not have received valid consideration for the amounts paid to and
subsequently the shares issued to certain founding shareholders in return
for these development leases. The Company placed a stop transfer on all
shares issued to the founding shareholders pending a legal determination as
to valid consideration. Bataa Oil Inc., its affiliated companies and
employees as well as Richard and Anita Knight (the "Plaintiffs") have
commenced action against Synergy Technologies, Stone Canyon Resources Inc.
(formerly a wholly owned subsidiary) and Stone Canyon Resources Ltd. (an
affiliated corporation) for the release of their shares. The Plaintiffs
have claimed breach of contract and breach of fiduciary duty. The Company
intends to respond to this action and will vigorously defend the litigation.
The Company may commence legal action against those shareholders and certain
other founding shareholders to recover all costs of the lease acquisitions
and the return of any shares issued to the founders.
ITEM 2. CHANGES IN SECURITIES
On November 30, 1998, the Registrant commenced a private placement of
its common stock under Rule 504 of Regulation D at $0.50 per Unit. Each Unit
consisted of one (1) share of common stock and one (1) stock warrant. The
Units were priced at $0.50 US per Unit. The Registrant completed this
offering on April 6, 1999, with proceeds of $750,000 for 1.5 million
Units. No commission fees or other selling expenses were paid.
On April 15, 1998, the Registrant commenced a private placement of its
Units pursuant to Regulation S. Each Unit consisted of one (1) share of
common stock and one (1) warrant excercisable any time prior to April 15,
2000. The Registrant completed this offering on September 30, 1998 with
proceeds of $175,000 on the sale of 350,000 units at $0.50 US per Unit. No
commission fees or other selling expenses were paid.
ITEM 3. DEFAULTS 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
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
Form 8-K dated September 14, 1999 reporting the appointment of Mr.
John Gradek to the Board of Directors under Item 5 - Other Events.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SYNERGY TECHNOLOGIES CORPORATION
(Registrant)
Date: November 15, 1999
By:/S/ Cameron Harworth
President
By:/S/ Jacqueline Danforth
Secretary
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