SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under the Securities Act of 1933
Commission file number: 0-26721
SYNERGY TECHNOLOGIES CORPORATION
(Name of small business issuer in its charter)
COLORADO 84-1379164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
335-25TH STREET, S.E.,
CALGARY, ALBERTA, CANADA T2A 7H8 Telephone: (403) 269-2274
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
W. SCOTT LAWLER, ESQ.
GENERAL COUNSEL
SYNERGY TECHNOLOGIES CORPORATION
335-25TH STREET S.E.
CALGARY, ALBERTA T2A 7H8 (403) 269-2274
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
>From time to time after the effective date of this Registration Statement.
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this registration statement shall thereafter become effective in accordance
with section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission acting
pursuant to said section 8(a), may determine.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act") other than securities offered
only in connection with dividend or reinvestment plans, check the following
box. [ X ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Amount to be Proposed Offering Proposed Aggregate Amount of
Class of Securities Registered Price(1) Offering Price Registration Fee
------------------- ------------ ----------------- ------------------ ------------
<S> <C> <C> <C> <C>
Common Stock,
$0.002 par value 4,000,000 $5.00 $20,000,000 $5,280.00
Common Stock
$0.002 par value(2) 963,000 $2.00 $ 1,926,000 $ 508.46
Common Stock,
$0.002 par 750,000 $2.00 $ 1,500,000 $ 396.00
value(3)
Common Stock, 847,666 $2.00 $ 1,695,332 $ 447.57
$0.002 par value(4)
Common Stock 1,669,332 $2.00 $ 3,338,664 $ 881.41
$0.002 par value(5)
</TABLE>
___________________
[FN]
1 Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933.
2 Represents common stock to be registered on behalf of Selling Security
Holders.
3 Represents common stock issuable upon conversion of convertible
promissory notes issued to certain Selling Security Holders.
4 Represents common stock issuable upon exercise of warrants issued to
certain Selling Security Holders. See "Selling Security Holders".
5 Represents common stock underlying warrants that are issuable upon
conversion of promissory notes and the exercise of other existing
warrants.
</FN>
The information in the preliminary prospectus is not complete and
may be changed. We may not sell these securities nor may offers to buy be
accepted prior to the time the Registration Statement filed with the
Securities and Exchange Commission becomes effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated October 7, 2000
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SYNERGY TECHNOLOGIES CORPORATION
Up to a maximum of 4,000,000 common shares.
963,000 common shares are being registered on behalf of Selling
Security Holders
750,000 common shares underlying convertible promissory notes are
being registered on behalf of Selling Security Holders
847,666 common shares underlying existing warrants are being registered
on behalf of certain Selling Security Holders
1,669,332 common shares underlying warrants to be issued upon conversion
of convertible promissory notes and exercise of other existing warrants
We shall receive proceeds from the sale of the 4,000,000 shares of
common stock offered hereby (this "Offering") after paying commissions of
six to ten percent (6-10%) and before estimated expenses of $200,000.
We will not receive any cash or other proceeds in connection with
the sale of shares of common stock offered by the Selling Security Holders
(the "Selling Security Holders") except to the extent that any of the
outstanding warrants for 847,666 shares of common stock are exercised
(763,000 at an exercise price of $1.00 and 84,666 at an exercise price of
$3.00) or any of the warrants for 1,669,332 shares underlying the
convertible promissory notes and other existing warrants are issued and
exercised (834,666 at an exercise price of $4.00 per share and 834,666 at an
exercise price of $8.00 per share).
The Selling Security Holders may sell the shares as detailed in the
section entitled "Plan of Distribution".
The Securities and Exchange Commission (the "SEC") may deem each
Selling Shareholder to be an underwriter under the U.S. federal Securities
Act of 1933 (the "Securities Act").
Our common stock is quoted on the NASD's OTC Bulletin Board
("OTC/BB") under the symbol "OILS". On October 2, 2000, the closing sales
price of our common stock on the OTC/BB was $1.96875.
YOU SHOULD CONSIDER THE RISK FACTORS WE DESCRIBE STARTING ON PAGE 8
BEFORE INVESTING IN OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
ABOUT SYNERGY TECHNOLOGIES CORPORATION 6
THE OFFERING 7
FORWARD LOOKING STATEMENTS 8
RISK FACTORS 8
RISKS RELATED TO OUR TECHNOLOGIES 11
WHERE YOU CAN FIND MORE INFORMATION 13
USE OF PROCEEDS 13
DETERMINATION OF OFFERING PRICE 14
DILUTION 14
SELLING SECURITY HOLDERS 15
PLAN OF DISTRIBUTION 17
LEGAL PROCEEDINGS 18
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 22
DESCRIPTION OF CAPITAL STOCK 23
INTERESTS OF NAMED EXPERTS & COUNSEL 24
DESCRIPTION OF BUSINESS 24
DESCRIPTIONS OF PROPERTIES 34
REPORTS TO SECURITY HOLDERS 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. 34
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 39
EXECUTIVE COMPENSATION 40
FINANCIAL STATEMENTS 41
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 41
INDEMNIFICATION OF DIRECTORS AND OFFICERS 42
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION 43
RECENT SALES OF UNREGISTERED SECURITIES 43
UNDERTAKINGS 43
SIGNATURES 44
INDEX OF EXHIBITS FILED HEREWITH 45
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PROSPECTUS SUMMARY
The following summary contains basic information about this
offering. It likely does not contain all the information that is important
to you. For a more complete understanding of this offering, we encourage
you to read this entire document and the documents we have referred you to.
ABOUT SYNERGY TECHNOLOGIES CORPORATION
Synergy Technologies Corporation is developing and commercializing
two proprietary and patented processes that it hopes will change the way
the world develops oil and gas. Synergy's technologies arrive at a time
that the world is looking for solutions to the environmental problems caused
by conventional oil and gas processing and consumption. The Company intends
for petrochemical applications of its "SYNGEN" process (see "DESCRIPTION OF
BUSINESS") to be commercially available in less than one year.
Synergy's first technology, referred to as the SYNGEN Process, uses
cold plasma to convert natural gas into certain other gases, referred to as
synthetic gas, which is a mixture of carbon monoxide and hydrogen, at a
capital cost and operating cost lower than conventional or known competing
technologies. Production of synthesis gas by the SYNGEN Process then leads
to the production of synthetic fuels (such as diesel, jet fuel and naphtha)
when coupled with Synergy's Fischer-Tropsch system. Although
Fischer-Tropsch systems have been in existence for decades, Synergy uses a
proprietary chain limiting catalyst in its system, which reduces operating
costs. When the SYNGEN Process and the proprietary Fischer-Tropsch system
are coupled, a gas-to-liquids ("GTL") system is created. Synergy believes
the cost savings of its GTL system creates an attractive, commercial
application. The market for GTL products is expected to significantly
increase during the next 2-3 years due to legislation limiting emissions and
particulates. Synergy's GTL process creates super clean, low-emission
transportation fuels.
The SYNGEN Process can also be used to produce hydrogen and other
gases for use in the petrochemical industry. Moreover, SYNGEN has
application in the fuel cell industry by producing hydrogen as fuel for fuel
cells.
Synergy's other technology, referred to as the CPJ Process, can
reduce the costs of upgrading heavy oil by up to 70%. The cost savings are
derived from reduced capital for a process that is far less complex than
current competing technologies. It is also based on the fact that upgraded
oil is light enough to be transported in conventional pipelines. This
avoids the costs of dilution product or thermal viscosity reduction. Also,
the CPJ Process creates more valuable middle distillate fractions, which are
more profitable and easier to refine.
Synergy's principal executive offices are located at 335-25th
Street S.E., Calgary, Alberta T2A 7H8 and the telephone number at that
location is (403) 269-2274. As used in this prospectus, the terms "we",
"us" and "our", mean Synergy Technologies Corporation, a Colorado
corporation, and its subsidiaries and predecessors, unless the context
indicates otherwise.
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THE OFFERING
<TABLE>
<S> <C>
The Offering Synergy Technologies Corporation is offering
up to 4,000,000 shares of common stock
("Company's Shares") at an estimated price of
$5.00 per share. There is no minimum investment
and no minimum offering amount.
Resales by Selling Security Holders We are registering 4,229,998 common shares on
behalf of Selling Security Holders (the "Holders'
Shares") (the Company's Shares and the Holders'
Shares are collectively referred to herein as
"the Shares"); (Which is made up of the following:
963,000 outstanding shares; 847,666 shares underlying
existing warrants;750,000 shares to be issued upon
conversion of convertible promissory notes; 1,669,332
shares underlying warrants to be issued upon conversion
of convertible promissory notes and the exercise of other
existing warrants). We will not receive any cash or other
proceeds from the Selling Security Holders' sale of their
common shares. We are not selling any common shares on
behalf of Selling Security Holders. We have no control or
affect on these Selling Security Holders. See "SELLING
SECURITY HOLDERS."
Gross Proceeds after Maximum Offering $20,000,000.00
Use of Proceeds from Sale of Synergy Technologies intends to use the funds from the
Common Shares sale of its common stock primarily for operating capital
and investment in the further development of its
technologies. See "USE OF PROCEEDS".
Common Shares Currently Outstanding 12,714,632
Common Shares to be Registered for 4,229,998 (including 3,266,998 shares underlying
Resale by Selling Security Holders convertible promissory notes and warrants)
Percent of Outstanding Common Shares 8%
Offered by Selling Security Holders
(excluding shares underlying
convertible notes and warrants)
Market For Common Stock The Company's common stock trades on the Over-the-Counter
Bulletin Board under the ticker symbol "OILS".
Risk Factors An investment in Synergy Technologies Corporation has
material risks, such as uncertainty of future financial
results, liquidity dependent on additional capital and
debt financing and risks related to our operations.
See "RISK FACTORS".
Transfer Agent Our transfer agent is:
Holladay Stock Transfer, Inc.
2939 North 67 Place
Scottsdale, AZ 85251
</TABLE>
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<PAGE>
FORWARD LOOKING STATEMENTS
This registration statement includes or incorporates by reference
forward-looking statements that reflect our current view of future events
and financial performance. These forward-looking statements are subject to
numerous risks and uncertainties, including those factors discussed
elsewhere in or incorporated by reference into this prospectus, the
prospectus supplement, any pricing supplement and our other filings with the
Securities and Exchange Commission (the "SEC").
These risks and uncertainties could cause actual results or events
to differ materially from anticipated or historical results. You can
identify forward-looking statements by our use of words like "anticipate,"
"believe," "budget," "estimate," "expect," "forecast," "intend," "may,"
"plan," "predict," "project," "should" and similar expressions. Any
statement that is not a historical fact is a forward-looking statement. We
caution you not to place undue reliance on these forward-looking statements,
whether as a result of new information, future events or otherwise.
RISK FACTORS
The following is a summary of some of the significant risks relating
to the projects of the Company and the Company. The following should not be
interpreted as a representation that the matters referred to herein are the
only risks facing the Company, nor should the reference to the risks herein
be deemed a representation that such risks are of equal magnitude. If any
of the following risks actually occur, our business, financial condition or
results of operations could be materially adversely affected.
RISKS RELATING TO OUR BUSINESS:
THE REGISTRANT'S BUSINESS
Synergy Technologies Corporation (the "Company") intends to
develop and commercialize two patented processes that it hopes will change
the way the world develops oil and gas. There can be no assurance that
management will be able to achieve these goals. Moreover, at the present
time the technology's commercial applications have not yet been proven.
LACK OF OPERATING HISTORY
We do not have an operating history upon which an evaluation of
our prospects can be based, therefore, our prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
small companies seeking to identify and fund business opportunities which
may have substantial risk of failure. We do not have any employees who
have experience in the industries which we expect to target to develop the
Company. To address these risks, we must, among other things, attract,
retain and motivate qualified personnel. We have no assurance that we will
be able to meet the challenge of managing an operating business or of
attracting the required experienced personnel to operate our business.
LACK OF RECENT PROFITS FROM OPERATIONS
We have incurred losses and anticipate continued losses in the
future. As of June 30, 2000, we had an accumulated deficit of $5,263,585.
We have not yet achieved profitability and expect to continue to incur net
losses until we recognize sufficient revenues from licensing agreements for
our technologies. See, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION - GENERAL". We can give no assurance that we will achieve or
sustain profitability.
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CAPITAL REQUIREMENTS
There can be no assurance that the Company will not require
additional capital, or that if additional capital is required, that such
capital will be available on terms acceptable to the Company. The Company
intends to draw upon the resources of potential joint venture partners to
meet the costs of building and operating during fiscal year 2000 a
demonstration facility utilizing its "CPJ Technology" (see "DESCRIPTION OF
PROPERTY") and a pilot plant utilizing its SYNGEN Technology. However,
there is no assurance that the Company will not be required to use some of
the proceeds from this Offering towards any of these projects.
NO ASSURANCE OF ADEQUATE CAPITAL
The Company has no revenues to cover operating expenses, and
there is no assurance that the Company will generate future revenues from
operations sufficient to sustain its administrative expenses and cover
planned growth. In the event additional capital is required, there can be
no assurance that the Company can successfully raise such additional funds
on terms satisfactory to the Company.
FINANCING RISKS
The Company currently does not generate any operating revenue
and the Company's ability to continue to operate may therefore depend upon
it's ability to obtain financing through the joint venturing of projects,
private placement financing, public financing or other means. There is no
assurance that the Company will be successful in obtaining the required
financing.
PUBLIC MARKET
The Company's Common Stock is quoted on the NASD
Over-the-Counter Bulletin Board ("OTC Bulletin Board"). Quotations on the
OTC Bulletin Board reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not reflect actual transactions. Although
the Company's Common Stock is quoted on the OTC Bulletin Board, the Common
Stock may be subject to certain rules adopted by the Securities and
Exchange Commission that regulate broker-dealer practices in connection with
transactions in "penny stocks". Penny stocks generally are securities with
a price of less than $5.00 (other than securities registered on certain
national exchanges or quoted on the Nasdaq system, provided that the
exchange or system provides current price and volume information with
respect to transactions in such securities). The penny stock rules require
broker-dealers, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document prepared
by the Securities and Exchange Commission that provides information about
penny stocks and the nature and level or risks in the penny stock market.
The broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and
its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. The
bid and offer quotations, and the broker-dealer and salesperson compensation
information must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing
before or with the customer's account for transactions in penny stocks
except for established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with a net
worth in excess of $1,000,000 or annual income of $200,000 or $300,000
jointly with their spouse). Consequently, the Shares are subject to the
penny stock rules, and these disclosure requirements may have an adverse
effect on the ability of broker-dealers to sell the Shares and may affect
the ability of investors in this Offering to sell the Shares and otherwise
affect the trading market of the Shares. Accordingly, prospective investors
may be unable to liquidate an investment in Shares and should be prepared to
bear the economic risk of their investment for an indefinite period and be
able to withstand a total loss of their investment.
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SPECULATIVE INVESTMENT
Any investment in the Company is speculative and involves a
high degree of risk and prospective purchasers should carefully consider the
following, among other risks and factors. Because of the nature of the more
obvious risks set forth below, and other contingencies that are not so
obvious, an investment in the Company should be made only after careful
evaluation or after consulting with professional advisors, and only by those
prospective purchasers who can afford the possible loss of all or
substantially all of their investment.
NO ASSURANCE OF RETURN ON INVESTMENT
There can be no assurance that the investors will receive from
the Company amounts equal to their investment in the Company. The revenues
from operations may be insufficient to provide the return of any portion of
the investor's investments. NO INVESTMENT SHOULD BE MADE BY A PERSON WHO IS
NOT IN A POSITION TO LOSE THE ENTIRE AMOUNT OF THEIR INVESTMENT.
NO ASSURANCES OF CASH DISTRIBUTIONS
There is no assurance that the Company will realize any
revenues so that cash will be available for payments or dividends on the
Shares or Warrant Shares purchased herein. The Company intends to retain
future earnings, if any, to provide funds for the operation of its business
and, accordingly does not anticipate paying any cash dividends on the Shares
or Warrant Shares in the foreseeable future, and there can be no assurance
that the Company will ever declare or pay dividends on its Common Stock.
CONTROL BY PRINCIPAL SHAREHOLDER AND EXECUTIVE MANAGEMENT
The principal shareholder of the Company's Common Stock,
Laxarco Holding Ltd. ("Laxarco Holding"), owns an aggregate of 13,000,000
shares of Common Stock of the Company. These shares are currently held in
escrow and will not be released to Laxarco until certain conditions are met.
(See SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
CHANGE OF CONTROL"). Until then, these shares are subject to a voting proxy
from Laxarco Holding to the Company's Board of Directors. However, upon
release of the shares, the voting proxy will expire and Laxarco Holding may
be able to elect all members of the Board of Directors of the Company and
thereby control the affairs and management of the Company. Laxarco Holding
will, therefore, be able to effectively control all matters requiring
shareholder approval, including amendments to the Company's Articles of
Incorporation, mergers, share exchanges, the sale of all or substantially
all of the Company's assets, and other fundamental transactions.
RELIANCE ON MANAGEMENT
The Company's directors and officers will make all decisions
with respect to the management of the Company. Accordingly, no person
should purchase any of the shares of common stock offered herein unless the
subscriber is willing to entrust all aspects of management to the directors
and officers of the Company.
TAX CONSIDERATIONS
Investment in the shares of common stock involves tax
considerations. Because of the importance of the tax aspects relating to an
investment in the shares, prospective investors should obtain independent
tax counseling. The Tax Reform Act of 1986 changed the tax treatment of
investments, including a broad grant of discretionary authority to the
Secretary of the Treasury to draft regulations amplifying many of its
provisions. The final impact of the Tax Reform Act of 1986 upon investment,
such as the purchase of the shares offered herein, cannot be determined at
this time. Any new tax program may have an impact on an investment in the
shares offered herein.
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DUE DILIGENCE
Some of the officers and directors of the Company may
experience a conflict in their obligations to perform due diligence, with
respect to the statements made in this Prospectus, since those same officers
and directors were responsible for compiling or producing the information
contained in this Prospectus. The Company's officers and directors who were
involved in that process believe that proper and complete due diligence has
in fact been done; this Prospectus contains a fair summary of the material
terms of the documents summarized therein; and that this Prospectus does not
contain any untrue statements concerning material facts, nor omit any
material facts, necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading to a
prospective investor.
LEGAL REPRESENTATION
The Company's in house General Counsel provides legal advice to
the Company with regards to certain matters. Other legal firms may provide
legal services in the future to the Company and its officers and directors.
Possible representation of both the Company and the officers and directors
of the Company and its affiliates may result in conflicts of interest for
such counsel. It is expected that the Company would retain independent
counsel only in the event that litigation arises between the Company and its
officers and directors and affiliates and any entities represented by
non-independent counsel.
RELATIONSHIPS OF MANAGEMENT
The officers and directors of the Company are or may be
officers and directors of affiliates of the Company and/or officers and
directors of other corporate entities, which are not affiliates of the
Company. Such affiliates or non-affiliates may be involved in business
enterprises similar to those conducted by the Company. See "DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS".
RISKS RELATED TO OUR TECHNOLOGIES
It has not been commercially proven that the Gas to Liquids ("GTL")
or Heavy Oil Upgrading ("CPJ") technologies (the "Synergy Processes") will
be exploitable. We might not successfully commercialize our technologies,
and commercial scale GTL plants and CPJ plants based on the Synergy
Processes may never be successfully constructed or operated. To date, no
commercial scale GTL or CPJ plants based on the Synergy Processes have been
constructed. There is no certainty that the technologies will be
commercially proven or that, if so proven, they will be successfully
marketed. Even in the event the GTL or CPJ technologies are proven
commercially exploitable and marketable, there can be no guarantee that
these technologies will be marketed successfully prior to the introduction
of similar technologies by competing corporations, nor is there any
guarantee the Company will obtain sufficient market share to ensure
profitable exploitation of the technologies.
Our ability to protect our intellectual property rights involves
many complexities and uncertainties, and commercialization of the Synergy
Processes could give rise to claims that our technologies infringe upon the
rights of others.
Our success depends on our ability to protect our intellectual
property rights, which involves complex legal, scientific and factual
questions and uncertainties. We rely on a combination of patents,
copyrights, trademarks, trade secret laws and contractual restrictions to
protect our proprietary rights. We cannot assure you that additional
patents will be granted, and our existing patents might not provide us with
commercial benefit or might be infringed upon, invalidated or circumvented
by others. In addition, the availability of patents in foreign markets, and
the nature of any protection against competition that may be afforded by
those patents, are often difficult to predict and vary significantly from
country to country. Our licensors or we may choose not to seek, or may be
unable to obtain, patent protection in a country that could potentially be
an important market for our technologies. The confidentiality agreements
that are designed to protect our trade secrets could be breached, and we
might not have adequate remedies for the breach. In addition, our trade
secrets and proprietary know-how might otherwise become known or be
independently discovered by others.
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Commercialization of the Synergy Processes may give rise to claims
that our technologies infringe upon the patents or other proprietary rights
of others. Although it is our policy to regularly review patents that may
have applicability in the industries in which our technologies are
applicable to, we may not become aware of these patents or rights until
after we have made a substantial investment in the development and
commercialization of those technologies. Legal actions could be brought
against us, our partners or licensees, claiming damages and seeking an
injunction that would prevent us, our partners or licensees, from testing,
marketing or commercializing the affected technologies. Major energy
companies seeking to gain a competitive advantage may have an interest in
bringing one of these actions. If an infringement action was successful, in
addition to potential liability for damages, our partners, our licensees or
we could be required to obtain a license in order to continue to test,
market or commercialize the affected technologies. Any required license
might not be made available or, if available, might not be available on
acceptable terms, and we could be prevented entirely from testing, marketing
or commercializing the affected technology. We may have to expend
substantial resources in litigation, either in enforcing our patents,
defending against the infringement claims of others, or both. Many possible
claimants, like the energy companies that have or may be developing
proprietary GTL or Heavy Oil Upgrading technologies competitive with the
Synergy Processes, have significantly more resources to spend on litigation.
We can give no assurance that third parties will not claim infringement by
us with respect to past, present or future GTL or Heavy Oil Upgrading
technologies. In any potential intellectual property dispute involving us,
our licensees or partners could also become the target of litigation.
We could have potential indemnification liabilities to licensees or
partners relating to the operation of GTL plants or CPJ plants based on the
Synergy Processes or intellectual property disputes.
A number of improvements to the GTL and CPJ processes are in various
early stages of development. These improvements will require substantial
additional investment, development and testing prior to their
commercialization. We might not be successful in developing these
improvements and, if developed, they may not be capable of being utilized on
a commercial basis. If improvements to the Synergy Processes currently
under development do not become commercially viable on a timely basis, the
total potential market for GTL and CPJ plants that could be built by us and
our partners could be significantly limited.
The economic application of the Synergy Processes depends on
favorable plant operating conditions. Among the operating conditions that
impact GTL and CPJ plant economics are the site location, infrastructure,
weather conditions, the size of the equipment, the quality of the feedstock,
the type of plant products and the market for products. If a GTL plant or a
CPJ plant is located in an area that requires the construction of
substantial infrastructure, plant economics could be adversely affected.
Industry rejection of our technologies would make the construction
of GTL and CPJ plants based on the Synergy Processes more difficult or
impossible and adversely affect our ability to receive future license fees.
Demand and industry acceptance of our GTL and CPJ technologies is subject to
a high level of uncertainty. Any partnership with a high profile industry
partner that did not achieve success or any commercial plant based on the
GTL or CPJ technologies which did not achieve success could adversely affect
other industry partners perception of the Synergy Processes. In addition,
some oil companies may be motivated to seek to prevent industry acceptance
of GTL technology based on their belief that widespread adoption of GTL
technology might negatively impact their competitive position.
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MARKET RISKS
Any time a new product is introduced into a market, such as the
patented or patent pending technologies discussed herein, there is a
substantial risk that sales will not meet expectations or even cover the
cost of operations. General market conditions might be such that sales will
be slow or even non-existent, and/or the product itself might not fit the
needs of buyers enough to induce sales. There is no way to predict the
volume of sales that will occur or even if sales will be sufficient to
support the future operations of the Company. Numerous external factors that
are beyond the control of the Company may affect the appeal of the products
offered and developed. These factors include consumer demand, market
fluctuations, the proximity and capacity of suppliers and government
regulations, including regulations relating to prices, taxes, and royalties,
importing and exporting of products and environmental controls. The exact
effect of these factors cannot be accurately predicted, but it is possible
they will result in the Company not receiving an adequate return on its
invested capital.
COMPANY'S OPERATIONS SUBJECT TO ENVIRONMENTAL REGULATIONS
The Company's operations may be subject to environmental regulations
promulgated by government agencies from time to time. In order to proceed
with the development of one or both of its technologies it may be necessary
to obtain certain permits or to post bonds with notices to several
governmental agencies including the applicable environmental agency. In
certain areas defined as sensitive areas, the environmental agency requires
special work permits. Such licenses, bonds and special work permits may
require additional capital from the Company. The amounts required will vary
and cannot be determined at this time. The Company does not foresee the
potential requirement of any licenses, permits or bonds as a hindrance to
the general operations of the Company or the development of the two
technologies.
MARKETABILITY OF OIL AND GAS AFFECTED BY MANY EXTERNAL FACTORS
As the greater portion of the Company's projected revenue stream
will depend on royalty revenues obtained from the processing of oil and gas,
it is necessary to note that in general the marketability of oil and gas can
be affected by numerous external factors beyond the control of the Company
and/or its customers. These factors include market fluctuations, the world
price of oil, the supply and demand for gas, the deregulation of gas prices,
the proximity to and capacity of oil and gas pipelines and processing
equipment, and government regulations, including regulations relating to
prices, taxes, royalties, land tenure, allowable production, the import and
export of oil and gas and environmental protection. The effect of these
factors on the Company's projected cash flows cannot be accurately predicted.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information
with the SEC. You can read and copy these materials at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
SEC's regional offices located at Seven World Trade Center, New York, New
York 10048 and at 500 West Madison Street, 14th Floor, Chicago, Illinois
60661. You can obtain information about the operation of the SEC's public
reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains
a Web site that contains information we file electronically with the SEC,
which you access over the Internet at http://www.sec.gov.; most of such
information can also be accessed from our web page at
http://www.synergytechnologies.com.
USE OF PROCEEDS
The Company is registering 4,000,000 shares of its common stock for
sale at certain times determined by the Company, currently estimated to be
no less than $5.00 per share. Assuming successful completion of the
offering, the Company shall receive net proceeds of $17,800,000 after
payment of commissions of six percent to ten percent (6%- 10%) (up to
$2,000,000) and offering expenses of up to $200,000 The commission amount
would only be payable if a broker-dealer is engaged. If the Company raises
significantly less than the maximum amount, it will be able to pay
operational expenses but will have less working capital to bring its
technologies to the commercial market through completion of its research and
development. The Company shall utilize the net proceeds from the sale of
its common stock as described below. The proceeds are to be utilized over a
six-month period.
13
<PAGE>
Gross Proceeds $20,000,000
(less commissions and offering expenses) 2,200,000
-----------
Net Proceeds 17,800,000
-----------
Technology Development 7,500,000
Working Capital 10,300,000
Any proceeds received for the exercise of the warrants shall be
utilized for general working capital requirements.
The securities of the Selling Security Holders offered pursuant to
this Registration Statement and Prospectus are for the benefit of such
Selling Security Holders. The Company is not selling common stock on behalf
of the Selling Security Holders and has no control or effect on the 963,000
common shares, the 750,000 shares issuable upon conversion of the convertible
promissory notes, 847,666 shares issuable upon exercise of the existing
warrants or 1,669,332 warrants issuable upon conversion of the convertible
promissory notes and the exercise of other existing warrants. Therefore, the
Company will not share in or receive any part of the proceeds realized on the
sale of any of the Holders' Shares offered hereby.
DETERMINATION OF OFFERING PRICE
The Offering Price will be determined by the prevailing market price
at the time of the sales by the Selling Security Holders. The Company's
Shares offered hereunder shall be priced at a later date. This Registration
Statement shall be amended at the time that the offering price for such
shares is determined.
DILUTION
Our net tangible book value applicable to common stock as of June
30, 2000 was approximately ($1,081,188), or ($0.08) per share. Net tangible
book value applicable to common stock is the tangible assets less intangible
assets less liabilities.
Our pro forma net tangible book value attributable to the common
stock as of June 30, 2000 was approximately ($757,988), or ($0.05) per share
of common stock. Pro forma adjustments have been made to reflect the
issuance of 646,400 shares of common stock upon conversion of a convertible
debenture for $323,200. Pro forma net tangible book value per share is
determined by dividing the amount of our pro forma tangible assets less
total liabilities by the pro forma number of common stock outstanding.
After giving effect to the issuance of 4,000,000 shares of common
stock offered by us at an assumed offering price of $5.00 per share and
after deducting estimated offering expenses payable by us, and the
application of the estimated net proceeds from this offering, our pro forma
net tangible book value applicable to common stock as of June 30, 2000 would
have been approximately $17,042,012, or $0.93 per share. This represents an
immediate increase in pro forma net tangible book value to our existing
stockholders of $0.98 per share and an immediate dilution to purchasers in
this offering of $4.07 per share. Dilution in net tangible book value per
share represents the difference between the amount paid per share by purchasers
of shares of common stock in this offering and the pro forma net tangible book
value per share of common stock immediately after the completion of this
offering. If the offering price is higher or lower, the dilution to
purchasers in this offering will be greater or less, respectively. The
following table illustrates this per share dilution.
14
<PAGE>
Proposed Offering Price $5.00
Pro Forma Net Tangible Book Value Per Share
as at June 30, 2000 $(0.05)
Increase in Pro Forma Net Tangible Book Value
Per Share Attributable to this Offering $0.98
Pro Forma Net Tangible Book Value Per Share
After this Offering $0.93
Dilution Per Share to New Investors $4.07
SELLING SECURITY HOLDERS
The Selling Security Holders may sell their common stock in one or
more transactions (which may include "block" transactions in the
Over-the-Counter market), in negotiated transactions in a combination of
such methods of sales, at fixed prices which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The Selling Security Holders may
effect such transactions by selling the common shares and the underlying
warrants directly to purchasers, or may to or through agents, dealers or
underwriters designated from time to time, and such agents, dealers or
underwriters may receive compensation in the form of discounts, concessions
or commissions from the Selling Security Holders and/or the purchaser(s) of
the common shares for whom they may act as agent or to whom they may sell as
principals, or both. The Selling Security Holders and any agents, dealers
or underwriters that act in connection with the sale of the common shares
might be deemed to be "underwriters" within the meaning of Section 2(11) of
the Securities Act of 1933, and any discount or commission received by them
and any profit on the resale of the common shares as principal might be
deemed to be underwriting discounts or commissions under the Securities Act
of 1933.
The Company is not aware of any current or future plans, proposals,
arrangements or understandings by any Selling Security Holders to distribute
their Shares to their respective outstanding shareholders or partners.
The Company is not aware of any plans, arrangements or understanding
by any Selling Security Holders to sell the Holders' Shares to any
particular individual(s) or to use such Shares to satisfy contractual
obligations.
The Company will receive no portion of the proceeds from the sale of
the Shares by the Selling Security Holders and will pay some of the costs
relating to the registration of this Offering (other than any fees and
expenses of counsel for the Selling Security Holders). Any commissions,
discounts or other fees payable to a broker, dealer, underwriter, agent or
market maker in connection with the sale of any of the Holders' Shares will
be paid by the Selling Security Holders.
This offering by Selling Security Holders will remain outstanding
until all the Holders' Shares are sold or until terminated by the Selling
Security Holders. On behalf of the Selling Security Holders, we are
registering 963,000 common shares currently outstanding and 847,666 shares
underlying existing warrants. We are also registering the common shares
underlying units to be issued upon conversion of convertible promissory
notes held by certain Selling Share Holders. Commencing in May 2000, the
Company issued and sold $2,250,000 of convertible promissory notes (the
"Notes"). The Notes are convertible into units at the rate of $3.00 per
unit. Each unit is comprised of (a) one (1) share of common stock; (b) a
warrant to purchase one (1) share for $4.00; and (c) a warrant to purchase
one (1) share for $8.00. We are registering all 750,000 of the shares
issuable upon conversion of the Notes and all 1,500,000 shares issuable upon
exercise of the warrants that would be issued on conversion of the Notes.
In connection with the offering of the Notes, we issued warrants to purchase
a total of 84,666 units, which are duplicates of the units into which the
Notes are convertible at an exercise price of $3.00 per share. Such
warrants were issued as a commission to those companies and individuals that
assisted in the placement of the Notes. The amount of shares owned prior
to the offering and offered by the Selling Security Holders is based on the
conversion of all the Notes held by each such Selling Security Holder, the
exercise of each such Selling Security Holder's warrants issuable upon
conversion of all the Notes and the exercise of any other warrants or
options held by each such Selling Security Holder that may be exercised in
the next sixty (60) days. The amount and percentage owned after the
offering assumes the sale of all of the common shares being registered on
behalf of the Selling Security Holders.
15
<PAGE>
Following is a list of Selling Security Holders whose shares are
being registered and offered by this Registration Statement, which list
includes each Selling Security Holders name, any position or natural
relationship with the Company or any of its predecessors or affiliates
during the past three (3) years, the amount of securities owned by each
Selling Security Holder prior to the offering, the amount to be offered for
the Selling Security Holders account and the amount and percentage (if more
than one percent) of the class to be owned after the offering is complete.
<TABLE>
<CAPTION>
Name Position/Relationship # of Shares # of Shares # of Shares % of Class
to the Company owned prior to Offered by Owned after Owned
(last 3 years) Offering Selling Offering after the
Security Offering
Holder
__________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Richard Ashley, Jr. None 30,000 30,000 0 -
George J. Kritos &
Panagiota Kritos None 30,000 30,000 0 -
Steven C. Mitchen None 30,000 30,000 0 -
John Kalliris &
Kathryn Kalliris None 30,000 30,000 0 -
A. St. George
B. Duke Trust None 30,000 30,000 0 -
Alan R. Cohen None 30,000 30,000 0 -
Catherine Brennan
Revocable Trust None 90,000 90,000 0 -
Ken Kramer None 60,000 60,000 0 -
Sunshine Pacific Corp. None 195,777 105,000 90,777 -
Mary J. Rumsey Spouse of Advisory
Board Member1 89,232 63,999 25,233 -
Stone Canyon
Resources Ltd. Affiliate2 1,426,000 345,000 1,081,000 8.7%
John P. Wold None 30,000 30,000 0 -
Vincent J. Lopiano &
Suzanne Lopiano None 30,000 30,000 0 -
Belle Haven
Investments L.P. None 502,998 502,998 0 -
William H. Swan None 30,000 30,000 0 -
Bryan North-Class None 30,000 30,000 0 -
Joseph Lopiano &
Mary Lopiano None 45,000 45,000 0 -
Richard J. Dunseith None 30,000 30,000 0 -
Franklin A. Urbahns None 30,000 30,000 0 -
Walter Steffen None 45,000 45,000 0 -
Urbanek Family L.P.
Acct.2 None 180,000 180,000 0 -
16
<PAGE>
R.W. Urbanek MD PC
Pension Profit
Sharing None 180,000 180,000 0 -
Spiro Angelos None 12,000 12,000 0 -
Arcangelo Rosato None 30,000 30,000 0 -
John A. Lee & Leslie
K. Lee None 30,000 30,000 0 -
Stephen Leong None 30,000 30,000 0 -
James Nielson Member of Advisory
Board 540,000 540,000 40,000 -
Wood River Trust Member of Advisory
Board 725,000 700,000 25,000 -
Ocean Exploration Ltd. None 444,005 425,001 19,004 -
Caribbean Overseas
Investments Ltd. None 483,455 200,000 283,455 2.3%
Pierre Jorgensen Member of Board of
Directors of Carbon
Resources Ltd. 200,000 200,000 0 -
Andrew Decker None 40,000 40,000 0 -
Gordon R. Repin None 20,000 20,000 0 -
SOS Investment None 12,000 12,000 0 -
Club
Bernie Kutcher None 4,000 4,000 0 -
Rick B. Haug None 10,000 10,000 0 -
Doug J. Kinnear None 6,000 6,000 0 -
Douglas A. Slade None 4,000 4,000 0 -
Tim Ewanchuk None 10,000 10,000 0 -
Jack Braun None 20,000 20,000 0 -
</TABLE>
[FN]
1. Mary Rumsey is the spouse of Charles Rumsey, who is a
member of the Company's Advisory Board. Mr. Rumsey is
the beneficiary of the Wood River Trust and the Catherine
Brennan Revocable Trust.
2. Stone Canyon Resources Ltd. is an affiliate of the Company
by virtue of having common directors. See "DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS".
PLAN OF DISTRIBUTION
The Company hereby offers up to 4,000,000 shares of common stock at
a price per share to be determined at a later date. The Company is offering
the Company's Shares on a "direct participation" basis by its officers and
directors, other affiliates of the Company and possibly selected broker
dealers.
17
<PAGE>
These individuals shall be relying on the safe harbor in Rule 394-1
of the Securities Exchange Act of 1934 to sell the Company's shares.
Selected broker-dealers shall receive a sales commission of up to 10% for
any shares sold by them. The Company reserves the right to withdraw, cancel
or reject any offer in whole or in part. THE SHARES OFFERED BY THE COMPANY
HEREUNDER SHALL NOT BE SOLD TO INSIDERS, CONTROL PERSONS OR AFFILIATES OF
THE COMPANY.
The Company made no plans, proposals, arrangements or understandings
with any potential sales agent with respect to participating in the
distribution of our securities. When, in the future, assuming such
participation develops, the registration statement will be amended to
identify such persons.
OFFERING PERIOD
This offering by the Company will terminate on or before March 1,
2001. In the Company's sole discretion, it can extend the offering of
common shares for up to thirty (30) day periods, but in no event later than
June 30, 2001. In the case of the Holders' Shares, this offering shall
continue until all of the Holders' Shares are sold.
The Selling Security Holders may sell the Holders' Shares offered
hereby in one or more transactions (which may include "block" transactions),
in combination of such methods of sales, at fixed prices which may be
changed, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. The Selling
Security Holders may effect such transactions by selling the Holders' Shares
directly to purchasers, or may sell to or through agents, dealers or
underwriters designated from time to time, and such agents, dealers or
underwriters may receive compensation in the form of discounts, concessions
or commissions from the Selling Security Holders and/or the purchaser(s) of
the Holders' Shares for whom they my act as agent or to whom they may sell
as principals, or both. The Selling Security Holders and any agents,
dealers or underwriters that act in connection with the sale of the Shares
might be deemed to be "underwriters" within the meaning of Section 2(11) of
the Securities Act, and any discount or commission received by them and any
profit on the resale of the common shares as principal might be deemed to be
underwriting discounts or commissions under the Securities Act.
LEGAL PROCEEDINGS
BATAA OIL, INC.
During 1996, Stone Canyon Colorado purchased interests in certain of
the leasehold properties. Through December 31, 1997, Stone Canyon Colorado
paid $458,080 for acquisition costs and development costs associated with
such interests. Such amount was paid to Bataa Oil, Inc., by the founding
shareholders of Stone Canyon Colorado, and Stone Canyon Colorado paid such
amount to the founding shareholders. Bataa Oil, Inc. served as operator of
each lease. Stone Canyon Colorado also issued a total of 1,700,000 shares
of its common stock to the founders of Stone Canyon Colorado, including
411,842 shares of its common stock to Bataa and Bataa's designees and 63,910
shares to Richard and Anita Knight as part of the consideration for such
properties, which shares were issued for shares of the Company as part of
the share exchange agreement in 1997 with the Company and Stone Canyon
Colorado.
Stone Canyon Colorado and the Company contend that Bataa represented
to Stone Canyon Colorado and/or its affiliates that the price for these
properties was set as the price paid by Bataa for the same. Stone Canyon
Colorado and the Company have since learned that Bataa's cost for these
properties were far less than the amount charged by Bataa. The Company has
questioned the form of legal title taken for the properties as well as
adequate documentation and disclosure of all underlying obligations,
liabilities and arrangements relating to the properties, between Bataa Oil,
Inc. and the vendors. The Company has also learned that some of these
leases have been forfeited due to a failure to meet a drilling obligation
imposed by G & H Production. The Company was not apprised of such
obligations of prior to acquisition of its interest in the leases. The
Company has been advised by legal counsel that the issuance of the shares to
Bataa Oil and its designees was without the kind, amount or form of
consideration as authorized by the Board of Directors and could therefore be
deemed to be an invalid issuance. In order to protect the interests of all
shareholders, the Company has therefore placed a "stop transfer" with the
transfer company against all of the founders shares, including the shares
issued to Bataa and Bataa's designees and Richard and Anita Knight.
18
<PAGE>
As a result of this dispute, in May 1999, Bataa Oil, Richard and
Anita Knight and certain others filed a complaint in the District Court,
County of Denver, in the State of Colorado (Case No. 99CV3482) against the
Company, its wholly-owned subsidiary, Stone Canyon Colorado and Stone Canyon
Canada, which was previously the Company's sole controlling shareholder.
The original complaint asserted only one claim (breach of fiduciary duty and
mandatory injunction) against the Company to compel it to remove restrictive
legends from the plaintiffs' shares of the Company's common stock. The
plaintiffs have amended their complaint twice, and as a result, have named
additional defendants to this lawsuit, including members of the Company's
Board of Directors, the Company's transfer agent (Holladay Stock Transfer
Inc.) and other individuals. The plaintiffs' second complaint also includes
causes of action for conversion, civil conspiracy and unjust enrichment.
The Company's Answer and Counterclaims denied all material allegations,
asserted numerous affirmative defenses and asserted counterclaims against
Plaintiffs Bataa Oil, David Calvin and/or Richard and Anita Knight for an
accounting, fraud, intentional misrepresentation, breach of fiduciary duty,
damages and punitive damages.
The Company has disputed the allegations made by the plaintiffs and
claims they are untrue.
On September 13, 2000, the Company, Stone Canyon Colorado, Stone
Canyon Canada, and others entered into a settlement agreement with Bataa
Oil, its affiliates and applicable employees whereby Bataa and Bataa's
designees that received any of the 411, 842 shares of common stock
disclaimed any and all interests therein. Each of the parties to such
agreement agreed to dismiss all pending litigation against each other and
release each other from all claims that they may have respectively as of
that date, whether known or unknown. Such settlement agreement did not
include Tedd and Mary Duncan or Richard and Anita Knight nor a disclaimer to
the 63,910 shares previously issued to the Knights.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the names and ages of all directors
and executive officers of the Company as of the date of this report,
indicating all positions and offices with the Company held by each such person:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------- --- --------------------------------------------
<S> <C> <C>
John Gradek 48 Chief Executive Officer and member of the Board of Directors
Cameron Haworth 41 President and member of the Board of Directors of the Company
and Stone Canyon Resources, Inc.
Jacqueline Danforth 28 Secretary and member of the Board of Directors; Member of the
Board of Directors of Stone Canyon Resources, Inc., Carbon
Resources Limited, Syngen Technologies Limited and Lanisco
Holdings Ltd.
James Shone 26 Member of the Board of Directors of the Company and Stone
Canyon Resources, Inc.
Thomas E. Cooley 59 Member of the Board of Directors of the Company; President
and member of the Board of Directors of Carbon Resources Limited;
President and member of the Board of Directors of Syngen
Technologies Limited
Marc Cernovitch 26 Vice President
James E. Nielson 69 Member of the Board of Directors
Duane F. Baumert 59 Member of the Board of Directors
</TABLE>
19
<PAGE>
The members of the Company's Board of Directors are elected by the
holders of the Company's common stock. Cumulative voting for directors is
not permitted. The term of office of directors of the Company ends at the
next annual meeting of the Company's shareholders or when the successors are
elected and qualified. The annual meeting of shareholders is specified in
the Company's bylaws to be held within six (6) months of the end of each
fiscal year and the last annual meeting was held on June 28, 2000. The term
of office of each officer of the Company ends at the next annual meeting of
the Company's Board of Directors, expected to take place immediately after
the next annual meeting of shareholders, or when his successor is elected
and qualifies. Except as otherwise indicated below, no organization by which
any officer or director previously has been employed is an affiliate,
parent, or subsidiary of the Company.
DIRECTORS AND OFFICERS OF THE COMPANY AND ITS SUBSIDIARIES
MANAGEMENT OF THE COMPANY
The following table furnishes the information concerning the
officers and directors of the Company as of September 19, 2000. The
directors of the Company are elected every year and serve until their
successors are elected and qualify.
<TABLE>
<S> <C> <C> <C>
NAME AGE TITLE TERM OF
SERVICE
------------------- --- ----------------------------------------- -------------------
John Gradek 48 Chief Executive Officer; Director 09/99 to Present
Cameron Haworth 41 President, Director 12/97 to Present
Jacqueline Danforth 28 Secretary-Treasurer, Director 12/97 to Present
Marc Cernovitch 26 Vice President 04/97 to Present
Thomas E. Cooley 59 Director 08/00 to Present
James Shone 26 Director 12/97to Present
James E. Nielson 69 Director 9/00 to Present
Duane F. Baumert 59 Director 09/00 to Present
</TABLE>
Mr. John Gradek - Chief Executive Officer and Director
Mr. Gradek has been a director of the Company since September 14,
1999 and became the Company's Chief Executive Officer on August 15, 2000.
Mr. Gradek worked for Canadian Pacific Railway during the last six years as
Director Capacity Planning and previously as Director of Locomotive Fleet
Management and a key participant in the corporation's total business
redesign. Mr. Gradek previously served Air Canada for fifteen years in such
capacities as Director of Yield Management, Manager of Schedule Design,
Aircraft Customer Service Manager, Operation Auditor and Manager of
20
<PAGE>
Passenger Pricing. Mr. Gradek received a Bachelor's Degree in Applied
Science from Loyola College (Montreal), Bachelor of Engineering
(Electronics) from Carleton University (Ottawa) and his MBA degree from U.
Western Ontario (London). Mr. Gradek is fluent in English and French.
Mr. Cameron Haworth - President & Director
Mr. Haworth who has been with the Company since December 1997,
obtained his B.Sc. in December 1987 from the University of Wyoming and a
Degree in Petroleum Technology from SAIT in 1984. Mr. Haworth was
previously employed by Schlumberger (formerly REDA Services) as the sales
manager. Mr. Haworth has several years of experience in the oil and gas
industry supervising and coordinating the marketing, sales and field
services and order initiation for the Canadian market. Mr. Haworth has
extensive experience in preparing business plans and presentation material.
Mr. Haworth has been an officer and director of Stone Canyon Canada from
July 1997 to present and an officer and director of Stone Canyon Colorado
from January 1998 to present.
Ms. Jacqueline Danforth - Secretary/Treasurer, Director
Ms. Danforth, has been an officer of the Company since December 1,
1997, has been a director of Carbon since May 22, 1998 and a director of
Syngen Technologies Limited since June 25, 1999 and a director of Lanisco
Holdings Ltd., since August 1999. Ms. Danforth has spent the past several
years in the employ of publicly traded companies. Ms. Danforth provides
contract administrative and accounting services to these companies and is
familiar with all aspects of day to day administration including public
reporting requirements under Canadian regulatory rules. Ms. Danforth has
recently expanded her duties to include a stronger focus on the oil and gas
sector and has attended numerous courses and seminars offered by CAPL and
the University of Calgary to familiarize herself with the industry. Ms.
Danforth has been an officer of Stone Canyon Canada from November 14, 1996
to date. Ms. Danforth is currently completing her studies to become a
certified general accountant.
Mr. Marc Cernovitch - Vice President
Mr. Cernovitch has been with the Company since December 1997
and is currently employed as Vice President. Mr. Cernovitch was previously
employed with Georgia Pacific Securities as an investment advisor, Mr.
Cernovitch is fully versed in the review and assessment of the financial
operations of corporate operations. Mr. Cernovitch takes an active role in
the management of the Company's financial operations and investor relations.
Mr. Cernovitch is an economics graduate of McGill University.
Mr. Thomas E. Cooley - Director
Mr. Cooley has been the Company's technology director since October
1997 and became a member of the Board of Directors on August 2, 2000. Mr.
Cooley previously served as President of Kvaerner Membrane Systems, Inc.
from August 1994 through October 1997. Prior to that, from 1984 through
August 1994, Mr. Cooley was the General Manager - Marketing and Engineering
for Grace Membrane Systems, which was acquired by Kvaerner in August 1994.
Mr. Cooley is a registered professional engineer in the State of Texas and
the Province of Alberta, Canada. Mr. Cooley holds three (3) U.S. patents
and two (2) Canadian patents and he has had eight (8) papers published. Mr.
Cooley is recognized world wide as one of the pioneers of the development
application of gas permeation membranes for natural gas processing. Mr.
Cooley earned a B.A. degree in Chemical Engineering from Rice University in
1963 and a B.S. degree in Chemical Engineering from Rice University in 1964.
21
<PAGE>
Mr. James Shone - Director
Mr. Shone has been with the Company since December 1997, is
currently employed by the Business Development Bank of Canada (BDC) in the
finance department and is serving his first term on the Board of a publicly
trading Company. Previously employed with the Trust Company of the Bank of
Montreal as a client service officer, Mr. Shone is fully versed in the
review and assessment of the financial operations of corporate operations.
Mr. Shone takes an active role in the management of the Company's financial
operations and annual corporate expenditures. Mr. Shone is familiar with
financial statement review and preparation, budgeting and financial
forecasting. Mr. Shone is a graduate of McGill University. Mr. Shone has
been a director of Stone Canyon Colorado since January 1998.
Mr. James E. Nielson
With an extensive career as an oil and gas executive, Mr. Nielson
brings an in-depth understanding of the industry to Synergy Technologies.
Mr. Nielson was President and Chief Executive Officer of Husky Oil of
Calgary, Alberta, Canada, from 1973 to 1979, during which time Husky Oil
experienced tremendous growth, a four-fold increase in operating revenues
and a six-fold increase in profits. He also began the planning that led to
the development of Husky's heavy oil upgrader at Lloydminster, Alberta.
Upon his return to Wyoming in 1979, Mr. Nielson formed JN Oil and Gas, a
privately owned exploration and production company. After 12 years at
the helm of JN Oil and Gas, he formed Nielson and Associates. Mr.
Nielson, currently serves as a director at the American Petroleum Institute,
the Shoshone First Bank of Cody, Wyoming, and the Y-Tex Corporation of Cody,
Wyoming.
Mr. Duane F. Baumert - Director
Mr. Baumert was elected to the Board of Directors in September 2000.
Mr. Baumert has extensive experience in the area of worldwide licensing of
technology and intellectual property rights. Mr. Baumert has been the
Business Director of UNICARB(R) Systems Business of the Union Carbide
Corporation since 1990. Mr. Baumert has been with Union Carbide since 1966
and during that time has held the positions of Director of Marketing,
National Sales Management and International Business Director. Mr. Baumert
received a B.S. in Business Administration and Management from the
University of Nebraska in 1963.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of October 5, 2000
with respect to the beneficial ownership of the Company's Common Stock by
each person known by the Company to be the beneficial owner of more than
five percent of the outstanding Common Stock, by each of the Company's
officers and directors, and by the officers and directors of the Company as
a group. Information is also provided regarding beneficial ownership of
Common Stock if all outstanding options, warrants, rights and conversion
privileges (to which the applicable officers and directors have the right to
exercise in the next sixty (60) days) are exercised and additional shares of
Common Stock are issued:
22
<PAGE>
COMMON STOCK
<TABLE>
<CAPTION>
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
------------------------------------ -------------------- ----------------
<S> <C> <C>
John Gradek 200,000 1.5%
Thomas Cooley - Board of Directors(6) 735,489 5.8%
Cameron Haworth - President
& Board of Directors 257,000 2.0%
James Shone - Board of Directors 118,216 0.9%
Marc Cernovitch - Vice President - Finance 10,000 ---%
Jacqueline Danforth - Secretary-Treasurer 423,357: 73,500 shares owned directly and 114,857
& Board of Directors (7) shares owned beneficially by Argonaut Management
Group Inc. of whom Ms. Danforth is the sole
shareholder, officer and director 3.3%
James E. Nielson 540,000 4.2%
Duane F. Baumert(8) 128,500 1.0%
Officers and Directors as a group 2,412,562 17.4%
</TABLE>
___________________
[FN]
6 Mr. Cooley is also a shareholder of Laxarco Holding Limited but
disclaims any investment control over or beneficiary interest in
the shares of the Company owned by Laxarco Holding Limited, for
purposes hereof.
7 Ms. Danforth's total shareholdings of 423,357 includes options for
235,000 shares.
8 Mr. Baumert owns options to 125,000 shares directly; his wife,
Dorothy T. Baumert, owns 3,500 in her retirement plan.
</FN>
CHANGES OF CONTROL
On August 21, 2000, the Company's Board of Directors resolved to
release from escrow 13,000,000 shares of common stock being held against the
shares of Syngen Technologies Limited and the title to the CPJ Technology.
The 13,000,000 shares were issued in the name of Laxarco Holding Limited and
are to be released upon an undertaking by Laxarco Holding Limited to supply
technical personnel in accordance with terms and conditions set forth in its
previous agreement with Carbon Resources (See "DESCRIPTION OF BUSINESS") and
the delivery of the shares of SynGen Technologies from escrow to the
Company. As of the date of this filing, neither the above-reference
undertaking nor the SynGen Technologies shares have been released to the
Company. Therefore, the aforementioned 13,000,000 shares have not been
released to Laxarco.
DESCRIPTION OF CAPITAL STOCK
The total number of shares of all classes of stock that the company
is authorized to issue is 50,000,000 shares of common stock, $0.002 par
value The Company had 12,714,632 shares of common stock outstanding as of
September 19, 2000.
COMMON STOCK
The holders of common stock are entitled to one vote per share on
all matters voted on by our stockholders, including the election of
directors. Except as otherwise required by law, the holders of shares of
common stock exclusively possess all voting power of our stockholders. The
holders of common stock are entitled to those dividends as may be declared
form time to time by the board of directors from funds available for dividends.
23
<PAGE>
INTERESTS OF NAMED EXPERTS & COUNSEL
None of the experts or Counsel named in the prospectus are
affiliated with the Company, except Mr. W. Scott Lawler, who is in-house
legal counsel. Mr. Lawler will receive no direct or indirect interest in
the Company as a result of this Registration Statement, nor will he receive
any continued income.
DESCRIPTION OF BUSINESS
General Description and Development of Business
On February 10, 1997, Synergy Technologies Corporation, a Colorado
corporation (the "Company"), was incorporated under the laws of the State of
Colorado, under the name of Automated Transfer Systems Corporation.
On November 24, 1997, the Company filed with the State of Colorado Secretary
of State, Articles of Exchange by and between itself and Stone Canyon
Resources, Inc., a Colorado corporation ("Stone Canyon Colorado"), whereby
the Company acquired 100% of the outstanding shares of common stock of Stone
Canyon Colorado, in exchange for 2,901,007 shares of common stock of the
Company, exchanged on a one share for one share basis. The Company, at that
time, also issued an additional 4,539,162 shares of its common stock to
convert $453,916 of Stone Canyon Colorado's debt into equity. Such
conversion caused Stone Canyon Colorado's creditor, Stone Canyon Resources
Ltd., a Canadian corporation ("Stone Canyon Canada") to become the
controlling shareholder of the Company, owning 45.3% of its outstanding
stock at that time.
Stone Canyon Colorado was incorporated on November 7, 1996, under the laws
of the State of Colorado to acquire, explore and develop oil and gas
resources in North America. Since its incorporation on November 7, 1996,
Stone Canyon Colorado participated in a variety of activities as follows:
1. The acquisition of U.S. petroleum and natural gas lease rights in
Colorado and Wyoming
2. The acquisition of Canadian petroleum and natural gas lease rights
in the Province of Alberta
3. The drilling of exploratory wells
On May 5, 1998, the Company, Carbon Resources Limited, Laxarco Holding
Limited and the Company's then-controlling shareholder, Stone Canyon Canada,
entered into a share exchange agreement (the "First Laxarco Agreement")
whereby the Company was to acquire 75% of the issued and outstanding shares
of Carbon Resources Limited, a company incorporated pursuant to the laws of
the Republic of Cyprus ("Carbon"), in exchange for the issuance of
10,000,000 shares of the Company's common stock. Under the terms of the
First Laxarco Agreement, Stone Canyon Canada granted to certain shareholders
of Laxarco Holding Limited an option to acquire up to 3,000,000 shares of
common stock of the Company held by Stone Canyon Canada. Pursuant to the
terms of the First Laxarco Agreement, an Escrow Agreement dated May 5, 1998
(the "Escrow Agreement"), was entered into by and between the Company and
Laxarco Holding Limited, a company incorporated under the laws of the
Republic of Cyprus ("Laxarco") whereby the 10,000,000 shares of the Company
issued pursuant to the First Laxarco Agreement were put into escrow to be
released upon the successful completion of the gas-to-liquids technology
under development by Carbon. The certificates representing seventy-five
percent (75%) of the shares of Carbon were also placed into escrow. (See
"The Company's Business-Business of Syngen Technologies Limited" below.)
Under the terms of the Escrow Agreement, Laxarco has provided an irrevocable
voting power of attorney to the Board of Directors of the Company until the
10,000,000 shares are released from escrow. The certificates representing
seventy five percent (75%) of the issued and outstanding shares of Carbon
were also placed into escrow. The First Laxarco Agreement further allows
that in consideration of Stone Canyon Canada granting to certain of the
shareholders of Laxarco the option on 3,000,000 shares of the Company's
common stock, Stone Canyon Canada would have the right to require the
Company to transfer the shares of the Company's subsidiary, Stone Canyon
Colorado, to Stone Canyon Canada upon completion of the intended
transactions between Laxarco and the Company under the First Laxarco
Agreement . The First Laxarco Agreement received shareholder approval on
June 5, 1998.
24
<PAGE>
Carbon is in the business of developing technologies. Since its
incorporation on April 10, 1998, and the name change to "Carbon Resources
Limited" on April 28, 1998, Carbon has participated in a variety of
activities, as follows:
1. Acquired a proprietary technology for the conversion of
gas-to-liquids (the "SYNGEN Technology")
2. Conducted research and development of the SYNGEN Technology
3. Entered into an agreement for the acquisition of a
proprietary technology for the upgrading of heavy oil (the
"CPJ Technology") (the SYNGEN Technology and the CPJ
Technology are referred to herein collectively as the
"Technologies")
4. Established a laboratory facility for the testing and
research and development of the technologies
On September 30, 1998, the Company and Carbon entered into a letter
agreement with Stone Canyon Canada for the development of a 4 barrel per day
gas-to-liquids demonstration facility in exchange for granting to Stone
Canyon Canada the Canadian marketing and licensing rights to the SYNGEN
Technology.
On January 6, 1999, the Company, through Carbon, acquired the shares of
Lanisco Holdings Limited, a company incorporated in the Republic of Cyprus
("Lanisco"), which holds the rights to acquire the CPJ Technology, a
proprietary technology for the upgrading of heavy oil. Under the terms of an
agreement between Lanisco and the inventor of the technology, Dr. Pierre
Jorgensen, whereby Lanisco acquired such rights, Lanisco and/or Carbon must
expend not less than $1,000,000 towards the development and
commercialization of the CPJ Technology and pay to Dr. Jorgensen a royalty
of 65% of the proceeds received from any licensing fees or royalties derived
from the CPJ Technology. Upon execution of the agreement, the shares of
Lanisco were to be transferred to Carbon. The agreement also established a
trust whereby Carbon's legal counsel held the assignment of the CPJ
Technology until such time as the funding of the $1,000,000 for
commercialization of the CPJ Technology has been completed. See below, "THE
COMPANY'S BUSINESS - BUSINESS OF CARBON RESOURCES LIMITED." The Company
completed its obligation to expend not less than $1,000,000 towards the
development of the CPJ Technology and entered into an amended agreement with
Dr. Jorgensen, whereby, in exchange for shares of common stock, Dr.
Jorgensen will be paid a reduced royalty of five percent (5%) on the net
proceeds of any license fees, royalties, or any such other revenues realized
by Lanisco from the Technology
On January 8, 1999, the Company reached a verbal agreement with Texas T
Petroleum Ltd., a Colorado oil and gas corporation ("Texas T Petroleum"),
whereby Texas T Petroleum received an option to negotiate the acquisition of
up to 50% of the shares of Carbon in exchange for the payment of $100,000
cash and the expenditure of an additional $100,000 towards development of
the CPJ Technology. Synergy advanced $100,000 of such funds to Lanisco
Holdings Ltd. for the purchase of 1,000,000 units of Texas T Petroleum.
Each unit is comprised of one (1) share of common stock and a warrant to
acquire an additional share for $1.00 per share.
On February 12, 1999, the Company filed a Certificate of Amendment with the
Department of State of the State of Colorado changing its name from
Automated Transfer Systems Corporation to Synergy Technologies Corporation.
The name change was accepted by the State of Colorado on March 2, 1999.
On March 22, 1999, the Company, Stone Canyon Colorado (a wholly owned
subsidiary of the Company) and Revival Resources Ltd., an Alberta
corporation, entered into an agreement whereby Stone Canyon Colorado
acquired a 22.38% APO interest in an oil and gas property known as the
Wilson Creek Prospect located in Alberta, Canada, as well as Revival's
respective interest in certain other development leases located in the
Province of Alberta. See below " BUSINESS OF STONE CANYON RESOURCES INC."
Under the terms of the agreement, the Company issued a total of 63,801
shares of common stock at a deemed value of US$0.53125 per share for total
value of US$33,895 in full and final payment for the leases.
25
<PAGE>
On June 20, 1999, Stone Canyon Canada concluded agreements with Natural
Resources Canada's Industry Energy Research and Development Program ("IERD")
to secure a forgivable loan of $483,000 ($700,000 CDN) towards the
development of the 4-barrel per day SYNGEN demonstration facility. This
funding is repayable in full in the event that the SYNGEN Technology proves
commercially viable. In such event, 10% of the revenues received per annum
by Stone Canyon Canada as a result of the implementation of the SYNGEN
Technology will be paid to IERD until repayment in full. In the event that
the technology does not prove commercially viable, no reimbursement to IERD
shall be required. The obligation of repayment is solely Stone Canyon's
obligation and not the Company's. This funding program has also been used
by Stone Canyon and the Company as collateral to obtain secured loans in the
aggregate amount of $350,000, which has been converted into 700,000 shares
of the Company's common stock (as discussed in the last two (2) paragraphs
of this subsection).
On June 25, 1999, Carbon, which at the time was 75% owned by the Company,
and Laxarco entered into an amendment to the Assignment of Technology
Agreement, by which Carbon had obtained the proprietary rights to the SYNGEN
Technology. The purpose of such Amendment was to clarify Carbon's
obligation regarding the construction and completion of a pilot unit
utilizing the SYNGEN Technology, the commercialization thereof and to
confirm that neither party had committed any breaches of the original
agreement. Such amendment specifically eliminated Carbon's obligation to
raise $6 million U.S. within one (1) year of the closing of the original
transaction. Instead, Carbon must complete construction of a pilot unit
utilizing the SYNGEN Technology by November 1, 2000. See below "BUSINESS OF
SYNGEN TECHNOLOGIES LIMITED - TECHNOLOGY DEVELOPMENT (A) PHASE ONE
DEVELOPMENT".
On June 25, 1999, the Company also entered into a second share exchange
agreement with Laxarco to acquire the remaining 25% of the shares of Carbon
owned by Laxarco in exchange for the issuance of 3,000,000 shares of the
Company's common stock (the "Second Laxarco Agreement"), thus making Carbon
a wholly-owned subsidiary of the Company. The Company and Texas T
Petroleum also agreed with Laxarco that Laxarco shall have the exclusive
right for thirty (30) days to offer to purchase the CPJ Technology in the
event the Company and Texas T Petroleum decide to no longer develop the CPJ
Technology.
On June 25, 1999, the Company entered into an Amended and Restated Escrow
Agreement whereby the 3,000,000 shares of the Company issued under the
Second Laxarco Agreement were added to the Escrow Agreement (the "Amended
Escrow Agreement"). The Amended Escrow Agreement calls for Laxarco to
deliver an irrevocable power of attorney in favor of the Board of Directors
of the Company to vote such 3,000,000 shares until such time as they are
released from escrow. The Amended Escrow Agreement further sets forth the
events upon which the 10,000,000 and the 3,000,000 shares of the Company
will be released to Laxarco. The 10,000,000 shares were to be released upon
the earlier of the: (i) prove-up of the SYNGEN Technology; and (ii) the
receipt of an independent report attesting to the commercial viability of
the CPJ Technology. The 3,000,000 shares were to be released upon the
latter of the two (2) events. The release of any of the shares was further
conditioned upon the Company receiving perfection of title to the subject
Technology. (See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT - CHANGES IN CONTROL").
On June 25, 1999, the Company incorporated Syngen Technologies Limited
pursuant to the laws of the Republic of Cyprus ("Syngen Tech.") and caused
Carbon to transfer its interest in the SYNGEN Technology to Syngen Tech. As
a result, all of the outstanding shares of Syngen Tech. were placed into
escrow and all of the outstanding shares of Carbon were released to the
Company.
On June 26, 1999, the Company executed a share exchange agreement with Texas
T Petroleum, whereby Texas T Petroleum will acquire fifty percent (50%) of
the issued and organized shares of Carbon in exchange for the issuance of
2,000,000 units of Texas T Petroleum, each unit consisting of one share of
common stock and one share purchase warrant entitling the holder to purchase
one additional share of Texas T Petroleum common stock at $1.00 per share
within two years from June 25, 1999, and the payment of $900,000 by Texas T
Petroleum for the development of the CPJ Technology.
26
<PAGE>
On January 14, 2000, the Company and Stone Canyon Canada entered into a
Financing and Security Agreement with Mr. James E. Nielson and Wood River
Trust, whereby Stone Canyon Canada received a loan in the amount of $300,000
U.S., repayable from the proceeds received by Stone Canyon Canada under the
IERD grant program discussed above. As part of the terms thereof, the
Company has granted each of the lenders the right to convert any part of
their respective portion of the principal of the loan into restricted shares
of its common stock at a deemed price of $0.50 U.S. per share. The lenders
will have the right to include such shares in any appropriate registration
statement filed by the Company with the Securities and Exchange Commission.
Upon exercise of such conversion right, all interest accrued on the
converted principal loan amount shall be automatically forgiven. Such right
must be elected no later than ninety (90) days from the initial start-up of
the Company's SYNGEN reactor under construction in the Province of Alberta.
Upon exercise by any of such lenders of their right to convert, they shall
also receive a warrant to purchase the same number of shares at a price of
$1.00 per share. Such warrant must be exercised by December 15, 2002. As
of June 13, 2000, each of the lenders converted their share of the loan into
the aforementioned shares and warrants.
Pursuant to a second Financing and Security Agreement executed in January
2000 between, Stone Canyon Canada, the Company and Caribbean Overseas
Investments Ltd., under the same terms as discussed in the immediately
preceding paragraph, a further $50,000 in loan proceeds was received by the
Company. As of September 11, 2000, Caribbean Overseas Investments Ltd.
converted its promissory note from such financing into 100,000 shares and
warrants for an additional 100,000 shares.
THE COMPANY'S BUSINESS
The Company's principal place of business is 335 - 25th Street, S.E.,
Calgary, Alberta, Canada, T2A 7H8.
The Company, through its subsidiaries, also maintains offices in Houston,
Texas, London, England and underwrites projects in Orleans, France. See "
DESCRIPTION OF PROPERTIES"
The Company conducts its operations through its wholly-owned subsidiaries,
Carbon, Lanisco, Stone Canyon Colorado and Syngen Technologies Ltd. (SEE
-"GENERAL DESCRIPTION AND DEVELOPMENT OF BUSINESS".) The Company has 20
full-time employees.
A. BUSINESS OF CARBON RESOURCES LIMITED
In 1998 and 1999, Carbon acquired the rights to own and develop two (2)
unique proprietary technologies - the SYNGEN Technology and the CPJ
Technology. See "DESCRIPTION OF BUSINESS - OTHER REQUESTED INFORMATION -
PATENTS." After the Company's acquisition of Carbon, it believed it was
advantageous to transfer the SYNGEN Technology into a separate wholly-owned
subsidiary, Syngen Technologies Ltd. See "BUSINESS OF SYNGEN TECHNOLOGIES
LIMITED" below.
1. The Heavy Oil (CPJ) Technology
(a) Background of the Technology
The CPJ Process was invented and developed by Dr. Pierre Jorgensen, a
retired French process engineer who spent his career dealing with the fluid
catalytic crackers, cokers, visbreakers, and bottom of the barrel refinery
economics. Once retired, he spent years at Orleans University to obtain a
PhD. At his own expense, he funded the experimental work on this process,
which was the basis of his doctoral thesis. The objective of Dr.
Jorgensen's experimental work was to show that not only could his process
upgrade heavy oil to a valuable light oil, but also to show that his process
could replace the fluid catalytic cracker, coker, hydrocracker and
visbreaker processes of a typical refinery. As a practical process
engineer, Dr. Jorgensen typically compares his process results with those
observed in commercial practice on the same raw materials. He has made test
runs on atmospheric bottoms, vacuum tower bottoms, and waste lube oil for
re-refining purposes. Dr. Jorgensen's pilot plant was in operation in
Orleans during 1989-1990 and was reassembled in Orleans in 1999 by Carbon to
substantiate Dr. Joregensen's claims for his process. Carbon realized that
if the CPJ Process could meet its claims, then it was a breakthrough
technology for upgrading heavy oil at the production site into more valuable
oils.
27
<PAGE>
As stated above, Dr. Jorgensen set out to show that his process was a
suitable replacement for processing bottom of the barrel oils.
Accordingly, much of his comparison studies were to compare his process
against conventional processing for various heavy feeds. The Company
believes that the CPJ Process produces a greater volume of desirable middle
distillate fractions than do the conventional processes. The CPJ Process
converts most of the feed into products that can be recovered via
atmospheric distillation alone or marketed as an upgraded crude oil.
2. The Process
The CPJ Process is a non-catalytic process and is completely thermal driven.
Based upon an instantaneous thermal shock, the process breaks huge
hydrocarbon molecules on average into two equal parts (minimizing production
of gases and coke). Heavy molecules are placed at an initial state below the
conditions for natural thermal cracking and then activated by thermal
mechanical energy transfer from a jet of superheated steam. This effect is
quickly obtained in a jet nozzle shearing the feed molecules.
This mixture then returns to thermodynamic steady state in a reactor soaker,
giving stable end products, in a short residence time and at moderate
pressure. Flash separators working at near atmospheric pressure separate
the products without the requirement for large and expensive vacuum
technology. The appropriate set of sep\arators produce recycle streams and
final products.
General operating conditions of the CPJ process:
NON CATALYTIC (insensitive to metals, nitrogen, sediments, etc )
NON VACUUM
THERMAL DRIVEN
WORKING AT MODERATE PRESSURE
RELATIVELY SAFE TECHNOLOGY and process (NO OXYGEN required and all reactions
are endothermic)
NO COSTLY HYDROGEN needed (high pressure, metallurgical constraints, and
ammonia production are avoided)
B. BUSINESS OF SYNGEN TECHNOLOGIES LIMITED
On June 25, 1999, the Company incorporated Syngen Technologies Ltd., a
company incorporated pursuant to the laws of the Republic of Cyprus ("Syngen
Technologies"), as a wholly owned subsidiary to allow for the transfer of
all rights and interest in the SYNGEN Technology from Carbon.
Syngen Technologies is a company committed to reducing greenhouse gases by
converting them to valuable petroleum products. The conversion of remote
gas reserves into valuable synthetic fuels such as jet fuel and diesel fuel
(synfuels) is considered to be the focus of the natural gas industry for the
21st century. Syngen Technologies holds the rights to a patented process
(SYNGEN) for the low cost conversion of associated gases and high CO2
natural gas to synthesis gas that is especially well suited for conversion
to synthetic fuels via the Fischer-Tropsch process. The patent for this
technology was registered in France on January 13, 1997 and was accepted on
October 20, 1997. The U.S. and international patents were applied for on
January 13, 1998 and granted on November 30, 1999. Syngen Technologies
holds a further license to proprietary Fischer-Tropsch technology which
includes a hydrocarbon chain limiting catalyst.
28
<PAGE>
Syngen Technologies possesses a truly innovative route to syngas for the
Fischer-Tropsch process. Invented and perfected through several patents over
the past 12 years, a new process to convert natural gas via high-energy cold
plasma has been developed and patented. Dr. Albin Czernichowski, the
inventor, assigned the patents for his SYNGEN process to Laxarco who
assigned the patents to Carbon. Synergy Technologies acquired the shares of
Carbon and transferred all rights and interest in the technology to Syngen
Technologies. The SYNGEN process is believed to offer substantial savings
in capital costs ("CAPEX") and operating costs ("OPEX") over conventional
syngas formation.
The new process has been extensively tested at the laboratory level and is
believed to produce a superior feedstock for the Fischer-Tropsch process.
In addition, a variation of the SYNGEN process allows natural gases with CO2
levels up to 35% to be converted to synfuels economically. From a global
warming context and in view of proposed governmental carbon taxes, this is
believed to be a tremendous breakthrough.
1. THE GAS-TO-LIQUIDS (SYNGEN) TECHNOLOGY
SYNGEN offers to the oil and gas industry a patented process for the
generation of syngas from natural gases. The essence of the technology is
passing the gas at moderate temperature through a plasma arc generated by
electricity. The arc excites the molecules providing the energy for the
chemical reactions to go forward. The French and U.S. patents have been
issued and international patents are currently under application. This
unique process has been named SYNGEN. Reducing the cost of synthesis gas
formation is the most important hurdle according to the DOE (Department of
Energy) and other sources to commercialization of synfuels on a grand scale.
The Company believes SYNGEN accomplishes just that. Highlights of the
SYNGEN process are as follows:
Capital Costs (CAPEX) for synthesis gas can be reduced by more than 40%
No exotic metallurgy required
No sophisticated furnace required
Natural gas up to 35% CO2 can be converted to acceptable synthesis gas
Utility requirement imported from Fischer-Tropsch Process so little or
no OPEX
Patented technology with further patents applied for
Syngen Technologies has access to a proprietary Fischer-Tropsch process
developed in Russia. Fischer-Tropsch processes have been used for over fifty
years in Russia and considerable R & D efforts have been expended to improve
catalysts. Typical Fischer-Tropsch processes produce wax from syngas in
addition to the desired middle distillates. A catalyst to limit wax
formation could result in improved yield and reduced Fischer-Tropsch CAPEX
and OPEX, resulting in a more economically attractive process. The catalyst
technology available through Syngen Technologies limits hydrocarbon chain
length, preventing wax formation and producing hydrocarbons in the gasoline
diesel jet fuel range. Syngen Technologies believes its licensed catalyst
technology will be state of the art as compared to other available
catalysts.
2. STANDARD SYSTEM
The nominal commercial SYNGEN/FischerTropsch systems will be designed to
process 100 million cubic feet (MMCFD) of gas per day into nominally 10,000
barrels of synfuel product. An increasingly important characteristic of all
of the SYNGEN/Fischer-Tropsch systems products is the fact that they do not
contain undesirable and/or harmful aromatics, nitrogen, or sulfur compounds.
Legislation and regulatory requirements continue to add support for the
broader use of synfuel products for these reasons. Improvements will
continue to evolve and technology enhancements will continually be made to
the basic system to fit both onshore and offshore locations.
29
<PAGE>
3. THE MARKET
The world's known gas reserves are estimated to be approximately 4,500
trillion cubic feet, of which approximately half are situated in areas
presently considered to be "remote", without markets and/or pipelines.
SYNGEN/Fischer-Tropsch systems are ideal for gas producers having sizable
reserves but no immediate markets or existing pipeline systems available to
them.
Syngen Technologies will face competition in the marketplace, however, it
believes its system to be superior because of its CAPEX and OPEX advantage.
In addition, most of the potentially competitive systems under development
are not for license to public markets. Syngen Technologies'
Fischer-Tropsch should be significantly less expensive than any system
manufactured by major oil companies. Potential competitors may eventually
elect to either utilize Syngen Technologies /Fischer-Tropsch Systems or
license the SYNGEN Technology as a more cost-effective method of achieving
their objectives. The following companies are involved in the synfuel
industry in some capacity.
(a) Shell Oil Company
Shell's gas-to-liquids process, which was originally developed as the
Gulf/Badger system, was sold to Shell Oil by Chevron following its
acquisition of Gulf Oil.
Shell's first commercial plant, which is now called the Shell Synthetic
Middle Distillate System, has been operating for many years in Malaysia, at
a reported cost of $1.2 billion. A major cost factor is related to the
extensive orientation to petrochemical products in this plant. Shell does
not appear to offer its technology to third parties.
(b) Exxon
Little is known about Exxon's work to date except that its catalysts are
also cobalt based, but in conjunction with titanium rather than alumina.
Exxon has reportedly spent over $150 million in development. It is
understood that Exxon will only use its system for company owned and/or
operated projects. The Exxon system is not expected to be cost competitive
with the Syngen Technologies' commercially engineered Fischer/Tropsch System.
(c) Sasol
Sasol of South Africa has been converting South African coal reserves into
synthetic fuels for years. Sasol currently has a gas-to-oil system in
operation. However, it continues to use iron catalysts that produce CO2 and
entails recycling resulting in reduced selectivity and productivity. There
are indications that Sasol is considering licensing their technology to
others but only in cases where they have an equity interest in the project.
It is the Company's understanding and belief that Sasol has recently entered
into a technology licensing agreement with Chevron.
(d) Syntroleum
Syntroleum is a public company located in Tulsa, Oklahoma, which offers
gas-to-liquids technology. Syntroleum, together with Brown & Root,
announced their first "commercial" enterprise on December 11, 1997. The
venture is expected to produce some 2,500 barrels per day of product. The
Syntroleum process is not believed by the Company to be as efficient or cost
effective, as compared to the SYNGEN Technology.
(e) Rentech, Inc.
Rentech, Inc. is a public corporation located in Denver, Colorado, which has
developed its own gas-to-liquids technology. Rentech has recently announced
that it has completed the basic engineering and design work required to
convert its fifty-percent owned Sand Creek LLC project in Colorado from a
methanol plant into a Fischer-Tropsch gas-to-liquids-facility. Rentech
anticipates that it will convert this facility to a 1,000 barrel per day GTL
facility. Rentech anticipates that this facility will be in full scale
commercial production in the first quarter of 2002. Rentech's system is
believed to be more costly that the Company's.
30
<PAGE>
4. AN ALTERNATIVE TO LNG
Gas-to-Liquids ("GTL") systems are a serious competitor to the Liquefied
Natural Gas industry, particularly when producers sell FOB to end users with
no added value through conversion of the producer's gas. Prospective LNG
projects throughout the world are natural targets for the
SYNGEN/Fischer-Tropsch systems and thereby constitute an important primary
marketing thrust. The capital costs of a GTL system are approximately one
third of comparable LNG facility costs, and margins on an MCF basis are at
least treble for synfuel products, depending upon country of origin and
related transportation costs.
A SYNGEN/Fischer-Tropsch System should preclude the need to utilize
specialized transport vessels, which handle 6 BCF of gas equivalent and cost
$275 million per ship. In addition to liquefaction and transportation
costs, LNG must be re-gasified and converted into usable products through
capital intensive plants at the destination. Conversely, synfuel products
are either used locally or are shipped less expensively and are immediately
ready for market.
5. THE ENVIRONMENT
In many countries of the world, associated gas from crude oil production is
vented or flared due to the lack of an economic sales opportunity creating
environmental concerns. These emissions contribute substantially to the
global warming effect, as unburned hydrocarbons and CO2 (considered
greenhouse gases) are released into the atmosphere, and efforts are being
pursued on a global basis to reduce these emissions.
6. PRODUCTS AND APPLICATIONS
An increasingly important characteristic of all SYNGEN/Fischer-Tropsch
System products is the fact that synfuel products are environmentally
attractive in that they do not contain undesirable and/or harmful aromatics,
nitrogen, or sulfur compounds. Legislation and regulatory requirements
continue to add support for the broader use of synfuel products. The
advantages of synfuels are as follows:
No aromatic content
"Smokeless" jet fuel and diesel
No sulfur in products
Cetane number 70 or above (diesel)
Premium blending stocks
Smaller gas reserves required
No dedicated customers required
Refinery diesel is rated at a cetane number of 45. Diesel produced by the
SYNGEN/ Fischer-Tropsch System will be very high grade diesel rated at a
cetane number of 70+. This superior diesel fuel should command a premium
price over regular diesel.
SYNGEN/Fischer-Tropsch System diesel will be used to blend and enhance low
quality or normal diesel fuels. Diesel is used extensively in the trucking
and transportation industries, including the railroad industry.
SYNGEN/Fischer-Tropsch Systems products can also be reformulated relatively
inexpensively into Jet A fuel for aircraft.
As a refined product, naphtha commands a price related to, but in excess, of
crude oil. SYNGEN/Fischer-Tropsch System naphtha lends itself to numerous
applications in the chemical industry, notably as a premier ethylene
feedstock, and can also be transformed into a variety of related fuel forms.
Although remote gas, which typically has no existing pipeline
infrastructure, may in most cases be the most attractive source of gas for
the SYNGEN/FischerTropsch process, other potential sources include:
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<PAGE>
Refinery hydrocarbon waste gases which are excess to refinery fuel needs
Alaskan natural gas, which after conversion to synfuel could be transported
to the US West Coast refineries via the existing pipeline
Associated gas being flared during crude oil production including offshore
platforms
Coal gas
US natural gas converted specifically to target the most stringent clean
fuels specifications
US natural gas considered too high in impurities for economic pipeline use.
7. TECHNOLOGY DEVELOPMENT
The terms of the First Laxarco Agreement committed the Company to fund the
phase one and phase two development of the GTL Technology of which Carbon
held a 100% interest, subject to the payment to Laxarco of 25% of the
revenues attributable to the licensing of the GTL Technology. The Company
was required to fund a total of $6,000,000 over the entire project. This was
later amended to require the Company to develop and construct a GTL pilot
plant by November 1, 2000, as described below.
(a) Phase One Development
Phase One development of the SYNGEN Technology was on-going in Orleans,
France. On September 30, 1998, the Company executed a letter agreement
with Stone Canyon Canada whereby Stone Canyon Canada has agreed to construct
a 4 barrel ("bbl") per day demonstration facility in Alberta, Canada to
showcase the SYNGEN process in return for the Canadian marketing and
licensing rights to the process. The Company and Stone Canyon Canada
contracted the services of Bower Damberger Rolseth Engineering Ltd., an
Alberta corporation, in early 1999 to prepare the mechanical design for the
4bbl/day facility and prepare a capital cost estimate. In late 1999, the
Company contracted with Nordic Engineering to complete the engineering of
the 4 barrel per day facility, including certain design modifications.
In January of 2000, Beau Canada Exploration Ltd., an Alberta corporation,
and the Company executed a letter agreement whereby it will provide the
Company with a site location where the 4 barrel demonstration unit could be
installed into existing infrastructure. In consideration for this Beau
Canada Exploration Ltd. was granted 100,000 stock options for exercise at
$2.25 per share. Subsequently the Company has been informed that Beau
Canada Exploration Ltd. has sold the site location to AltaGas Services Inc.
The Company has finalized definitive agreements with AltaGas Services for
locating and operating the demo unit. AltaGas received options for 10,000
of the 100,000 option shares identified above.
Total capital costs, inclusive of the value assigned to Beau Canada
infrastructure, is expected to be $2,411,500 ($3.5 million CDN).
The facility has been designed to include a SYNGEN reactor to produce
sufficient synthesis gas from natural gas for feedstock for a 4 bbl per day
capacity Fischer-Tropsch Unit. Test runs will be conducted to determine
optimum operating parameters using various oxidant purity streams. The
Fischer-Tropsch process is a proven process. Syngen Technologies will be
using proven hydrocarbon chain limiting catalysts. One of these catalysts
is supplied under license from the Novocherkassk Plant of Synthetic
Products, neat Rostov, Russia. Syngen Technologies is of the opinion that
operation of its SYNGEN/Fischer Tropsch demonstration plant will allow
competitors of potential licensees to observe the performance advantages of
its overall system. The Company expects to install the Fischer-Tropsch unit
at the plant by mid-year 2001, and tests completed by the first quarter of
2002. Stone Canyon Canada has advised that the demonstration plant
commenced commissioning in mid-2000. In addition, various other
applications for the SYNGEN reactor, including hydrogen generation for fuel
cells, will be tested.
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<PAGE>
As of June 20, 1999, Stone Canyon Canada advised the Company that it had
received from a Canadian governmental organization, a $700,000 CDN
(approximately $483,000 U.S.) award to be used towards the funding of the 4
bbl per day demonstration plant. The award came from the Industry Energy
Research and Development Program of Natural Resources Canada, a Canadian
Government's premier organization devoted to the development of clean,
energy-saving technologies. The award comprises 25% of allowable costs of
the demonstration plant and will be repayable by Stone Canyon Canada at a
low interest rate upon commercialization of the SYNGEN process.
(b) Phase Two Development
Second stage development will include the design, engineering and
construction of a 500 bbl per day SYNGEN reactor. Current budgets estimate
the total cost of this project to be approximately $500,000. The Company
intends to test the 500 bbl per day reactor in conjunction with a partner at
an overseas location as feed gas in North America is presently too costly.
The Company, through its affiliation with Stone Canyon Canada, will attempt
to obtain government assistance in Canada and Alberta to offset high costs
of feed gas should the reactor be developed in North America. However, it
may be that an alternative method will be developed to prove up the 500
barrel per day design.
C. BUSINESS OF STONE CANYON RESOURCES INC.
Stone Canyon Colorado, the Company's wholly-owned subsidiary, was
incorporated in Colorado on November 7, 1996, with the objective of
acquiring and developing oil and gas properties. On November 24, 1997 Stone
Canyon Colorado became a wholly-owned subsidiary of Automated Transfer
Systems Corporation. Stone Canyon Colorado holds minimal interests in
certain oil and gas leases in the Province of Alberta, Canada. The Company
has determined not to make any further expenditures on exploration and
development of its oil and gas leases. The Company has verbally offered to
Stone Canyon Canada the shares of Stone Canyon Colorado. The Company
expects to conclude the disposition of the shares during the fourth quarter
in fiscal year 2000.
In 1996 and 1997, the Company acquired some minor interests in certain oil
and gas leases located in the States of Colorado and Wyoming. These
acquisitions resulted in the commencement of litigation in May 2000 in State
of Colorado District Courts located in Denver County and Weld County. Each
of these cases were settled by entering into a settlement agreement dated
September 13, 2000. See "LEGAL PROCEEDINGS."
Wilson Creek Prospect
Stone Canyon Colorado executed a farm-out agreement effective March, 1998 to
earn an interest in certain lands in the Wilson Creek Area, Alberta, Canada.
The land subject to the above farmout agreement encompasses 640 acres.
Under the terms of the agreement Stone Canyon Colorado was required to pay
100% of the drilling and completion costs attributable to a 33.57% interest
in the first test well drilled on the land to earn their working interest.
Stone Canyon Colorado committed to drill a test well to a total depth of
2,250 meters to earn a 33.57% interest in the well before pay out. The
first test well was drilled in March of 1998. Completion attempts produced
flow rates below those anticipated by the Operator. Stone Canyon Colorado
will then hold small percentage interests in the Wilson Creek leases, some
of which will expire in year 2000.
Stone Canyon Colorado and the Company executed an agreement with Revival
Resources Ltd. effective March 22, 1999, to acquire Revival's 22.38%
after-payout interest in the Wilson Creek Prospect as well as its respective
interests in certain other development leases located in the Province of
Alberta. Under the terms of the agreement, the company issued a total of
63,801 shares of common stock at a deemed value of $0.53125 per share for
total value of $33,895 in full and final payment for the leases.
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<PAGE>
On March 1, 2000 Stone Canyon Colorado received notice from the operator of
the Wilson Creek leases of its intent to abandon the 14-34 well which had
been completed in September 1998. Stone Canyon Colorado concurred with
this decision and has been advised that the total contingent liability with
respect to the abandonment of the well in respect of their 33.57% interest
is $16,965. Stone Canyon Colorado anticipates abandonment activity will be
completed in fourth quarter of fiscal year 2000. Stone Canyon Colorado will
then hold small percentage interests in the Wilson Creek leases, some of
which will expire in year 2000.
DESCRIPTIONS OF PROPERTIES
PRINCIPAL PLANTS AND OTHER PROPERTY
(i) The Company's property holdings are as follows:
(1) 335 - 25th Street, S.E.
Calgary, Canada T2A 7H8
The Company leases this property from Capital Reserve Corporation at the
combined rate of $12,848 ($19,272 CDN) per month pursuant to a written, five
(5) year lease agreement. The Company subleases 8,287 square feet of office
space at the rate of $8.00 (approximately $12.00 CDN) per square foot per
annum and 4,394 square feet of laboratory space at the rate of $20.00
(approximately $30.00 CDN) per square foot per annum. These facilities
serve as headquarters and laboratory space for its research and development
activities on its technologies.
(3) 5215 Spanish Oak
Houston, Texas 77066
This space is made available to the Company in connection with its
consulting agreements with Glidarc Technologies.
(4) 8 Bellevue Road
London, England SW177EG
This space is made available to the Company in connection with its
consulting agreements with Dow's Port Technical Services.
REPORTS TO SECURITY HOLDERS
The Company is a publicly reporting company under the Securities Exchange
Act of 1934 and as such is required to file periodic reports with the SEC,
including but not limited to annual reports, quarterly reports and current
reports. Copies of all materials the Company files with the SEC may be read
and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet site that contains, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC; the address of that site is http://www.sec.gov. The Company
also maintains some information on its web site located at
http://www.synergytechnologies.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
Statements included in Management's Discussion and Analysis of Financial
Conditions and Results of Operations, which are not historical in nature are
intended to be, and are hereby identified as, forward looking statements for
purposes of the Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995. The Company cautions readers that forward
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those indicated in the
forward looking statements.
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<PAGE>
In connection with the Company's audit of its financial statements for the
period ended December 31, 1999, the Company's financial statements for the
periods ended prior to 1999 were restated to exclude certain contracts for
the acquisition of two proprietary and patented technologies due to the fact
that the issuance of shares in connection with such acquisitions were
contingent upon verification that the Company's technologies have reached
specific levels of commercial viability. As a result, previously recorded
assets and liabilities associated with the technologies have also been
excluded from the financial statements. See Notes 9 and 10 to the Unaudited
Consolidated Financial Statements included herewith for a discussion of
these contingent agreements.
Capital from equity issues or borrowing or partnering with industry is
necessary to fund future operations. Therefore, the financial statements
included in this report for the fiscal years ended December 31, 1999 and
1998 and unaudited financial statements for the six (6) months ended June
30, 2000 are not necessarily indicative of the Company's future operations.
PLAN OF OPERATION
The Company, as of June 30, 2000, had limited cash resources. The Company
needs to raise additional funds to meet its cash requirements for the next
twelve (12) months. The Company intends to raise such funds from the sale
of equity securities through private placements, borrowings, government
grants and partnering with industry in the development of its technologies.
The Company has advanced funds during the quarter ended June 30, 2000 to its
subsidiaries, Carbon Resources Limited, Lanisco Holdings Limited, and Syngen
Technologies Limited, to fund research and development of its CPJ Process
and the SYNGEN Process. Syngen Technologies Limited will become a
wholly-owned subsidiary of the Company upon the release from escrow of all
of the outstanding shares of Syngen Technologies Limited. (See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - CHANGES OF
CONTROL".) The amounts advanced were for (a) the design, development and
marketing of a 1/2 barrel per day CJ unit in Calgary, Alberta to test client
oils; and (b) the design, development and marketing of a 4 barrel per day
demonstration facility in the Province of Alberta utilizing the SYNGEN
Technology. See below, "RESULTS OF OPERATIONS".
The Company completed installation of its 1/2 barrel per day CPJ Technology
test unit in its laboratory in Calgary in the first quarter of 2000. In
April 2000, it commenced testing heavy oil samples in the CPJ Technology
test unit and commenced testing client samples after completing its own
internal testing to optimize operating conditions. The Company expects that
$500,000 will be expended by the end of March 2001 towards the operation and
testing of the 1/2 barrel per day CPJ demonstration unit. The company also
expects to receive one-half of such amount from its CPJ Technology joint
venture partner.
During the fiscal year 2001, the Company intends to begin the detailed
engineering of a heavy oil commercial plant, with a capacity of between
1,000 and 5,000 barrels per day, with construction expected to begin
sometime in the year 2001. The total cost of this pilot plant is
approximated at $25 million. The Company and its joint venture partner will
look to potential users of the technology and government grants and/or loans
to assist in funding the costs of construction of this commercial plant.
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<PAGE>
The Company has completed the construction and installation of its 4 barrel
per day SYNGEN demonstration plant. The plant is presently in commissioning
and the Company will be conducting various tests of the demonstration plant
through the current fiscal year. The Company will also build a
Fischer-Tropsch system, which will be installed next to the SYNGEN
demonstration plant to create a gas-to-liquids system. The Company and its
funding partner, Stone Canyon Canada, expect to expend $1.9 million on the
construction of the Fischer-Tropsch system and operation of the completed 4
barrel per day gas-to-liquids demonstration plant during the next twelve
(12) months.
During the next twelve (12) months, the Company expects to complete the
detailed engineering and commence construction of a 500 barrel per day
SYNGEN reactor at the estimated cost of $500,000, to be placed at a site to
be determined.
The Company expects that the total number of people employed by the Company
and its subsidiaries will increase as the above-described pilot plants and
demonstration units are completed and are in operation.
LIQUIDITY
Cash flows from continuing operations during 1999 and 1998 reflect net cash
used of ($253,709) and ($667,569), respectively while cash flows provided by
investing activities for the same periods were ($243,191) and ($90,690),
respectively. Cash flows from financing activities for the periods ended
December 31, 1999 and 1998 were $487,843 and $770,161, respectively.
At December 31, 1999, and 1998 the Company had working capital of
($1,351,796) and ($579,823) respectively. At June 30, 2000 and 1999, the
Company had working capital of ($308,048) and ($569,004), respectively. The
Company's deficit working capital will continue to increase during fiscal
year 2000, unless additional equity and/or debt financing is obtained. The
Company hopes to obtain such financing and also hopes to receive funding
from potential users of its technologies. If either of the foregoing are
obtained, the Company believes it will have sufficient resources to meet
operating expenses for the next twelve (12) months. See "DESCRIPTION OF
BUSINESS - CURRENT OPERATIONS."
ASSETS
As at December 31, 1999 the Company had total assets of $182,191 compared to
total assets of $764,544 at December 31, 1998. This represents a decrease of
$582,353 which is mostly attributable to the Company's write down of its oil
and gas assets from its balance sheet, due to a dry well expense. The
Company has funded a project for the upgrading of heavy oil to light crude
oil which is under development by Texas T Petroleum Ltd. by way of repayable
loans totaling $127,841. As at June 30, 2000 the Company had total assets
of $1,171,769 compared to total assets of $228,537 at June 30, 1999. This
represents an increase of $943,233 which is attributable to an increase in
cash due to deposits from a private placement conducted by the Company (see
"RECENT SALES OF UNREGISTERED SECURITIES".) Total assets as at June 30,
2000 consist of $810,766 cash, related party receivables of $123,953, other
receivables of $82,637, prepaid expenses of $27,553, investments totaling
$100,000 and office equipment, net of accumulated depreciation of $3,672, of
$26,860.
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<PAGE>
RESULTS OF OPERATIONS
As of the date of this filing the Company has limited sources of income.
During the fiscal year ended December 31, 1999 and the six (6) month period
ended June 30, 2000, the Company relied entirely upon the proceeds from the
sale of stock to pay its expenses. The Company also relied upon funds from
its technology funding partners to pay for most of the research and
development costs incurred during fiscal year 1999 and the first two (2)
quarters of this fiscal year. (See the last paragraph of this Section
below.) Management expects to earn some income from testing of heavy oil
samples for clients, however the amount of the fees charged will be minimal
as compared to the funds which will be required for the ongoing development
of the Company's technologies.
The Company has a joint venture partner for the CPJ Technology who is
obligated to fund $900,000 towards the development of the Technology to earn
its fifty percent 50% interest therein. This funding commitment has been met
to date with $233,273 remaining to fulfill the obligation. The joint
venture partner is committed to funding fifty percent (50%) of the ongoing
development costs of the CPJ Technology after earning its fifty percent
(50%) interest. The Company must be able to raise additional funds for
development of both technologies by way of borrowings, equity financings,
licensing agreements or joint ventures to continue to fund the development
of its' technologies.
The Company's net operating loss for 1999, as compared to 1998, increased by
approximately 108% due to increases in salaries, rent, marketing,
acquisition reviews, legal expenses and consulting fees. The Company's net
loss in 1999 was $1,841,752, compared to a loss of $881,430 in 1998. The
Company's net operating loss for the six (6) months ended June 30, 2000 of
$1,828,199, as compared to the net operating loss for the six (6) months
ended June 30, 1999 of $1,101,318, increased by 66% due to an increase in
the Company's general and administrative expenses and a charge of
compensation related to stock options in the first quarter of the year 2000
of $685,438. (See Note 7 to the Unaudited Financial Statements for the
period ended June 30, 2000, included herewith.) The Company had dry-well
expenses in the first quarter of 1999 of $551,095 with no such expenses in
the first quarter of this fiscal year. The Company's net loss from
continuing operations during the first six (6) months of this fiscal year was
$2,728,199, compared to a loss of $1,101,318 for the same period from the
preceding year. This increase was due to a second quarter charge of
amortization of debt discount and offering costs.
The Company's operating expenses for fiscal year 1999 were comprised
primarily of oil and gas drilling costs and write off of oil and gas assets
of $551,191, technology development of $764,857 and general and
administrative expenses of $725,704. The Company's operating expenses
for the six (6) months ended June 30, 2000, were comprised of general and
administrative expenses of $722,223, stock option compensation of $733,125 and
technology development of $372,851 for a total of $1,828,199. While the
Company's total operating expenses for the six (6) month period ended June 30,
2000, increased by 40% from the same period from the preceding year, general and
administrative expenses for the same periods increased by 106% due to increased
personnel and investor relation activities.
The Company's present business does not generate sufficient revenues to
cover its operating expenses. The Company may not be able to continue
unless it can raise additional funds or source industry partners.
As of June 30, 2000, a total of $3,677,320 has been expended in the
development of the Company's two proprietary and patented technologies by
the Company, its subsidiaries and its joint venture partners. Of the total
amount expended, Texas T Petroleum Ltd., the Company's joint venture partner
in the CPJ technology has advanced $811,495 and $1,648,809 has been advanced
by Stone Canyon Resources Ltd., a related corporation, for the SYNGEN
technology, which amount includes a loan in the amount of $123,953 from the
Company.
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RELATED PARTY TRANSACTIONS
Effective May 20, 1998, Stone Canyon Canada, a corporation of which Ms.
Danforth and Mr. Haworth are each a director and officer, of which Ms.
Danforth is a greater than 5% shareholder, acquired 200,000 Units of the
Company, pursuant to an offering pursuant to Regulation S under the
Securities Act of 1933. The Units were acquired at $0.50 per Unit each Unit
consisting of one common share and one share purchase warrant entitling the
holder to acquire one additional share of common stock at $1.00 per share.
Effective July 2, 1998, Stone Canyon Canada, a corporation of which Mr.
Haworth and Ms. Danforth are each a director and officer, of which Ms.
Danforth is a greater than 5% shareholder, acquired 10,000 Units of the
Company pursuant to pursuant to Regulation S under the Securities Act of
1983. The Units were acquired at $0.50 per Unit each Unit consisting of one
common share and one share purchase warrant entitling the holder to acquire
one additional share of common stock at $1.00 per share.
Effective September 30, 1998, Stone Canyon Canada, a private Canadian
corporation of which Mr. Haworth and Ms. Danforth are each a director and
officer, and of which Ms. Danforth is a greater than 5% shareholder, and
the Company executed an agreement whereby Stone Canyon Canada was required
to pay the costs of development of a 4bbl/day test facility for a
gas-to-liquids technology currently under development by the Company in
return for the Canadian licensing and marketing rights to the technology.
On February 10, 1999, the Company 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) warrant exercisable
during the next two (2) years. The Units were priced at $0.50 US per Unit.
The Company completed this offering on April 6, 1999, with proceeds of
$750,000 for 1.5 million units. No commissions fees, underwriting fees,
discounts or other selling expenses were paid.
Effective February 17, 1999, CMJ Consulting Ltd., a corporation of which Ms.
Danforth is a director, officer and nominee holder of one-third of the
outstanding stock, acquired 470,000 Units of the Company pursuant to an
offering made pursuant to Regulation D under the Securities Act of 1933.
The Units were acquired at $0.50 per Unit, each Unit consisting of one
common share and one share purchase warrant entitling the holder to acquire
one additional share of common stock.
Effective April 5, 1999, CMJ Consulting Ltd., a corporation of which Ms.
Danforth is a director, officer and nominee holder of one-third of the
outstanding stock, acquired 124,686 Units of the Company pursuant to an
offering made pursuant to Regulation D under the Securities Act of 1933.
The Units were acquired at $0.50 per Unit, each Unit consisting of one
common share and one share warrant entitling the holder to acquire one
additional share of common stock.
Ms. Jacqueline Danforth receives $250.00 per month for administrative
services from Stone Canyon Colorado.
During the fiscal year ended December 31, 1999, Synergy Technologies was
charged a total of US$32,800 in consulting fees by Glidarc Technologies Inc.
(a Texas corporation) for process management services provided by Mr. Thomas
Cooley. Mr. Thomas Cooley is the President of Glidarc Technologies and a
Director of Carbon Resources Limited, a private Cyprus corporation which is
a subsidiary of Synergy Technologies Corporation. As at December 31, 1999,
an amount of $32,800 for services rendered remained due and payable to
Glidarc Technologies.
During the fiscal year ended December 31, 1999, Synergy Technologies was
charged US$60,000 for management services (1998 - $60,000) and US$15,000 for
rent (1998 - $4,500) by CMJ Consulting Ltd, a private Alberta corporation
which shares a common officer and director to both Synergy Technologies
Corporation and its wholly owned subsidiary, Stone Canyon Resources Inc. In
addition, during the 1998 fiscal year, CMJ Consulting advanced to Synergy
investor deposits totaling US$156,500, which amount remained outstanding as
at December 31, 1998. During fiscal 1999, CMJ Consulting advanced an
additional US$31,383 to Synergy and converted US$166,000 of the outstanding
investor deposits to 332,000 shares of the common stock of Synergy at $0.50
per Unit under a Regulation D Offering. A further $69,000 from the
outstanding accounts payable was also converted to 138,000 shares of common
stock of Synergy at $0.50 per Unit under the Offering to February 17, 1999.
CMJ purchased an additional 124,686 common shares of Synergy Technologies
under the Offering for US$62,343 in April 1999. As at December 31, 1999 an
amount of $13,143 of investor deposits (1998 - $156,500) and $76,861
recorded in the Synergy's accounts payable (1998 - $64,618) remained due to
CMJ Consulting Ltd. Please note the accounts payable figures reported above
include certain invoiced expenses incurred during the general course of
business.
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To the fiscal year ended December 31, 1999, Stone Canyon Resources Inc. (a
wholly owned subsidiary of Synergy Technologies) was charged $18,000 US for
management services (1998 - $18,000) and $2,021for rent (1998 - $1,516) by
CMJ Consulting Ltd. As at December 31, 1999 an amount of $43,115 (1998 -
$19,926) recorded in Stone Canyon Resources Inc.'s accounts payable remained
due to CMJ Consulting Ltd. Please note the accounts payable figures
reported above include certain invoiced expenses incurred during the general
course of business. As at September 30, 1999 the common officer and
director resigned from CMJ Consulting Ltd. making the company an arm's
length corporation.
During the fiscal year ended December 31, 1998, Synergy Technologies
received cash advances totaling $200,770 from Stone Canyon Resources Ltd., a
private Alberta corporation and former majority shareholder of Synergy,
which also shares two common officers and directors. Amounts advanced were
recorded on the financial statements as loans payable. In September 1998
Stone Canyon Resources Ltd. elected to convert $105,000 of the loans
outstanding to 210,000 Units of common stock under Synergy's Regulation S
offering at $0.50 per Unit.
In September 1998 Stone Canada and Synergy Technologies entered into a
letter agreement under which Stone Canada agreed to fund the development of
a 4-bbl/day gas to liquids demonstration facility under development by
Carbon in return for the Canadian marketing and licensing rights to the
technology. Pursuant to this agreement, at the fiscal year ended December
31, 1998, Carbon issued an invoice to Stone Canada in the amount of $370,799
for reimbursement of all costs incurred by Carbon in respect of the
development of the 4-bbl/day facility.
During the fiscal year ended December 31, 1998, Stone Canyon received cash
advances from Stone Canada of $90,492. Stone Canyon retired $40,982 of the
outstanding loans payable over fiscal 1998.
As of December 31, 1998, the consolidated receivable which remained due from
Stone Canada totaled $282,351.
During the fiscal year ended December 31, 1999, Stone Canada advanced funds
to Synergy and its subsidiaries to reduce the amount outstanding at December
31, 1998. In addition, as at December 31, 1999, Syngen (the Synergy
subsidiary to which the GTL Technology was transferred from Carbon) invoiced
Stone Canada an additional $65,646 for reimbursement of 4-bbl/day facility
expenses incurred over the year. As at December 31, 1999 the consolidated
receivable which remained due from Stone Canada totaled $32,067.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Over-The-Counter Bulletin Board
under the symbol "OILS". High and low bid prices for the last two (2)
fiscal years are set forth below; these quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
represent actual transactions:
High Low
2000
----
Third Quarter $3.00 $1.9375
Second Quarter $4.43 $1.9375
First Quarter $6.00 $0.50
1999
----
Fourth Quarter $0.8125 $0.37
Third Quarter $1.03 $0.4375
Second Quarter $2.93 $0.59
First Quarter $0.875 $0.437
1998
----
Fourth Quarter $0.875 $0.375
Third Quarter $2.125 $0.718
Second Quarter $1.938 $0.500
First Quarter $1.437 $0.400
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As of September 19, 2000, there were 18 market makers in the Company's
stock. The last available reported trade by the OTCBB prior to the filing
of this report was October 2, 2000, at $1.96875 per share.
As of August 21, 2000, there were approximately 1,918 record holders of the
Company's stock.
During the last two fiscal years, no cash dividends have been declared on
the Company's stock.
EXECUTIVE COMPENSATION
The following table sets forth information for the individuals who served as
the chief executive officer ("CEO") of the Company during any portion of the
last three (3) fiscal years. No disclosure need be provided for any
executive officer, other than the CEO, whose total annual salary and bonus
for the last completed fiscal year did not exceed $100,000. Accordingly, no
other executive officers of the Company are included in the table.
Name and Principal Other Annual
Position Year Salary($) Compensation($) Other
-------------------------------------------------------------------------
Jacquie Danforth 1997 0 0 0
Secretary, Treasurer
and Director
Jacquie Danforth 1998 2,070 0 0
Secretary, Treasurer
and Director
Jacquie Danforth 1999 0 0 0
Secretary, Treasurer
and Director
Cameron Haworth 1997 0 0 0
President and Director
Cameron Haworth 1998 0 0 0
President and Director
Cameron Haworth 1999 0 0 0
President and Director
Thomas E. Cooley, 1998 81,666.62* 0 932
President and Director
of Syngen Technologies
Limited and Director of
Carbon Resources Limited
Thomas E. Cooley, 1999 8,000.00 0 172,000
President of Carbon
Resources Limited
* THERE REMAINED AN UNPAID BALANCE DUE TO MR. COOLEY OF $23,333.32 AS
OF DECEMBER 31, 1998 WHICH WAS SETTLED IN FULL PRIOR TO THE DATE OF THIS
FILING.
40
<PAGE>
COMPENSATION PURSUANT TO MANAGEMENT CONTRACTS
Ms. Danforth received $4,000.00 per month for administrative services. Mr.
Cooley receives compensation for his services through a consulting agreement
between the Company and Glidarc Technologies (see "CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS").
OTHER COMPENSATION - NONE; NO STOCK APPRECIATION RIGHTS or warrants exist.
COMPENSATION OF DIRECTORS
The Company does not pay non-officer directors for their services as such,
nor does it pay any director's fees for attendance at meetings. Directors
are reimbursed for any expenses incurred by them in their performance as
directors.
FINANCIAL STATEMENTS
Please refer to pages beginning with F-1.
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
PAGE
Report of Independent Certified Public Accountants F-1
Financial Statements:
Consolidated Balance Sheet - December 31, 1999 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 and for the Period from
November 7, 1996 (Date of Inception) to December 31, 1999 F-3
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Cumulative Period from November 7, 1996
(Date of Inception) to December 31, 1999 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 and for the Period from
November 7, 1996 (Date of Inception) to December 31, 1999 F-5
Notes to Consolidated Financial Statements F-6
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
MEMBER OF AICPA DIVISION OF FIRMS Fax (801) 532-7944
MEMBER OF SECPS 345 East 300 South, Suite 200
MEMBER OF SUMMIT INTERNATIONAL ASSOCIATES Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors
Synergy Technologies Corporation
We have audited the accompanying consolidated balance sheet of Synergy
Technologies Corporation and subsidiaries (a company in the development
stage) as of December 31, 1999 and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the two years
then ended and for the cumulative period from November 7, 1996 (date of
inception) through December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Synergy
Technologies Corporation and subsidiaries as of December 31, 1999 and the
results of their operations and their cash flows for the two years then
ended and for the cumulative period from November 7, 1996 (date of
inception) through December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered losses from operations and
has had negative cash flows from operating activities during the years ended
December 31, 1999 and 1998 and cumulative from inception through December
31, 1999. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to
those matters are also described in Note 1. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
HANSEN, BARNETT & MAXWELL
March 17, 2000
Salt Lake City, Utah
F-1
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1999
ASSETS
Current Assets
Cash $ 3,082
Receivables - related parties 32,067
Receivables - other 21,285
Prepaid expenses 23,912
-----------
Total Current Assets 80,346
Investment 100,000
Office equipment and computers net of accumulated
depreciation of $261 1,845
-----------
Total Assets $ 182,191
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 1,063,805
Accrued expenses 32,833
Loans payable 322,361
Loans payable - related parties 13,143
-----------
Total Current Liabilities 1,432,142
-----------
Stockholders' Equity (Deficit)
Common stock, $0.002 par value; 100,000,000
shares authorized, 11,989,327 shares issued
and outstanding 23,980
Additional paid-in capital 1,484,455
Accumulated deficit (2,758,386)
-----------
Total Stockholders' Equity (Deficit) (1,249,951)
-----------
Total Liabilities and Stockholders' Equity $ 182,191
===========
Commitments and contingencies (Note 9)
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Cumulative
Period From
November 7, 1996
For the Years Ended (Date of Inception)
December 31, to
------------------------ December 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenue
Option income $ 200,000 $ - $ 200,000
Consulting income - 8,927 8,927
----------- ----------- -----------
200,000 8,927 208,927
Expenses
General and administrative 725,704 640,030 1,400,938
Technology development - Note 1 764,857 79,308 844,165
Drywell expense 551,191 171,019 722,210
----------- ----------- -----------
Total Expense 2,041,752 890,357 2,967,313
----------- ----------- -----------
Loss Before Provision For Income Tax (1,841,752) (881,430) (2,758,386)
----------- ----------- -----------
Provision For Income Tax - - -
----------- ----------- -----------
Net Loss $(1,841,752) $ (881,430) $(2,758,386)
=========== =========== ===========
Basic and Diluted Loss Per
Common Share $ (0.16) $ (0.09) $ (0.26)
=========== =========== ===========
Weighted Average Number of Common
Shares Used in Calculation 11,671,768 10,070,745 10,608,728
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE CUMULATIVE PERIOD FROM NOVEMBER 7, 1996
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------ Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity(Deficit)
------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 7, 1996 - $ - $ - $ - $ -
Initial capitalization, $0.01 per share 1,000 2 8 - 10
Issuance of shares for cash, August
1997; $0.01 per share 2,900,007 5,800 23,200 - 29,000
Shares issued in recapitalization 2,549,500 (5,099) (5,099) - -
Unexchanged certificates (7,143) (13) - - (13)
Shares issued in satisfaction of debt,
October 1997, $0.10 per share 4,539,162 9,078 444,838 - 453,916
Net loss - - - (35,204) (35,204)
------------ --------- ------------- ------------ ------------
BALANCE AT DECEMBER 31, 1997 9,982,526 19,966 462,947 (35,204) 447,709
Issuance of shares for cash,
September 1998, $0.50 per share 140,000 280 69,720 - 70,000
Issuance of shares for conversion of
loans payable September 1998,
$0.50 per share 210,000 420 104,580 - 105,000
Net loss - - - (881,430) (881,430)
------------ --------- ------------- ------------ ------------
BALANCE AT DECEMBER 31, 1998 10,332,526 20,666 637,247 (916,634) (258,721)
Issuance of shares for cash, January
1999 through April 1999, $0.50
per share 957,000 1,914 476,586 - 478,500
Issuance of shares for services,
February 1999, $0.50 per share 138,000 276 68,724 - 69,000
Issuance of shares for property
acquisition March 1999, $0.53125
per share 63,801 128 33,894 - 34,022
Shares issued for conversion of
investor deposits January 1999 through
April 1999, $0.50 per share 405,000 810 201,690 - 202,500
Issuance of shares for cash, April
1999 upon exercise of warrants,
$1.00 per share 40,000 80 39,920 - 40,000
Issuance of shares for cash, December
1999, $0.50 per share 53,000 106 26,394 - 26,500
Net loss - - - (1,841,752) (1,841,752)
------------ --------- ------------- ------------ ------------
BALANCE AT DECEMBER 31, 1999 11,989,327 $ 23,980 $ 1,484,455 $ (2,758,386) $ (1,249,951)
============ ========= ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Cumulative
Period From
November 7, 1996
For the Years Ended (Date of Inception)
December 31, to
------------------------ December 31,
1999 1998 1999
----------- ---------- -----------
<S> <C> <C> <C>
Cash From Operating Activities
Net loss $(1,841,752) $ (881,430) $(2,758,386)
Adjustment to reconcile net loss
net cash from operations:
Dry well expense 551,191 171,019 722,210
Depreciation 261 334 595
Exchange rate loss 1,773 918 4,086
Loss on disposition of assets 1,333 - 1,333
Changes in assets and liabilities:
Accounts receivable (20,620) 13,772 (21,284)
Prepaid expenses and deposits (22,163) 8,238 (23,926)
Accounts receivable - related
parties 338,732 (370,799) (32,067)
Accounts payable 704,703 390,379 1,132,805
Accrued expenses 32,833 - 32,833
----------- ---------- -----------
Net Cash Flows From Operating
Activities (253,709) (667,569) (941,801)
Cash Flows From Investing Activities
Acquisition of oil and gas properties (141,085) (89,023) (688,188)
Acquisition of property and equipment (2,106) (1,667) (3,773)
Acquisition of equity security (100,000) - (100,000)
----------- ---------- -----------
Net Cash Flows From Investing
Activities (243,191) (90,690) (791,961)
Cash Flows From Financing Activities
Payment of related party notes payable (294,483) 412,626 572,059
Proceeds from notes payable 280,656 41,705 322,361
Proceeds from (payments of) investor
deposits (43,330) 245,830 202,500
Sales of common stock 545,000 70,000 644,010
----------- ---------- -----------
Net Cash Flows From Financing
Activities 487,843 770,161 1,740,930
----------- ---------- -----------
Effect of Exchange Rate Changes on Cash (1,773) (918) (4,086)
Net Change in Cash (10,830) 10,984 3,082
Cash at Beginning of Period 13,912 2,928 -
----------- ---------- -----------
Cash at End of Period $ 3,082 $ 13,912 $ 3,082
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Synergy Technologies Corporation (formerly Automated
Transfer Systems Corporation) ("Synergy" or "the Company"), was incorporated
in Colorado on February 10, 1997. Stone Canyon Resources, Inc. ("Stone
Canyon") was incorporated in Colorado on November 7, 1996. Stone Canyon's
operations began in 1997 and it became a wholly owned subsidiary of the
Company on November 24, 1997. Both companies were involved in acquiring
and developing mineral, oil and gas resources, and technologies related to
those resources. The Company's other wholly owned subsidiaries, Carbon
Resources Limited, Lanisco Holdings Limited and Syngen Technologies Limited,
are Cyprus companies and were organized on April 10, 1998, September 7, 1998
and May 13, 1999, respectively. These companies have been involved in the
proving of technology through research and development since their inception.
REORGANIZATION - On October 24, 1997, Synergy entered into a reorganization
agreement with Stone Canyon. As a result of the reorganization, the Stone
Canyon shareholders became shareholders of the Company whereby each share of
Stone Canyon stock was exchanged for one share of Synergy stock. A total of
2,901,007 shares were approved for exchange by the Company. Of such amount
all but 7,143 shares have been exchanged.
The reorganization agreement has been considered the reorganization of Stone
Canyon and the acquisition of Synergy in a purchase business combination.
Prior to the reorganization, Synergy had substantially no net assets and no
ongoing business; therefore, the 2,549,500 shares of common stock
outstanding at the date of the reorganization were recorded at $0. The
reorganization was not deemed to be the acquisition of a business;
accordingly no pro forma information is presented. For legal purposes, and
per the reorganization agreement, Stone Canyon is considered a wholly owned
subsidiary of Synergy.
Prior to the reorganization, Stone Canyon owed $453,916 to a related entity.
In the reorganization, 4,539,160 shares of common stock were issued at
$0.10 per share in full satisfaction of the debt.
ACQUISITIONS - As further discussed in Note 9, Synergy entered into an
agreement to acquire a 75% interest in Carbon Resources Limited ("Carbon"),
a subsidiary of Laxarco Holding Limited ("Laxarco"), in May 1998 and
entered into an agreement for the remaining 25% in June 1999, for 10,000,000
and 3,000,000 shares of Synergy, respectively. Pursuant to these
agreements, the shares of Carbon and the shares of Synergy were placed into
escrow.
In January 1999, Carbon, through its wholly owned subsidiary, Lanisco
Holdings Ltd. ("Lanisco"), obtained the right to acquire the patents for a
heavy oil upgrading technology ("CPJ"). The patents for this technology
were placed in trust subject to certain research and development
expenditures and the payment of certain royalties to the inventor.
As at June 1999, Carbon held the rights to a gas-to-liquids ("GTL")
technology and Lanisco held the option to acquire the patents for the CPJ
technology. Synergy organized Syngen Technologies Limited ("Syngen") in
June 1999 and transferred the GTL technology from Carbon to Syngen and the
shares of Carbon were released from escrow in exchange for the placement of
the Syngen shares into escrow. Upon release of the Carbon shares from
escrow, Carbon and Lanisco became wholly owned subsidiaries of Synergy. The
acquisition of Carbon and Lanisco has been recorded on the financial
statements as a purchase with no value attributed to the net assets. The
Syngen shares remain in escrow and the patents to the CPJ technology remain
in trust. Synergy, Stone Canyon Resources Ltd. ("Stone Canada"), a related
company, and Texas T Petroleum Ltd. ("Texas T") have been funding the
research and development carried out by Syngen, Carbon and Lanisco. Carbon
and Lanisco incurred losses in 1998 from research activity. Synergy has
recognized all of the losses of Carbon and Lanisco in its 1999 and 1998
statements of operations, with no offset to minority interest. All of the
research and development activity for both years has been recorded in the
consolidation. The Syngen shares are held in escrow for Laxarco and the
CPJ patents are held under the trust agreement. Syngen's GTL research and
development activity has been recorded as an expense in the consolidated
financial statements. If the GTL technology is not proven, the shares of
Syngen will be released from escrow to Laxarco. In that event, the research
and development costs will become a receivable to Synergy from Syngen. It
is undeterminable at this time whether such a receivable would be
collectible. If the GTL technology is proven then the shares of Syngen will
be released from escrow to Synergy. The 13,000,000 shares of Synergy will
be released from escrow to Laxarco on the occurrence of the following:
10,000,000 shares will be released upon the viability of either the GTL
F-6
<PAGE>
technology or the CPJ technology, whichever occurs first. The remaining
3,000,000 shares will be released upon the viability of the second
technology (either CPJ or GTL). Should neither technology prove viable then
the shares of Synergy will be returned to treasury.
PRINCIPALS OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts and transactions of Stone Canyon for all
periods presented, and the accounts and transactions of Synergy from October
24, 1997, and the accounts and transactions of Carbon and Lanisco and the
activities of Syngen from their inception. Intercompany accounts and
transactions have been eliminated in consolidation.
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 in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
BUSINESS CONDITION - The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles, which
contemplates continuation of Synergy as a going concern. However, Synergy
has had no significant income and has had negative cash flows from operating
activities during the years ended December 31, 1999 and 1998 and cumulative
from inception through December 31, 1999, which conditions raise substantial
doubt about Synergy's ability to continue as a going concern. Synergy's
continued existence is dependent upon its ability to obtain additional
financing. The Company will continue to raise funds from the public and
private markets and through arrangements with certain related and unrelated
companies with which it is negotiating mutually beneficial agreements for
the use of the technologies. However, there is no assurance that
additional financing will be realized.
DEVELOPMENT STAGE ENTERPRISE - Since inception, the Company has spent most
of its efforts raising capital and financing the research and development of
certain technologies; however, it has not yet had sales sufficient to
sustain operations and has relied upon cash flows from financing activities
(primarily debt and equity issuances) to sustain operations. Therefore, the
Company is considered to be in the development stage.
TECHNOLOGY DEVELOPMENT - The amounts reported on the Consolidated Statements
of Operations for the years ended December 31, 1999 and 1998 reflect
expenditures on the development of the technologies, net of certain GTL
development costs charged to Stone Canada for reimbursement under the terms
of a letter agreement between the Company and Stone Canada executed in
September 1998 (Note 2(III)). The amounts reported for the years ended
December 31, 1999 and 1998 are net of expenditures of $65,045 and $361,872,
respectively.
FINANCIAL INSTRUMENTS - The amounts reported as cash, receivables, accounts
payable, and accrued liabilities are considered to be reasonable
approximations of their fair values. The fair value estimates presented
herein were based on market information available to management at the time
of preparation of the financial statements. For the purpose of the statement
of cash flows, cash and cash equivalents are defined as demand deposits as
well as other funds with original maturities of three months or less.
FOREIGN CURRENCY TRANSLATION - Exchange gains and losses from holding
foreign currencies and having liabilities paid in foreign currencies are
included in the results of operations.
PROPERTY AND EQUIPMENT - Property and equipment are reported at cost. Minor
repairs, enhancements, and maintenance costs are expensed when incurred.
Depreciation is computed using the straight-line and accelerated methods
over the estimated useful lives of the assets. Depreciation expense for the
years ended December 31, 1999 and 1998 was $261 and $0, respectively. Major
categories of property and equipment and estimated useful lives are as follows:
F-7
<PAGE>
Estimated
Useful Life
-----------
Furniture and fixtures 3-7 years
Computer equipment 5 years
ADVERTISING - Advertising and marketing expense was $28,613 and $162,268
for the years ended December 31, 1999 and 1998, respectively, and $196,465
for the cumulative period from November 7, 1996 to December 31, 1999.
BASIC AND DILUTED LOSS PER SHARE - Basic loss per common share is computed
by dividing net loss by the number of common shares outstanding during the
period. Diluted loss per share is calculated to give effect to potentially
issuable common shares except during loss periods when those potentially
issuable common shares would decrease the loss per share. There were no
potentially issuable common shares for the year ended December 31, 1999.
RESTATEMENT OF PRIOR FINANCIAL STATEMENTS - The previously issued December
31, 1999 and 1998 financial statements have been restated to consolidate
Carbon and its wholly owned subsidiary, Lansico. Carbon is consolidated due
to the releasing of the Carbon shares from escrow as further explained in
Note 9, "Carbon Resources Limited", at which time Carbon became a wholly
owned subsidiary.
Also, the activities of Syngen have been included in the financial
statements based on the Company and related parties having funded Syngen
since its inception. The Company and related parties may not benefit
from that activity until, and unless, certain technology is proven
commercially viable. As further described in Notes 1 & 9, the shares of
Syngen are in escrow pending the outcome of the research and development.`
NOTE 2-RELATED PARTY TRANSACTIONS
(I) During the fiscal year ended
December 31, 1999, the Company and its subsidiaries
were charged a total of $211,040 in consulting
fees by Glidarc Technologies Inc. (a Texas
corporation) for process management services. An
officer of Glidarc Technologies is also a director
of Carbon Resources Limited, a private Cyprus
corporation. As at December 31, 1999, an amount of
$190,720 for services rendered remained due and
payable to Glidarc Technologies, which amount is
reflected on the Balance Sheet in accounts payable.
This amount was settled for 304,898shares of
common stock of the Company during the first
quarter of fiscal year 2000.
(II) During the fiscal year ended
December 31, 1999, Synergy Technologies was charged
$60,000 for management services and $15,000 for
rent by CMJ Consulting Ltd, a private Alberta
corporation, which, until September 30, 1999,
shared a common officer and director to both
Synergy Technologies Corporation and its wholly
owned subsidiary, Stone Canyon. In addition, during
the 1998 fiscal year, CMJ Consulting advanced to
Synergy investor deposits totaling $156,500, which
amount remained outstanding as at December 31,
1998. During fiscal 1999, CMJ Consulting advanced
an additional $31,383 to Synergy and converted
$166,000 of the outstanding investor deposits to
332,000 shares of the common stock of Synergy at
$0.50 per Unit under a Regulation D Offering. A
further $69,000 from the outstanding accounts
payable was also converted to 138,000 shares of
common stock of Synergy at $0.50 per Unit under the
Offering to February 17, 1999. CMJ purchased an
additional 124,686 common shares of Synergy
Technologies under the Offering for US62,343 in
April 1999.
In the fiscal year ended December 31,
1999, Stone Canyon was charged $18,000 for
management services and $2,021 for rent by CMJ
Consulting Ltd.
As of December 31, 1999, loans payable to
related parties consisted of $13,143 due and
payable to CMJ Consulting Ltd.
As of December 31, 1999, accounts payable
included the amount of $119,976 due and payable to
CMJ Consulting Ltd.
As of September 30, 1999 the common
officer and director resigned from CMJ Consulting
Ltd. making the company an arm's length corporation.
F-8
<PAGE>
(III) During the fiscal year ended
December 31, 1998, Synergy Technologies received
cash advances totaling $200,770 from Stone Canada
which shares two common officers and directors with
the Company. Amounts advanced were recorded on the
financial statements as loans payable. In
September 1998 Stone Canada elected to convert
$105,000 of the loans outstanding to 210,000 Units
of common stock under Synergy's Regulation S
offering at $0.50 per Unit.
In September 1998 Stone Canada and Synergy
Technologies entered into a letter agreement
underwhich Stone Canada agreed to fund the
development of a 4-bbl/day gas to liquids
demonstration facility under development by Carbon
in return for the Canadian marketing and licensing
rights to the technology. Pursuant to this
agreement, at the fiscal year ended December 31,
1998, Carbon issued an invoice to Stone Canada in
the amount of $370,799 for reimbursement of all
costs incurred by Carbon in respect of the
development of the 4-bbl/day facility.
During the fiscal year ended December 31,
1998, Stone Canyon received cash advances from
Stone Canada of $90,492. Stone Canyon retired
$40,982 of the outstanding loans payable over
fiscal 1998.
As of December 31, 1998, the consolidated
receivable which remained due from Stone Canada
totaled $282,351.
During the fiscal year ended December 31,
1999, Stone Canada advanced funds to Synergy and
its subsidiaries to reduce the amount outstanding
at December 31, 1998. In addition, as at December
31, 1999, Syngen (the Synergy subsidiary to which
the GTL technology was transferred from Carbon, see
Notes 1 & 9) invoiced Stone Canada an additional
$65,646 for reimbursement of 4-bbl/day facility
expenses incurred over the year. As at December
31, 1999 the consolidated receivable which remained
due from Stone Canada totaled $32,067.
NOTE 3-RECEIVABLES - OTHER
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. For the year
ended December 31, 1999, the refund due to the Company was $21,285.
NOTE 4-OIL AND GAS LEASES
MEADOW DEEP AND D-SAND
On July 1, 1999, certain development leases known as the "Meadow
Deep" acquired under a farmout agreement by Stone Canyon in October
1996, reverted back to the original lease holders undeveloped. In
August and September 1999, certain development leases known as the
"D-Sand" also acquired by Stone Canyon under a farmout agreement with
certain founding shareholders October 1996 expired, undeveloped.
Accordingly, during the year ended December 31, 1999, the Company
wrote off these oil and gas leases. (SEE NOTE 8 - LITIGATION)
WILSON CREEK
During the year the Company and Stone Canyon executed an agreement
with Revival Resources Ltd. to acquire Revival's 22.38%
after-payout interest in the Wilson Creek Prospect as well as its
receptive interests in certain other development leases located in
the Province of Alberta. Under the terms of the agreement, the
Company issued a total of 63,801 shares of common stock valued at
$34,022 in full and final payment for the leases. Subsequent to
year end, Stone Canyon received notice from the Operator of the
Wilson Creek leases of their intent to abandon the 14-34 well which
had been completed in September 1998. Stone Canyon concurred
with this decision and has been advised that the total contingent
liability with respect to the abandonment of the well in respect of
their 33.57% BPO interest is $16,965. Stone Canyon Colorado
anticipates abandonment activity will be completed in second
quarter of fiscal 2000 and accordingly has written off this lease
during the year ended December 31, 1999. Certain other leases
acquired during the year remain undeveloped.
F-9
<PAGE>
HELL'S CANYON AND ROSE CREEK
During fiscal 1999 Stone Canyon continued to remit lease rental
payments for the Rose Creek leases to keep their 15% interest current
and acquired an additional 5% interest in the leases by way of a
Stipulation of Interest agreement in June 1999 to bring their total
interest in the Rose Creek prospect to 20%. As at December 31, 1999
these leases remained undeveloped and therefore no value has been
reflected in the financial statements.
In addition, during fiscal 1999, Stone Canyon continued to remit
lease rental payments for the Hell's Canyon leases to keep their 5%
interest current. Stone Canyon elected to acquire an additional
6.90% interest in this lease in December 1999 to bring their total
interest in the Hell's Canyon prospect to 11.90%. As at December
31, 1999 these leases remained undeveloped and therefore no value has
been reflected in the financial statements.
NOTE 5-LOANS PAYABLE
Loans payable of $322,361 as of December 31, 1999 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.
At December 31, 1999, these loans payable reflect a total of $44,594
advanced by Texas T Petroleum Ltd in respect of a refundable deposit
pertaining to development of the SYNGEN technology and $11,470 which
remained due and payable to Texas T Petroleum Inc. for drilling and
completion expenses incurred in fiscal 1998 with respect to Stone
Canyon's 33.57% BPO interest in the Wilson Creek well.
NOTE 6-INCOME TAXES
The Company did not have a current or deferred provision for income
taxes for the years ended December 31, 1999 and 1998. Deferred tax
assets comprise of the following at December 31, 1999 and 1998:
1999 1998
----------- -----------
Operating loss carry forwards $ 1,025,633 $ 338,660
Organizational costs 2,437 3,249
Less: Valuation allowance (1,028,070) (341,909)
----------- -----------
Net Deferred Tax Asset $ - $ -
=========== ===========
The following is a reconciliation of the amount of benefit that would
result from applying the federal statutory rate to pretax loss with
the provision for income taxes for the years ended December 31:
1999 1998
----------- -----------
Tax benefit at statutory rate (34%) $ (626,196) $ (299,690)
Non-deductible expenses 53 -
State taxes, net of federal benefit (60,524) (29,088)
Deferred tax asset valuation change 686,161 328,778
----------- -----------
Total Income Tax Benefit $ - $ -
=========== ===========
As of December 31, 1999, the Company had U.S. operating loss
carryforwards of approximately $1,825,468 which will expire if not
used by 2019.
F-10
<PAGE>
NOTE 7 - COMMON STOCK
In April 1998, the Company commenced a private placement of its
common stock pursuant to Regulation S at $0.50 per Unit. Each Unit
consisted of one share of common stock and one warrant exercisable
any time prior to April 15, 2000 at $1.00 per share for each warrant
exercised. The Company completed this offering in September 1998
with cash proceeds of $70,000 on the sale of 140,000 Units and
conversion of loans payable of $105,000 on the sale of 210,000 Units.
No commission fees or other selling expenses were paid.
In November 1998, the Company commenced a private placement of its
common stock under Rule 504 of Regulation D at $0.50 per Unit. Each
Unit consisted of one share of common stock and one stock warrant
exercisable at any time two (2) years from the date of issue at $1.00
per share for each warrant exercised. The Company completed this
offering of 1,500,000 Units in April 1999 for a total value of
$750,00. The Company issued 957,000 Units for cash of $478,500,
138,000 Units as compensation for services valued at $69,000, and
405,000 Units as conversion of debt from investor deposits in the
amount of $202,500. No commission fees or other selling expenses were
paid. Subsequent to year end, the Company offered to certain
subscribers under the aforementioned Rule 504 private placement the
option of canceling the warrant portion of the subscribed for Units
and participating in an offering of new Units made pursuant to
Regulation S promulgated by the Securities and Exchange Commission
under the Securities Act of 1933 ("Regulation S"), with each Unit
consisting of a share of common stock and a warrant to purchase an
additional share for $3.50, exercisable at any time two (2) years
from the time of subscription. The Company has agreed to keep the
offering open until either fully subscribed or April 2001 which would
be the expiration date of the warrants under the Rule 504 private
placement. The price of these new Units is $1.00, which is the same
price as the share purchase warrants that have been cancelled. On
January 19, 2000, 100,000 of these new Units were subscribed for.
In March 1999, the Company issued 63,801 common shares for an
additional interest in the Wilson Creek leases discussed in Note 4.
This portion of the lease interest was valued at $34,022.
In December 1999, the Company commenced a private placement of its
common stock pursuant to Regulation S at $0.50 per Unit. Each Unit
consisted of one share of common stock and one warrant exercisable
for a period of one year from the date of issue at $1.00 per share
for each warrant exercised. The Company completed this offering
subsequent to year end with total proceeds to December 31, 1999 of
$26,500 on the sale of 53,000 Units. No commission fees or other
selling expenses were paid.
The warrants issued in connection with the private placements
undertaken in the year ended December 31, 1999 are exercisable at
$1.00 and expire within two years from the date of issue. During
April 1999, the Company issued 40,000 shares of common stock for cash
proceeds of $40,000, or $1.00 per share upon the exercise of
warrants. The following table summarizes the warrants to purchase
common stock issued and outstanding:
Years Ended December 31,
------------------------
1999 1998
----------- -----------
Warrants to purchase common shares,
beginning of the year 350,000 _
Warrants issued during the year 1,553,000 350,000
Warrants exercised during the year (40,000) _
----------- -----------
Warrants to purchase common shares,
end of year 1,863,000 350,000
=========== ===========
F-11
<PAGE>
As further discussed in Note 9, "Contingent Agreements with Certain
Companies", a total of 13,000,000 shares of the Company's common
stock under two stock exchange agreements with a Cyprus corporation
have been placed into escrow pending the outcome of the technologies
reaching "commercial viability" as determined by an independent
party. As of December 31, 1999, the shares were still in escrow
pending the outcome of this uncertainty.
NOTE 8-COMMITMENTS AND CONTINGENCIES
LITIGATION -
BATAA OIL, INC.
During 1996, Stone Canyon purchased interests in certain leasehold
properties described above in Note 4. Through December 31, 1997,
Stone Canyon paid $458,080 for acquisition costs and development
costs associated with such interests. Such amount was paid to Bataa
Oil, Inc., by the founding shareholders of Stone Canyon and Stone
Canyon paid such amount to the founding shareholders. Bataa Oil,
Inc. also served as operator of each lease. Prior to the merger with
the Company, Stone Canyon issued a total of 1,700,000 shares of its
common stock to certain founders of Stone Canyon, including 411,842
shares to Bataa and its designees and 63,910 shares to Richard and
Anita Knight, as part of the consideration for such properties. Such
shares were exchanged for an equal number of shares of the Company as
part of a share exchange agreement executed in November 1997 between
the Company, Stone Colorado and Stone Canada.
Stone Canyon and the Company contend that Bataa represented to Stone
Canyon and/or its affiliates that the price for these properties was
set at the price paid by Bataa for the same. Stone Canyon and the
Company have since learned that Bataa's costs for these properties
were far less than the amount charged. The Company has questioned
the form of legal title taken for the properties as well as adequate
documentation and disclosure of all underlying obligations,
liabilities and arrangements relating to the properties between Bataa
Oil, Inc. and the vendors. The Company has also learned that some of
these leases have been forfeited due to a failure to meet a drilling
obligation imposed by one of the vendors. Stone Canyon was not
appraised of such obligation prior to the acquisition of its interest
in the leases. The Company has been advised by legal counsel that
the issuance of the shares to Bataa Oil and its designees was without
the kind, amount or form of consideration as authorized by the Board
of Directors and could therefore be deemed to be an invalid issuance.
In order to protect the interests of all shareholders, the Company
has placed a "stop transfer" with the transfer company against all of
the founders shares including 411,842 shares of its common stock
owned by Bataa Oil and its designees and 63,910 shares owned by
Richard and Anita Knight.
As a result of this dispute, Bataa, Richard and Anita Knight and
certain others, filed a complaint in the District Court, County of
Denver, in the State of Colorado against the Company, its
wholly-owned subsidiary, Stone Canyon and Stone Canada, which was
previously the Company's sole controlling shareholder. The original
complaint asserted only one claim (Breach of Fiduciary Duty and
mandatory injunction) against the Company to compel it to remove
restrictive legends from the plaintiffs shares of the Company's
common stock. The plaintiffs have amended their complaint twice, and
as a result, have named additional defendants to this lawsuit,
including members of the Company's Board of Directors, the Company's
transfer agent (Holliday Stock Transfer Inc.), founding shareholders
of Stone Canyon and other individuals. The plaintiffs second
complaint also includes causes of action for conversion, civil
conspiracy and unjust enrichment. The Company's Answer and
Counterclaims denied all material allegations, asserted numerous
affirmative defenses and asserted counterclaims against Plaintiffs
Bataa Oil, David Calvin and/or Richard and Anita Knight for an
accounting, fraud, intentional misrepresentation, breach of fiduciary
duty, damages and punitive damages.
The Company disputes the allegations made by the plaintiffs, claims
they are untrue and is vigorously defending this lawsuit.
F-12
<PAGE>
On January 27, 2000, the Company and Texas T Resources, Inc., a
Canadian corporation, filed an action in Boulder County District
Court, Colorado, (Case No. 2000 CV 131) against Bataa Oil, its owner
Mr. David Calvin and other individuals, asserting claims for
defamation (Libel or Slander Per Se and Libel or Slander Per Quod),
civil conspiracy, international interference with prospective
business or economic advantage, injunction and punitive damages.
With regards to the Company, these claims are based on events that
occurred primarily in December 1999, in which the named Defendants,
acting on their own behalf or on behalf of Bataa Oil, Inc., made
several false and defamatory statements concerning the Company and/or
individuals identified by them as "principals" of Synergy to market
analysts, government agencies, elected officials and private
entities such as the NASD. The Company believes the purpose of these
statements were in general to interfere with and damage the business
of the Company and in particular to convince at least one market
analyst to reverse his "buy" recommendation to a "sell"
recommendation on Synergy stock.
The Company sought and received a Temporary Restraining Order against
Defendant David J. Calvin and Defendant Bataa Oil, Inc., as well as,
by applicable rule, anyone acting on behalf of Bataa Oil, Inc. to
stop any further publication of such false and defamatory statements.
By stipulation between the parties and subsequent Order of the
Court, such Temporary Restraining Order became a Preliminary
Injunction which will remain in effect until the trial in this
matter.
LICENSING AND CONSULTING AGREEMENTS - Effective September 30, 1998,
Synergy Technologies entered into an agreement with 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.
NOTE 9- CONTINGENT AGREEMENTS WITH CERTAIN COMPANIES
The Company has entered into certain agreements which are contingent
upon certain technology reaching commercial viability. The financial
accounting effect of these agreements have not been recorded pending
the outcome of the contingency. A summary of the agreements with
the various companies follows:
CARBON RESOURCES LIMITED - Carbon Resources Limited ("Carbon") is a
private Cyprus corporation, a wholly owned subsidiary of Synergy
Technologies, and the 100% shareholder of Lanisco Holdings Limited (a
private Cyprus corporation), which holds the rights to acquire the
CPJ Process, a proprietary and patented technology for the upgrading
of heavy crudes to conventional light oils.
On May 1, 1998 Carbon and Laxarco Holdings Ltd. ("Laxarco") (the sole
shareholder of Carbon) entered into agreements granting Carbon the
rights to acquire the patented SYNGEN technology contingent upon
Carbon fulfilling certain terms and conditions outlined in a
technology transfer agreement. On May 5, 1998, Carbon and Laxarco
entered into a share exchange agreement with Synergy Technologies
Corporation and Stone Canyon Resources Ltd., (its then major
shareholder), granting Synergy Technologies the rights to acquire 75%
of the issued shares of Carbon (and thereby a 75% interest in the
SYNGEN technology). Under the exchange agreement, Synergy would
exchange 10,000,000 shares of common stock for 75% of the shares of
Carbon. The share exchange was contingent upon Synergy Technologies
assuming the terms and conditions agreed to by Carbon in the original
technology transfer agreement. 3,750 common shares of Carbon (75% of
the issued shares) and 10,000,000 shares of Synergy Technologies
Corporation were placed in escrow subject to the terms of the
agreement.
On January 6, 1999, Carbon acquired all issued and outstanding
shares of Lanisco Holdings Limited, making Lanisco a wholly owned
subsidiary, which held the rights to a second patent pending
technology, the CPJ process, subject to funding commitments.
On January 8, 1999, Synergy Technologies reached a verbal agreement
with Texas T Petroleum Ltd., a Colorado oil and gas corporation,
("Texas T Petroleum"), whereby Texas T Petroleum received an option
to negotiate the acquisition of up to 50% of the shares of Carbon in
exchange for the payment of $100,000 cash and the expenditure of an
additional $100,000 towards development of the CPJ technology.
Synergy advanced $100,000 of such funds to Lanisco for the purchase
of 1,000,000 Units of Texas T Petroleum. Each Unit is comprised of
one (1) share of common stock and one stock warrant to acquire an
additional share for a period of three years from the date of issue
at $1.00 per share.
F-13
<PAGE>
Effective June 25, 1999, Carbon, Laxarco Holding and Synergy
Technologies agreed to amend the original share exchange agreement
and Synergy Technologies was granted the right to acquire the
remaining 25% of the shares of Carbon. Under the exchange agreement,
Synergy would exchange 3,000,000 shares of common stock for the
remaining 1,250 shares of Carbon. The 3,000,000 shares of the Company
and 1,250 shares of Carbon were placed with the escrow agent.
To facilitate an agreement with respect to the CPJ process, Carbon,
Laxarco Holding and Synergy Technologies agreed to amend the original
share exchange agreements to transfer the SYNGEN technology from
Carbon to a newly incorporated subsidiary of Synergy Technologies.
Effective June 25, 1999 Synergy Technologies incorporated Syngen
Technologies Limited and the SYNGEN technology was transferred from
Carbon to Syngen. The shares of Syngen, the newly incorporated
subsidiary, were placed in escrow subject to the terms of the
original technology transfer agreement executed between Carbon and
Laxarco, the shares of Carbon were released from escrow and Carbon
became a wholly-owned subsidiary of Synergy Technologies. The CPJ
technology is held in escrow subject to funding and development
commitments by Synergy.
On June 26, 1999, Synergy Technologies executed a share exchange
agreement with Texas T Petroleum whereby Texas T Petroleum will
acquire fifty percent (50%) of the issued and organized shares of
Carbon in exchange for the issuance of 2,000,000 Units of Texas T
Petroleum, each Unit consisting of one share of common stock and one
stock warrant entitling the holder to purchase one (1) additional
share of Texas T Petroleum at $1.00 per share within two years of
June 26, 1999, and the payment of $900,000 by Texas T for the
development of the CPJ technology. The 2,000,000 Units of Texas T
Petroleum and 5,000 shares of Carbon are reserved for issue upon
fulfillment by Texas T Petroleum of the terms of the agreement.
During the course of fiscal 1999, Carbon has continued to develop the
CPJ technology held by its wholly owned subsidiary, Lanisco Holdings
Limited, under the financial support of Texas T Petroleum Ltd. Carbon
intends to carry-on with development of the CPJ Process in
co-operation with Lanisco Holdings and Texas T Petroleum during
fiscal 2000.
SYNGEN TECHNOLOGIES LIMITED - Syngen Technologies Limited ("Syngen")
incorporated June 25, 1999 is a private Cyprus corporation and a 100%
owned subsidiary of Synergy Technologies Corporation contingent upon
the terms of two share exchange agreements dated May 5, 1998 and June
25, 1999, respectively.
Syngen holds the rights to a proprietary and patented technology
called "SYNGEN" which converts natural gas to synthesis gas. (See
CARBON RESOURCES LIMITED above, paragraph 6.) The shares of Syngen
remain in trust with an escrow agent until the fulfillment of the
terms and conditions of the agreements. Should Synergy Technologies
fail to fulfill the terms and conditions of the agreements, the
shares of Syngen (and therefore the SYNGEN technology), would revert
to the original holders and the shares of Synergy Technologies
Corporation in trust with the escrow agent would be returned to
treasury.
LANISCO HOLDINGS LIMITED AND TEXAS T PETROLEUM, LTD. - Lanisco
Holdings Limited ("Lanisco"), is a private Cyprus Corporation and a
100% owned subsidiary of Carbon Resources Limited (a private Cyprus
corporation).
Lanisco holds the rights to acquire proprietary and patented
technology called "CPJ" which converts so called heavy oils into
lighter oils.
Lanisco entered into agreements January 6, 1999 whereby it was
granted the rights to acquire the CPJ technology from the Inventor,
in return for expending $1,000,000 to commercialize the technology,
and payment of a royalty of 65% of the net proceeds received from any
license fees, royalties or any such other revenues earned until
payment of a total of $1,000,000 to the Inventor, at which time the
royalty would revert to 35% of any net proceeds received from any
revenue generated by the technology. (Net proceeds to be defined as
gross revenues less reasonable operating expenses including R&D
expenses).
Two further agreements entered into in January 1999 and June 1999,
between Synergy Technologies (the 100% shareholder of Carbon
Resources Limited) and Texas T Petroleum granted Texas T Petroleum
the right to acquire 50% of the shares of Carbon (and thereby acquire
a 50% interest in the CPJ technology). Please refer to CARBON
RESOURCES LIMITED above, paragraphs 4 and 7 for a detailed
explanation of these agreements.
F-14
<PAGE>
At December 31, 1999, Lanisco, Carbon and Texas T Petroleum worked in
co-operation to re-construct the 1/2 bbl/day pilot CPJ unit at
laboratory facilities in Calgary, Alberta to permit testing of
various heavy crude samples for potential licensees.
In addition, Lanisco, Carbon Resources and Texas T Petroleum have
commissioned and received a detailed cost estimate for the
construction of a 100 bbl/day pilot unit expected to commence
construction in the Province of Alberta in fiscal year 2000.
Lanisco intends to generate annual revenues through the licensing of
the CPJ technology to a variety of international corporations and
host countries, and by the generation of royalty revenues from
operational CPJ facilities.
NOTE 10-SUBSEQUENT EVENTS
Pursuant to a private placement of its common stock pursuant to
Regulation S commenced in December 1999 at $0.50 per Unit. Each Unit
consisted of one share of common stock and one warrant exercisable
for a period of one year from the date of issue at $1.00 per share
for each warrant exercised. In January 2000 10,000 Units were sold
for total proceeds of $5,000. A total of 63,000 Units were sold
under the placement for total proceeds of $31,500.
On January 5, 2000 the Company approved the Year 2000 Employees Stock
Award Plan, which authorized awards of up to 1,500,000 shares of
common stock. As of March 17, 2000 a total of 1,114,815 shares were
issued under the plan as compensation for bonafide services actually
rendered.
On January 14, 2000, a Financing and Security Agreement was entered
into by and among Stone Canada and the Company (collectively the
"Borrowers") and James E. Nielson and Wood River Trust (collectively
the "Lenders"), in regard to a loan in the amount of $300,000 for
allocation towards development of the 4-bbl/day per day SYNGEN
demonstration plant. As security for this loan, Stone Canada has
assigned to the Lenders all of its rights to payment under its
funding agreement with the IERD. The Lenders' interest in the
collateral expires after a period of ninety (90) days following
the initial start up of the SYNGEN demonstration plant. At that
time prior thereto, the lenders may choose to convert the loaned
amount into 600,000 Units of Synergy Technologies, with each unit
to consist of one share of common stock and one warrant to purchase
an additional share of common stock for $1.00 per share. Such
conversion right applies to all or any portion of the loan, at
the Lenders' discretion. If the loan is not converted, then
the principal amount of the loan ($300,000) and all accrued interest
thereon will be released to the Lenders as payment in full, and any
additional amounts in the escrow account will be released to Stone
Canyon.
On January 14, 2000, a second Financing and Security Agreement was
entered into by and among Stone Canada and the Company (collectively
the "Borrowers") and Caribbean Overseas Investments Ltd. (the
"Lender") with the same terms as the above-described financing
agreement, except the loan amount was $50,000, convertible into
100,000 Units.
On January 19, 2000, the Company commenced a private placement of
shares of its common stock pursuant to Regulation S. Subsequent to
the year ended December 31, 1999, the Company accepted subscriptions
to this offering for the sale of 100,000 shares at $1.00 per share.
In January 2000 Synergy approved the implementation of
three stock option plans which had previously received shareholder
approval, under which a total of 3,000,000 shares of common stock
were reserved for exercise by directors, officers, advisory board
members, employees and consultants at $1.00 per share for a period
of 10 years from the date of grant. During February 2000 the
Company filed with the Securities and Exchange Commission
Registration Statements on Form S-8 in respect of these three (3)
stock option plans. As of March 17, 2000 a total of 80,000 options
had been exercised.
F-15
<PAGE>
NOTE 11 - CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION - There were no
cash payments for interest or income taxes during the years ended
December 31, 1999 and 1998.
NONCASH INVESTING AND FINANCING ACTIVITIES - As part
of the August 1997 recapitalization agreement with Stone Canyon
Resources Inc., the Company issued 2,901,007 common shares. During
the year ended December 31, 1997, 4,539,162 shares of common stock
were issued upon conversion of $453,916 of debt.
At December 31, 1998 the Company determined that the
petroleum and natural gas interests it held with a historical value
of $171,019 had no value and were written off as dry well expenses.
During the year ended December 31, 1999, the Company
issued 138,000 shares of common stock upon conversion of $69,000 of
accounts payable. In 1999, investor deposits of $202,500, which
were received in 1998, were converted to 405,000 shares of the
Company's common stock. The Company issued 63,801 common shares
for petroleum and natural gas interests with a value of $34,022.
At December 31, 1999, the Company determined that the petroleum and
natural gas interests it held with a historical value of $551,191
had no value and were written off as dry well expenses.
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
TABLE OF CONTENTS
Page
Financial Statements:
Consolidated Balance Sheet - June 30, 2000 1
Consolidated Statements of Operations for 2
the Three Month and Six Month Periods
Ended June 30, 2000 and 1999 and for the
Period from November 7, 1996 (Date of
Inception) to June 30, 2000
Consolidated Statements of Cash Flows for 3
the Six Month Periods ended June 30, 2000
and 1999 and for the Period from November
7, 1996 (Date of Inception) to June 30,
2000
Notes to Consolidated 4 - 17
Financial Statements
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
ASSETS
2000
------------
Current Assets
Cash $ 810,766
Receivables 82,637
Receivables - related parties 123,953
Prepaid expenses 27,553
------------
Total Current Assets 1,044,909
Investments 100,000
Office equipment and computers
Net of accumulated depreciation of
$3,672 26,860
------------
Total Assets $ 1,171,769
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 550,278
Accrued expenses 110,492
Loans payable 492,187
Shareholders' deposits 200,000
------------
Total Current Liabilities 1,352,957
Long Term Liabilities
Notes payable 900,000
------------
Total Liabilities $ 2,252,957
Stockholders' Equity (Deficit)
Common stock, $0.002 par value,
50,000,000 shares
Authorized, 13,711,090 issued $ 27,424
and outstanding
Additional paid in capital 4,562,765
Unearned compensation (184,792)
Accumulated deficit (5,486,585)
------------
Total Stockholders' Equity (Deficit) (1,081,188)
Total Liabilities and Stockholders'
Equity $ 1,171,769
=============
Contingent Agreements - Note 9
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 1
</FN>
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
Cumulative
Period from
For the Three Months For the Six Months November 7,
Ended June 30 Ended June 30 1996 (Date of
------------------------ ------------------------ Inception) to
2000 1999 2000 1999 June 30, 2000
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenue
Option income $ - $ 100,000 $ - $ 200,000 $ 200,000
Consulting income - - - 454 8,927
----------- ----------- ----------- ----------- ------------
- 100,000 - 200,454 208,927
Expenses
General and administrivite 412,377 180,788 722,223 350,976 2,123,161
Stock option compensation 74,687 - 833,125 - 733,125
Technology development 194,515 229,986 372,851 399,701 1,217,016
Dry well expenses - - - 551,095 722,210
----------- ----------- ----------- ----------- ------------
Total Expenses 681,579 410,774 1,828,199 1,301,772 4,795,512
----------- ----------- ----------- ----------- ------------
Gain (Loss) from Operations (681,579) (310,774) (1,828,199) (1,101,318) (4,586,585)
Other Expenses
Amortization of Debt
Discount and Offering
Costs (900,000) - (900,000) - (900,000)
----------- ----------- ----------- ----------- ------------
Gain (Loss) Before Taxes (1,581,579) (310,774) (2,728,199) (1,101,318) (5,486,585)
Provision for Income Tax - - - - -
----------- ----------- ----------- ----------- ------------
Net Income (Loss) $(1,581,579) $ (310,774) $(2,728,199) $(1,101,318) $ (5,486,585)
=========== =========== =========== =========== ============
Basic and Diluted Gain
(Loss) per Common Share $ (0.12) $ (0.03) $ (0.21) $ (0.10) $ (0.50)
=========== =========== =========== =========== ============
Weighted Average
Number of Common
Shares Used in
Calculation 13,676,256 11,906,578 13,166,131 11,404,294 10,988,197
=========== =========== =========== =========== ============
</TABLE>
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 2
</FN>
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION AND SUBSIDARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Cumulative Period
from November 7,
1996 (Date of
For the Six Months Ended Inception)
June 30 to June 30,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Cash From Operating Activities
Net Loss $(2,728,199) $(1,101,318) $(5,486,585)
adjustment to reconcile net loss
loss to net cash from operations:
Dry well expense - 551,095 722,210
Depreciation 3,411 - 4,006
Amortization of unearned
compensation 733,125 - 733,125
Amortization of debt
discount and offering costs 900,000 - 900,000
Issuance of shares for services 7,822 - 7,822
Exchange rate loss (gain) 10,179 (401) 14,265
Loss on disposition of assets - 1,333 1,333
Changes in assets and liabilities
Accounts receivable (61,353) (17,434) (82,637)
Prepaid expenses and deposits (3,642) (38,837) (27,568)
Accounts receivable - related
parties (51,878) 183,482 (83,945)
Accounts payable (15,353) 280,741 1,117,452
Accrued expenses 77,659 32,833 110,492
----------- ----------- -----------
Net Cash Flows From Operating
Activities $(1,128,229) $ (108,506) $(2,070,030)
Cash From Investing Activities
Acquisition of oil and gas
properties - (175,011) (688,188)
Acquisition of property and
equipment (28,425) - (32,198)
Acquisition of equity security - (100,000) (100,000)
----------- ----------- -----------
Net Cash Flows from Investing
Activities (28,425) (275,011) (820,386)
Cash From Financing Activities
Proceeds from (payments to) notes
payable - related parties (13,143) - 558,916
Proceeds from (payments to) notes
payable 396,661 (300,743) 719,022
Proceeds from investor deposits 200,000 221,299 402,500
Net Proceeds from convertible debt 855,000 - 855,000
Sales of Common Stock 535,999 518,500 1,180,009
----------- ----------- -----------
Net Cash Flows from Financing
Activities 1,974,517 439,056 3,715,447
Effect of Exchange Rate Changes
on Cash (10,179) 401 (14,265)
Net Change in Cash 807,684 55,940 810,766
Cash at Beginning of Period 3,082 13,912 -
----------- ----------- -----------
Cash at End of Period $ 810,766 $ 69,852 $ 810,766
=========== =========== ===========
</TABLE>
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 3
</FN>
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Consolidated Financial Statements - The accompanying
condensed consolidated financial statements are unaudited. In
the opinion of management, all necessary adjustments (which
include only normal, recurring adjustments) have been made to
present fairly the financial position, results of operations and
cash flows for the periods presented. Certain information and
note disclosure normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that
these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto
included in the December 31, 1999 annual report on Form 10-KSB.
The results of operations for the three month and six month
period ended June 30, 2000 are not necessarily indicative of the
operating results to be expected for the full year.
Nature of Operations - Synergy Technologies Corporation (formerly
Automated Transfer Systems Corporation) ("Synergy" or "the
Company"), was incorporated in Colorado on February 10, 1997.
Stone Canyon Resources, Inc. ("Stone Canyon") was incorporated in
Colorado on November 7, 1996. Stone Canyon's operations began in
1997 and it became a wholly owned subsidiary of the Company on
November 24, 1997. Both companies were involved in acquiring
and developing mineral, oil and gas resources, and technologies
related to those resources. The Company's other wholly owned
subsidiaries, Carbon Resources Limited, Lanisco Holdings Limited
and Syngen Technologies Limited, are Cyprus companies and were
organized on April 10, 1998, September 7, 1998 and May 13, 1999,
respectively. These companies have been involved in the proving
of technology through research and development since their
inception.
Reorganization - On October 24, 1997, Synergy entered into a
reorganization agreement with Stone Canyon. As a result of the
reorganization, the Stone Canyon shareholders became shareholders
of the Company whereby each share of Stone Canyon stock was
exchanged for one share of Synergy stock. The Company approved a
total of 2,901,007 shares for exchange. Of such amount all but
7,143 shares have been exchanged.
The reorganization agreement has been considered the
reorganization of Stone Canyon and the acquisition of Synergy in
a purchase business combination. Prior to the reorganization,
Synergy had substantially no net assets and no ongoing business;
therefore, the 2,549,500 shares of common stock outstanding at
the date of the reorganization were recorded at $0. Because
Synergy had no net assets and no ongoing business, no pro forma
information is presented. For legal purposes, and per the
reorganization agreement, Stone Canyon is considered a wholly
owned subsidiary of Synergy.
Prior to the reorganization, Stone Canyon owed $453,916 to a
related entity. In the reorganization, 4,539,162 shares of
common stock were issued at $0.10 per share in full satisfaction
of the debt.
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 4
</FN>
<PAGE>
Acquisitions - As further discussed in Note 9, in May, 1998,
Synergy entered into an agreement with Laxarco Holding Limited
("Laxarco") to acquire a 75% interest in Carbon Resources Limited
("Carbon"), a subsidiary of Laxarco, and in June, 1999 entered
into a further agreement with Laxarco for the remaining 25% for
10,000,000 and 3,000,000 shares of Synergy, respectively.
Pursuant to these agreements, the shares of Carbon and the shares
of Synergy were placed into escrow.
In January 1999, Carbon, through its wholly owned subsidiary,
Lanisco Holdings Ltd. ("Lanisco"), obtained the right to acquire
the patents for a heavy oil upgrading technology (referred to as
"CPJ"). The patents for this technology were placed in trust
subject to certain research and development expenditures and the
payment of certain royalties to the inventor.
As at June 1999, Carbon held the rights to a gas-to-liquids
("GTL") technology and Lanisco held the option to acquire the
patents for the CPJ technology. Synergy organized Syngen
Technologies Limited ("Syngen") in June 1999 and transferred the
GTL technology from Carbon to Syngen and the shares of Carbon
were released from escrow in exchange for the placement of the
Syngen shares into escrow. Upon release of the Carbon shares
from escrow, Carbon and Lanisco became wholly owned subsidiaries
of Synergy. The acquisitions of Carbon and Lanisco have been
recorded on the financial statements as a purchase with no value
attributed to the net assets. The Syngen shares remain in escrow
and the patents to the CPJ technology remain in trust (see "Note
- 10 SUBSEQUENT EVENTS"). Synergy, Stone Canyon Resources Ltd.
("Stone Canada"), which is a related company by virtue of common
directors, and Texas T Petroleum Ltd. ("Texas T") have been
funding the research and development carried out by Syngen,
Carbon and Lanisco. Carbon and Lanisco incurred losses in 1999
and 1998 from research activity. Synergy has recognized all of
the losses of Carbon and Lanisco in its 1999 and 1998 statements
of operations, with no offset to minority interest. All of the
research and development activity for both years has been
recorded in the consolidation. The Syngen shares are held in
escrow for Laxarco and the CPJ patents are held under the trust
agreement. Syngen's GTL research and development activity has
been recorded as an expense in the consolidated financial
statements. Subsequent to the quarter ended June 30, 3000, the
parties agreed to release from escrow all of the Laxarco shares
and the Syngen shares (see "Note 10 - SUBSEQUENT EVENTS").
Principals of Consolidation - The accompanying consolidated
financial statements include the accounts and transactions of
Stone Canyon for all periods presented, and the accounts and
transactions of Synergy from October 24, 1997, and the accounts
and transactions of Carbon and Lanisco and the activities of
Syngen from their inception. Intercompany accounts and
transactions have been eliminated in consolidation.
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 in the financial statements and accompanying
notes. Actual results could differ from those estimates.
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 5
</FN>
<PAGE>
Business Condition - The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles, which contemplates continuation of Synergy as a going
concern. However, Synergy has had no significant income and has
had negative cash flows from operating activities during the
years ended December 31, 1999 and 1998 and cumulatively from
inception through June 30, 2000, which conditions raise
substantial doubt about Synergy's ability to continue as a going
concern. Synergy's continued existence is dependent upon its
ability to obtain additional financing. The Company will
continue to raise funds from the public and private markets and
through arrangements with certain related and unrelated companies
with which it is negotiating mutually beneficial agreements for
the use of the technologies. However, there is no assurance
that additional financing will be realized.
Development Stage Enterprise - Since inception, the Company has
spent most of its efforts raising capital and financing the
research and development of certain technologies; however, it has
not yet had sales sufficient to sustain operations and has relied
upon cash flows from financing activities (primarily debt and
equity issuances) to sustain operations. Therefore, the Company
is considered to be in the development stage.
Technology Development - The amount reported on the Consolidated
Statements of Operations for the cumulative period from November
7, 1996 (Date of Inception) to June 30, 2000 reflects
expenditures on the development of the technologies, net of
certain GTL development costs charged to Stone Canada at the end
of fiscal 1998 and 1999 for reimbursement under the terms of a
letter agreement between the Company and Stone Canada executed in
September 1998 (See Note 2(II) "RELATED PARTY TRANSACTIONS").
The cumulative amount reported to June 30, 2000 is net of
expenditures of $426,917 which were invoiced to Stone Canada.
Financial Instruments - The amounts reported as cash,
receivables, accounts payable, and accrued liabilities are
considered to be reasonable approximations of their fair values.
The fair value estimates presented herein were based on market
information available to management at the time of preparation of
the financial statements. For the purpose of the statement of
cash flows, cash and cash equivalents are defined as demand
deposits as well as other funds with original maturities of three
months or less.
Foreign Currency Translation - Exchange gains and losses from
holding foreign currencies and having liabilities paid in foreign
currencies are included in the results of operations.
Property and Equipment - Property and equipment are reported at
cost. Minor repairs, enhancements, and maintenance costs are
expensed when incurred. Depreciation is computed using the
straight-line and accelerated methods over the estimated useful
lives of the assets. Major categories of property and equipment
and estimated useful lives are as follows:
Estimated Useful Life
Furniture and fixtures 3-5 years
Computer equipment 2 years
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 6
</FN>
<PAGE>
Basic and Diluted Loss Per Share - Basic loss per common share
is computed by dividing net loss by the weighted average number
of common shares outstanding during the period. Diluted loss per
share is calculated to give effect to potentially issuable common
shares except during loss periods when those potentially issuable
common shares would decrease the loss per share.
Restatement of Prior Financial Statements - The previously issued
December 31, 1999 and 1998 financial statements were restated to
consolidate Carbon and its wholly owned subsidiary, Lansico.
Carbon is consolidated due to the releasing of the Carbon shares
from escrow as further explained in Note 9, "Carbon Resources
Limited", at which time Carbon became a wholly owned subsidiary.
Also, the activities of Syngen have been included in the
financial statements based on the Company and related parties
having funded Syngen since its inception. The Company and
related parties may not benefit from that activity until, and
unless, certain technology is proven commercially viable. As
further described in Note 10, until recently the shares of Syngen
have been held in escrow.
NOTE 2 - RELATED PARTY TRANSACTIONS
During the three-month period ended June 30, 2000, the Company
and its subsidiaries were charged a total of $43,128 in
consulting fees by Glidarc Technologies Inc. (a Texas
corporation) for process management services. An officer of
Glidarc Technologies is also a member of the Board of
Directors of Carbon Resources Limited, a private Cyprus
corporation and has, since the end of the quarter, became a
member of the Board of Directors of the Company. During the
six months ended June 30, 2000, an amount of $190,720 for
services rendered which remained due and payable to Glidarc
Technologies at December 31, 1999, was settled for 304,898
shares of common stock of the Company. An amount of $33,274
remained due and payable to Glidarc at June 30, 2000.
In September 1998, Stone Canada and Synergy Technologies
entered into a letter agreement under which Stone Canada
agreed to fund the development of a 4-bbl/day gas to liquids
demonstration facility in return for the Canadian marketing
and licensing rights to the GTL or Syngen technology.
Pursuant to this agreement, from the period September 30,
1998 to the period ended December 31, 1999, invoices
totaling $426,917 had been issued to Stone Canada for
reimbursement of all costs incurred by the Company or its
subsidiaries in respect of the development of the 4-bbl/day
facility.
During the quarter ended March 31, 2000 Synergy advanced a total
of $388,870 to Stone Canada with respect to the development of
the 4-bbl/day-demonstration facility. As at June 30, 2000,
$123,953 in consolidated receivables remained due from Stone
Canada.
NOTE 5 - LOANS PAYABLE
Loans payable of $492,187 as of June 30, 2000 reflect an amount
of $405,953 payable to Texas T Petroleum, a partner in the
development of the CPJ process, and various other unrelated
payables totaling $86,234.
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 7
</FN>
<PAGE>
NOTE 7 - COMMON STOCK
In November 1998, the Company commenced a private placement of
its common stock under Rule 504 of Regulation D at $0.50 per
Unit. Each Unit consisted of one share of common stock and one
stock warrant
exercisable at any time two (2) years from the date of issue at
$1.00 per share for each warrant exercised. The Company
completed this offering of 1,500,000 Units in April 1999 for a
total value of $750,000. The Company issued 957,000 Units for
cash of $478,500, 138,000 Units as compensation for services
valued at $69,000, and 405,000 Units as conversion of debt from
investor deposits in the amount of $202,500. No commission fees
or other selling expenses were paid. Subsequent to year end, the
Company offered to certain
subscribers under the aforementioned Rule 504 private placement
the option of canceling the warrant portion of the subscribed for
Units and participating in an offering of new Units made pursuant
to Regulation S promulgated by the Securities and Exchange
Commission under the Securities Act of 1933 ("Regulation S"),
with each Unit consisting of a share of common stock and a
warrant to purchase an additional share for $3.50, exercisable at
any time two (2) years from the time of subscription. The
Company has agreed to keep the offering open until either fully
subscribed or April 2001 which would be the expiration date of
the warrants under the Rule 504 private placement. The price of
these new Units is $1.00, which is the same price as the share
purchase warrants that have been cancelled. On January 19, 2000,
100,000 of these new Units were subscribed for. During the
period ended June 30, 2000, the Company accepted this
subscription. As at June 30, 2000 the subscribed for shares
remained reserved for issue.
In December 1999, the Company commenced a private placement of
its common stock pursuant to Regulation S promulgated by the
Securities and Exchange Commission under the Securities Act of
1933 ("Regulation S") at $0.50 per Unit, each Unit consisting of
one share of common stock and one warrant exercisable for a
period of one year from the date of issuance at $1.00 per share.
In January 2000, 10,000 Units were sold for total proceeds of
$5,000.
On January 5, 2000 the Company approved the Year 2000 Employees
Stock Option and Stock Award Plan, which authorized awards of up to
1,500,000 shares of common stock. As of June 30, 2000 a total of
1,205,763 shares had been issued under the plan as compensation for
bonafide services actually rendered with 25,000 options being
granted during the three (3) month period ended June 30, 2000.
On January 14, 2000, a Financing and Security Agreement was entered
into by and among Stone Canyon Resources Ltd. ("Stone Canada") and
the Company (collectively the "Borrowers") and James E. Nielson and
Wood River Trust (collectively the "Lenders"), in regard to a loan
in the amount of $300,000.00 for allocation towards development of
the 4 bbl per day SYNGEN demonstration plant. Stone Canada has
agreed to hold in trust an equal amount of funds receivable by way
of a refund from Natural Resources Canada as collateral for a
period of ninety (90) days following the initial start up of the
SYNGEN demonstration plant, at which time the Lenders may choose
either (i) to convert the loaned amount into 600,000 Units of
Synergy Technologies, at which time an amount of $300,000 would be
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 8
</FN>
<PAGE>
released to Synergy from the Stone Canada trust as consideration
for the units or (ii) a release of the funds held in trust in an
amount equal to the principal balance and all accrued interest
therein, with any additional trust funds to be released to Stone
Canyon. Each Unit would consist of one share of common stock and
one warrant to purchase an addition share of common stock for $1.00
per share. As of June 13, 2000, Wood River Trust and James E.
Neilson advised the Company of their election to convert the loaned
amounts to Synergy Units. As at June 30, 2000 the Company was
finalizing documentation with Stone Canada with respect to the
release of funds from trust and the Units remained un-issued.
On January 14, 2000, a second Financing and Security Agreement was
entered into by and among Stone Canada and the Company
(collectively the "Borrowers") and Caribbean Overseas Investments
Ltd. (the "Lender") with the same terms as the above-described
financing agreement, except the loan amount was $50,000,
convertible into 100,000 Units.
On January 19, 2000, the Company commenced a private placement of
shares of its common stock pursuant to Regulation S. Subsequent to
the period ended June 30, 2000, the Company accepted subscriptions
to this offering for the sale of 100,000 shares at $1.00 per share.
As at June 30, 2000 the subscribed for shares remained reserved for
issue.
On May 25, 2000, the Company commenced a private placement of up to
$2,250,000 of its convertible promissory notes (the "Notes"). As
of June 30, 2000, the Company had received proceeds of $855,000,
net of offering costs $45,000. The Notes are convertible into
units of the Company, with each unit comprised of one (1) share of
common stock, a warrant to purchase one (1) share of common stock
at $4.00 per share and another warrant to purchase an additional
share of common stock at $8.00 per share (the "Units") at the price
of $3.00 per Unit. The net proceeds were allocated between the
beneficial conversion feature and the promissory notes based on
their relative fair values. The fair value of the Unit was
determined using the fair value of the underlying common stock and
the warrants on the commitment date. The fair value of the
warrants was determined using the Black-Scholes option pricing
model with the following assumptions: dividend yield of 0%,
volatility of 169%, risk-free interest rate of 6.38% and estimated
life of two years. The beneficial conversion feature was allocated
all of the net proceeds resulting in a discount on the Notes of
$855,000. Since the Notes are convertible upon issuance, the
discount was immediately amortized and resulted in amortization
expense of $855,000. The private placement was conducted pursuant
to Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act of 1933 and was offered only to
accredited investors or others deemed appropriate by the Company.
The private placement was fully subscribed and closed on July 26,
2000. The Company used the services of Belle Haven Investments
L.P. as selling agent for the private placement. Belle Haven
received a cash commission of five percent (5%) of every Note sold.
Belle Haven also received a warrant to purchase up to 52,666 Units
at the exercise price of $3.00 per Unit. The Company also issued a
warrant for 32,000 Units to other individuals for finders' fees in
completing this private placement. Each of such warrants were
issued subsequent to the quarter ended June 30, 2000 and are thus
not reflected in the accompanying financial statements.
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 9
</FN>
<PAGE>
The warrants issued in connection with the private placements
undertaken in the fiscal years ended December 31, 1999 and 1998 are
exercisable at $1.00 per share, and expire within two years from
the date of issue. During the six month period ended June 30,
2000, the Company issued 426,000 shares of common stock upon the
exercise of warrants for cash proceeds of $426,000, or $1.00 per
share. The following table summarizes the warrants to purchase
common stock issued and outstanding:
Warrants outstanding at December 31, 1999:
1,863,000
--------------------------------------------------------
Warrants exercised at $1.00 per share (426,000)
Warrants issued/(cancelled) See above (1,264,000)
--------------------------------------------------------
Warrants outstanding at June 30, 2000 173,000
========================================================
As further discussed in Note 9, "Contingent Agreements with Certain
Companies", a total of 13,000,000 shares of the Company's common
stock under two stock exchange agreements with a Cyprus corporation
have been placed into escrow pending the outcome of the
technologies reaching "commercial viability" as determined by an
independent party. As of June 30, 2000, the shares were still in
escrow pending the outcome of this uncertainty. Subsequent to the
quarter the Board of Directors approved the release of the
13,000,000 shares from escrow. See Note 10 "SUBSEQUENT EVENTS"
below.
Stock Options
(a) On January 5, 2000, the Company approved the 1998 Directors
and Employees Stock Option and Stock Award Plan, which authorized
options to purchase 900,000 shares of common stock. The Company's
shareholders previously approved the granting of these options on
June 5, 1999. During the six month period ended June 30, 2000
options to purchase 400,000 shares were granted to directors,
options to purchase 250,000 shares were granted to employees, and
options to purchase 250,000 shares were granted to third parties as
compensation for services. The plan was fully subscribed and no
further options are available for issue under this plan.
(b) On January 5, 2000 the Company also approved the 1999
Directors and Employees Stock Option and Stock Award Plan which
authorized options to purchase 1,000,000 shares of common stock.
The Company's shareholders previously approved the granting of
these options on June 30, 1999. During the six month period ended
June 30, 2000, options to purchase 160,000 common shares were
granted to employees and options to purchase 210,000 common shares
were granted to third parties as compensation for services.
(c) On January 5, 2000, the Company approved the 1999 Directors
and Advisory Board Members Stock Option Plan, pursuant to which the
Company can grant options to members of the Company's board of
directors and advisory board to purchase up to 1,100,000 shares of
common stock. During the six month period ended June 30, 2000
option to purchase 350,000 common shares were granted to
directors and options to purchase 500,000 common shares were
granted to advisory board members under this plan.
(d) On March 3, 2000, the Company granted stock options to
purchase 100,000 shares of common stock at $2.25 per share to a
third parties as consideration for the use of certain property.
The options vested immediately and expire March 3, 2003. The
options granted were valued at their fair value of $394,000.
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 10
</FN>
<PAGE>
Pursuant to notes a, b and c above during the six month period
ended June 30, 2000, a total of 1,160,000 options to purchase
common shares at $1.00 per share were granted to various employees
and directors under the plans described above. These options
expire January 2, 2010. The vesting period has not yet been
determined.
Further, the Company granted stock options to purchase 985,000
shares of common stock at $1.00 per share to third parties as
compensation for services. Of the options granted, 668,333 options
have been treated as being vested immediately. This vesting may be
amended on subsequent statements. The options expire January 2,
2010. 316,667 of the options vest according to a schedule over two
years and expire January 13, 2005. The
options granted were valued at their fair value of $695,000 on the
grant date, which amount will be recognized by the Company as the
options vest. During the six months ended June 30, 2000 $510,125
of unearned compensation was amortized as compensation expense.
The fair value of the options was determined by using the Black-
Scholes option-pricing model with the following assumptions:
dividend yield of 0.0%, weighted average expected volatility of
170%, weighted average risk-free interest rate of 6.44% and
expected life of 1 year.
A summary of the status of the Company's stock options as of June
30, 2000 and changes during the three month period then ended are
presented below:
June 30, 2000
Weighted Average
Shares Exercise Price
------------ ----------------
Outstanding at beginning of year - $ -
Granted 2,245,000 1.06
Outstanding at end of Period 2,140,000 1.06
Options exercisable at End of Period 1,823,333 1.06
Weighted average fair value of options granted
during the year $ 0.85
--------
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 11
</FN>
<PAGE>
The following table summarizes information about stock options
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 6.30.2000 Life Price at 6.30.00 Price
------------- ------------ ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$1.00 - $2.25 2,140,000 8.24 years $1.06 1,823,333 $1.06
</TABLE>
The Company measures compensation to employees under stock-based
options and plans using the intrinsic value method prescribed in
Accounting Principles Board Opinion 25, Accounting for Stock
Issued to Employees, and related interpretations. Compensation for
options to outside directors is measured using the fair value
method set forth under Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation. There was no
Stock-based compensation charged to operations during the six
months ended June 30, 2000 from options granted to employees and
to outside directors, respectively. Had compensation cost for the
Company's options granted to employees been determined based on
the fair value at the grant dates consistent with the alternative
method set forth under Statement of Financial Accounting Standards
No. 123, net loss and loss per share would have increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the three months For the six months Cumulative from (Date)
ended June 30 ended June 30 of Inception) through
---------------------------------------------------------------------------------
2000 1999 2000 1999 June 30, 2000
<S> <C> <C> <C> <C> <C>
Net Loss:
As Reported $1,581,579 310,774 2,728,199 1,101,318 5,486,585
Pro Forma - - 3,018,199 - 5,776,585
--------------------------------------------------------------------------
Basic and
Diluted loss
Per share
As Reported: $ 0.12 0.03 0.21 0.10 0.50
Pro Forma: - - 0.23 - 0.53
---------------------------------------------------------------------------
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Litigation -
Bataa Oil, Inc.
During 1996, Stone Canyon purchased interests in certain leasehold
properties. Through December 31, 1997, Stone Canyon paid $458,080
for acquisition costs and development costs associated with such
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 12
</FN>
<PAGE>
interests. Such amount was paid to Bataa Oil, Inc., by the
founding shareholders of Stone Canyon and Stone Canyon paid such
amount to the founding shareholders. Bataa Oil, Inc. also served
as operator of each lease. Prior to the merger with the Company,
Stone Canyon issued a total of 1,700,000 shares of its common
stock to certain founders of Stone Canyon, including 411,842
shares to Bataa and its designees and 63,910 shares to Richard and
Anita Knight, as part of the consideration for such properties.
Such shares were exchanged for an equal number of shares of the
Company as part of a share exchange agreement executed in November
1997 between the Company, Stone Colorado and Stone Canada.
Stone Canyon and the Company contend that Bataa represented to
Stone Canyon and/or its affiliates that the price for these
properties was set at the price paid by Bataa for the same. Stone
Canyon and the Company have since learned that Bataa's costs for
these properties were far less than the amount charged. The
Company has questioned the form of legal title taken for the
properties as well as adequate documentation and disclosure of all
underlying obligations, liabilities and arrangements relating to
the properties between Bataa
Oil, Inc. and the vendors. The Company has also learned that some
of these leases have been forfeited due to a failure to meet a
drilling obligation imposed by one of the vendors. Stone Canyon
was not appraised of such obligation prior to the acquisition of
its interest in the leases. The Company has been advised by legal
counsel that the issuance of the shares to Bataa Oil and its
designees was without the kind, amount or form of consideration as
authorized by the Board of Directors and could therefore be deemed
to be an invalid issuance. In order to protect the interests of
all shareholders, the Company has placed a "stop transfer" with
the transfer company against all of the founders shares including
411,842 shares of its common stock owned by Bataa Oil and its
designees and 63,910 shares owned by Richard and Anita Knight.
As a result of this dispute, Bataa, Richard and Anita Knight and
certain others, filed a complaint in the District Court, County of
Denver, in the State of Colorado against the Company, its wholly-
owned subsidiary, Stone Canyon and Stone Canada, which was
previously the Company's sole controlling shareholder. The
original complaint asserted only one claim (Breach of Fiduciary
Duty and mandatory injunction) against the Company to compel it to
remove restrictive legends from the plaintiffs shares of the
Company's common stock. The plaintiffs have amended their
complaint twice, and as a result, have named additional defendants
to this lawsuit, including certain members of the Company's Board
of Directors, the Company's transfer agent (Holladay Stock
Transfer Inc.), founding shareholders of Stone Canyon and other
individuals. The plaintiffs second complaint also includes causes
of action for conversion, civil conspiracy and unjust enrichment.
The Company's Answer and Counterclaims denied all material
allegations, asserted numerous affirmative defenses and asserted
counterclaims against Plaintiffs Bataa Oil, David Calvin and/or
Richard and Anita Knight for an accounting, fraud, intentional
misrepresentation, breach of fiduciary duty, damages and punitive
damages.
The Company disputes the allegations made by the plaintiffs,
claims they are untrue and is vigorously defending this lawsuit.
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 13
</FN>
<PAGE>
On January 27, 2000, the Company and Texas T Resources, Inc., a
Canadian corporation, filed an action in Boulder County District
Court, Colorado, (Case No. 2000 CV 131) against Bataa Oil, its
owner Mr. David Calvin and other individuals, asserting claims
for defamation (Libel or Slander Per Se and Libel or Slander Per
Quod), civil conspiracy, international interference with
prospective business or economic advantage, injunction and
punitive damages. With regards to the Company, these claims are
based on events that occurred primarily in December 1999, in
which the named Defendants, acting on their own behalf or on
behalf of Bataa Oil, Inc., made several false and defamatory
statements concerning the Company and/or individuals identified by
them as "principals" of Synergy to market analysts, government
agencies, elected officials and private entities such as the NASD.
The Company believes the purpose of these statements were in
general to interfere with and damage the business of the Company
and in particular to convince at least one market analyst to
reverse his "buy" recommendation to a "sell" recommendation on
Synergy stock.
The Company sought, and received on February 8, 2000, a Temporary
Restraining Order against Defendant David J. Calvin and Defendant
Bataa Oil, Inc., as well as, by applicable rule, anyone acting on
behalf of Bataa Oil, Inc. to stop any further publication of such
false and defamatory statements. By stipulation between the
parties and subsequent Order of the Court dated February 23, 2000,
such Temporary Restraining Order became a Preliminary Injunction,
which will remain in effect until the trial in this matter.
During the quarter ended June 30, 2000, the Company received
confirmation that a case management order that had been filed in
the Boulder County matter had received approval from the courts.
Pursuant to such case management order, a trial date has been set
for April 9, 2001.
Licensing and Consulting Agreements C Effective September 30,
1998, Synergy Technologies entered into an agreement with 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.
NOTE 9 - CONTINGENT AGREEMENTS WITH CERTAIN COMPANIES
The Company has entered into certain agreements which were
contingent upon certain technology reaching commercial viability.
The financial accounting effect of these agreements have not been
recorded pending the outcome of the contingency, which subsequent
to the quarter ended June 30, 2000, has been removed. A summary
of the agreements with the various companies follows:
Carbon Resources Limited - Carbon Resources Limited ("Carbon") is
a private Cyprus corporation, a wholly owned subsidiary of
Synergy, and the 100% shareholder of Lanisco Holdings Limited (a
private Cyprus corporation), which holds the rights to acquire the
CPJ Process, a proprietary and patented technology for the
upgrading of heavy crudes to conventional light oils.
On May 1, 1998 Carbon and Laxarco Holdings Ltd. ("Laxarco") (the
previous sole shareholder of Carbon) entered into agreements
granting Carbon the rights to acquire the patented SYNGEN
technology contingent upon Carbon fulfilling certain terms and
conditions outlined in a technology transfer agreement. On May 5,
1998, Carbon and Laxarco entered into a share exchange agreement
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 14
</FN>
<PAGE>
with Synergy and Stone Canyon Resources Ltd., (its then major
shareholder), granting Synergy the rights to acquire 75% of the
issued shares of Carbon (and thereby a 75% interest in the SYNGEN
technology). Under the exchange agreement, Synergy would exchange
10,000,000 shares of common stock for 75% of the shares of Carbon.
The share exchange was contingent upon Synergy assuming the terms
and conditions agreed to by Carbon in the original technology
transfer agreement. 3,750 common shares of Carbon (75% of the
issued shares) and 10,000,000 shares of Synergy were placed in
escrow subject to the terms of the agreement.
On January 6, 1999, Carbon acquired all issued and outstanding
shares of Lanisco Holdings Limited, making Lanisco a wholly owned
subsidiary, which held the rights to a second patent pending
technology, the CPJ process, subject to funding commitments.
On January 8, 1999, Synergy reached a verbal agreement with Texas
T Petroleum Ltd., a Colorado oil and gas corporation, ("Texas T
Petroleum"), whereby Texas T Petroleum received an option to
negotiate the acquisition of up to 50% of the shares of Carbon in
exchange for the payment of $100,000 cash and the expenditure of
an additional $100,000 towards development of the CPJ technology.
Synergy advanced $100,000 of such funds to Lanisco for the
purchase of 1,000,000 Units of Texas T Petroleum. Each Unit is
comprised of one (1) share of common stock and one stock warrant
to acquire an additional share for a period of three years from the
date of issue at $1.00 per share.
Effective June 25, 1999, Carbon, Laxarco Holding and Synergy
agreed to amend the original share exchange agreement and Synergy
was granted the right to acquire the remaining 25% of the shares
of Carbon. Under the exchange agreement, Synergy would exchange
3,000,000 shares of common stock for the remaining 1,250 shares of
Carbon. The 3,000,000 shares of the Company and 1,250 shares of
Carbon were placed with the escrow agent.
To facilitate an agreement with respect to the CPJ process,
Carbon, Laxarco Holding and Synergy agreed to amend the original
share exchange agreements to transfer the SYNGEN technology from
Carbon to a newly incorporated subsidiary of Synergy. Effective
June 25, 1999, Synergy incorporated Syngen Limited and the SYNGEN
technology was transferred from Carbon to Syngen. The shares of
Syngen, the newly incorporated subsidiary, were placed in escrow
subject to the terms of the original technology transfer agreement
executed between Carbon and Laxarco, the shares of Carbon were
released from escrow and Carbon became a wholly-owned subsidiary
of Synergy. The CPJ technology is held in escrow subject to
funding and development commitments by Synergy.
On June 26, 1999, Synergy executed a share exchange agreement with
Texas T Petroleum whereby Texas T Petroleum will acquire fifty
percent (50%) of the issued and organized shares of Carbon in
exchange for the issuance of 2,000,000 Units of Texas T Petroleum,
each Unit consisting of one share of common stock and one stock
warrant entitling the holder to purchase one (1) additional share
of Texas T Petroleum at $1.00 per share within two years of June
26, 1999, and the payment of $900,000 by Texas T for the
development of the CPJ technology. The 2,000,000 Units of Texas T
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 15
</FN>
<PAGE>
Petroleum and 5,000 shares of Carbon are reserved for issue upon
fulfillment by Texas T Petroleum of the terms of the agreement.
During the course of fiscal 1999, Carbon has continued to develop
the CPJ technology held by its wholly owned subsidiary, Lanisco
Holdings Limited, under the financial support of Texas T Petroleum
Ltd. Carbon intends to carry-on with development of the CPJ
Process in co-operation with Lanisco Holdings and Texas T
Petroleum during fiscal 2000.
Syngen Technologies Limited C Syngen Technologies Limited
("Syngen") incorporated June 25, 1999 is a private Cyprus
corporation and a 100% owned subsidiary of Synergy contingent upon
the terms of two share exchange agreements dated May 5, 1998 and
June 25, 1999, respectively. See "Note 10 - SUBSEQUENT EVENTS".
Syngen holds the rights to a proprietary and patented technology
called "SYNGEN" which converts natural gas to synthesis gas. (See
Carbon Resources Limited above, paragraph 6.) The shares of
Syngen remain in trust with an escrow agent until the fulfillment
of the terms and conditions of the agreements. Subsequent to the
quarter ended June 30, 2000, Synergy and Laxarco agreed to the
release of the Syngen shares from escrow. See "Note 10-SUBSEQUENT
EVENTS".
Lanisco Holdings Limited and Texas T Petroleum, Ltd. -
Lanisco Holdings Limited ("Lanisco"), is a private Cyprus
corporation and a 100% owned subsidiary of Carbon Resources
Limited (a private Cyprus corporation).
Lanisco holds the rights to acquire proprietary and patented
technology called "CPJ" which converts so called heavy oils
into lighter oils.
Lanisco entered into agreements January 6, 1999 whereby it
was granted the rights to acquire the CPJ technology from
the inventor, in return for expending $1,000,000 to
commercialize the technology, and payment of a royalty of
65% of the net proceeds received from any license fees,
royalties or any such other revenues earned until payment of
a total of $1,000,000 to the Inventor, at which time the
royalty would revert to 35% of any net proceeds received
from any revenue generated by the technology. (Net proceeds
to be defined as gross revenues less reasonable operating
expenses including R&D expenses).
Two further agreements entered into in January 1999 and June
1999, between Synergy (the 100% shareholder of Carbon
Resources Limited) and Texas T Petroleum granted Texas T
Petroleum the right to acquire 50% of the shares of Carbon
(and thereby acquire a 50% interest in the CPJ technology).
Please refer to Carbon Resources Limited above, paragraphs 4
and 7 for a detailed explanation of these agreements.
At December 31, 1999, Lanisco, Carbon and Texas T Petroleum
worked in co-operation to re-construct the 2 bbl/day pilot
CPJ unit at laboratory facilities in Calgary, Alberta to
permit testing of various heavy crude samples for potential
licensees.
In addition, Lanisco, Carbon Resources and Texas T Petroleum
have commissioned and received a detailed cost estimate for
the construction of a 100 bbl/day pilot unit expected to
commence construction in the Province of Alberta in fiscal
year 2000.
Lanisco intends to generate annual revenues through the
licensing of the CPJ technology to a variety of
international corporations and host countries, and by the
generation of royalty revenues from operational CPJ
facilities.
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 16
</FN>
<PAGE>
NOTE 10 - SUBSEQUENT EVENTS
(A) Subsequent to the quarter ended June 30, 2000, the
Company announced that it had completed a $2.25 million
convertible note financing led by Belle Haven Investments of
Greenwich, Connecticut. Refer to Note 7 - "COMMON STOCK"
above.
(B) Subsequent to the quarter ended June 30, 2000, the
Company announced the appointment of Mr. John Gradek to the
position of Chief Executive Officer effective August 15,
2000.
(C) Subsequent to the quarter ended June 30, 2000, the
Company and Laxarco Holding Limited have agreed to release
from escrow the shares of the Company's common stock and
shares of Syngen Technologies Limited. An escrow had
been set up to hold 13,000,000 shares issued in the
name of Laxarco Holding Limited and the shares of Syngen
pursuant to various agreements involving the Company,
Laxarco Holding and other entities and to assure each party
that certain covenants and undertakings related to the
development of the Technologies were completed. The
Company and Laxarco Holding have determined that there
is no further need for the respective shares of the
Company and Syngen to be held in escrow due to the
progress to date of such development. In addition,
Laxarco has committed to the Company to continue to
provide the technical personnel necessary to manage
completion of the Technologies. Therefore, subsequent
to the end of the quarter, the Company's Board of
Directors resolved to authorize and direct the release
of 13,000,000 shares from escrow to Laxarco Holding
Limited but only upon delivery to the Company of the
outstanding shares of Syngen Technologies Limited and
delivery of the written undertaking. The Company anticipates
that it will formalize its agreement with Laxarco Holding
by entering into amendments to the aforementioned
agreements. Upon completion of these agreements Synergy,
by way of 100% ownership in Syngen Technologies Limited
will hold all the rights to a proprietary and patented
technology called "SYNGEN". (Refer to Note 9 - "COMMITMENTS
AND CONTINGENCIES" above).
(D) Subsequent to the quarter ended June 30, 2000, the
Company elected Mr. Thomas Cooley to fill a vacancy on the
Company's Board of Directors. Mr. Cooley is the director of
the Company's Technical Development and a shareholder of
Laxarco Holding Limited, which is the largest shareholder of
the Company.
[FN]
The notes to these unaudited consolidated financial statements
should be read in conjunction with the Audited Financial
Statements for the fiscal year ended December 31, 1999. 17
</FN>
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
As of February 28, 2000, the Company dismissed as the principal accountant
previously engaged to audit the Company's financial statements, Sarna & Co.
Sarna & Co. was engaged to audit the Company's fiscal year ended December
31, 1998 and the subsequent period ended March 31, 1999.
Sarna & Co.'s report on the Company's financial statements for the fiscal
year ended December 31, 1998, did not contain an adverse opinion or a
disclaimer of opinion nor was it qualified or modified as to uncertainty,
audit scope, or accounting principles.
The decision to change accountants was approved by the Company's Board of
Directors. During the Company's two (2) most recent fiscal years (of which
Sarna & Co. audited only the 1998 fiscal year) and during all subsequent
interim periods preceding Sarna & Co.'s dismissal, there were no
disagreements between the Company and the former accounting firm on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
41
<PAGE>
There were no reportable events (as such term is defined by paragraph
(a)(1)(v) of Item 304 of Regulation S-K promulgated by the Securities and
Exchange Commission ("Regulation S-K") that occurred within the Company's
two most recent fiscal years nor any subsequent interim period preceding the
dismissal of Sarna & Co.
The Company provided Sarna & Co. with a copy of the disclosures made in its
Current Report Form 8-K dated February 28, 2000, prior to the filing of the
same. The Company has requested Sarna & Co. to furnish it with a letter
addressed to the SEC stating whether it agrees with the statements made in
this Form 8-K and, if not, stating the respects in which it does not agree.
The Company has received the aforementioned letter from Sarna & Co.
As of February 28, 2000, the Company engaged the accounting firm of Hansen,
Barnett & Maxwell, a professional corporation, as its principal accounting
firm to audit its financial statements. The Company has not consulted with
Hansen, Barnett & Maxwell regarding either the application of accounting
principles to a specified transaction, or the type of audit opinion that
might be rendered on the Company's financial statements; nor any
disagreement or other reportable event (as such are defined in paragraphs
(a)(1)(iv)-(v) under Item 304 of Regulation S-K) as no such disagreement or
reportable event occurred as disclosed above.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Model Business Corporation Act of the State of Colorado ("CMBCA")
provides, in general, that a corporation shall have the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), because the person is or was a director or
officer of the corporation. Such indemnity may be against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such
action, suit or proceeding, if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and if, with respect to any criminal action or
proceeding, the person did not have reasonable cause to believe the person's
conduct was unlawful.
The CMBCA provides, in general, that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor because the
person is or was a director or officer of the corporation, against any
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation.
The CMBCA provides, in general, that a corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director or officer of the corporation against any liability asserted
against the person in any such capacity, or arising out of the person's
status as such, whether or not the corporation would have the power to
indemnify the person against such liability under the provisions of the law.
The Company's Articles of Incorporation (incorporated by reference herein)
provides for indemnification of directors, officers and other persons as
follows:
The Corporation shall indemnify, to the extent permitted by law, any
director, officer, agent, fiduciary or employee of the Corporation against
any claim, liability or expense arising against or incurred by such person
as a result of actions reasonably taken by him at the direction of the
Corporation. The Corporation shall further have the authority to the full
extent permitted by law to indemnify its directors, officers, agents,
fiduciaries and employees against any claim, liability or expense arising
against or incurred by them in all other circumstances and to maintain
insurance providing such indemnification.
42
<PAGE>
THE COMPANY'S BY-LAWS (INCORPORATED BY REFERENCE HEREIN) PROVIDES THAT:
AUTHORITY TO INDEMNIFY. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative, because he is or was a director of the Corporation or is or
was serving at the request of the Corporation as a director, officer,
partner, trustee, employee, fiduciary or agent of another domestic or
foreign corporation or other person or of an employee benefit plan
(hereinafter an "Indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director while serving as a
director shall be indemnified against liability.
ADVANCE OF EXPENSES TO DIRECTORS. The Corporation may pay for or reimburse
the reasonable expenses incurred by a director who is a party to a
proceeding in advance of final disposition of the proceeding if: (1) the
Indemnitee furnishes to the Corporation a written affirmation of the
director's good faith belief that he or she has met the standard of conduct
described in Section 6.2 of the Corporation's Bylaws; (2) the Indemnitee
furnishes to the Corporation a written undertaking, executed personally by
or on behalf of such Indemnitee, to repay the advance if it is ultimately
determined that he or she did not meet the standard of conduct; and (3) a
determination is made that the facts then known to those making the
determination would not preclude indemnification under Section 6.4 of the
Corporations Bylaws.
MANDATORY INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify a
person who was wholly-successful, on the merits or otherwise, in the defense
of any proceeding to which the person was a party because the person is or
was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
INSURANCE. The Corporation may purchase and maintain insurance on behalf of
a person who is or was a director, officer, employee, fiduciary or agent of
the Corporation or who, while a director, officer, employee fiduciary or
agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary,
or agent or another domestic or foreign corporation, or other person or of
an employee benefit plan, against liability asserted against or incurred by
the person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary or agent whether or not the Corporation would
have power to indemnify the person against the same liability under Sections
6.2, 6.3 or 6.7 of the Corporation's Bylaws. Any such insurance may be
procured from any insurance company designated by the board of directors,
whether such insurance company is formed under the laws of this or any other
jurisdiction of the United States or elsewhere, including any insurance
company in which the Corporation has an equity or any other interest through
stock ownership or otherwise.
INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES AND AGENTS OF THE
CORPORATION. (a) An officer is entitled to mandatory indemnification under
the section above titled "Mandatory Indemnification of Directors" and is
entitled to apply for court-ordered indemnification under Section 6.5 of the
Corporation's Bylaws, in each case to the same extent as a director; (b) the
Corporation may indemnify and advance expenses to an officer, employee,
fiduciary or agent of the Corporation to the same extent as to a director;
and (c) the Corporation may also indemnify and advance expenses to an
officer, employee, fiduciary or agent who is not a director to a greater
extent than is provided in the Bylaws, if not inconsistent with public
policy, and if provided for by general or specific action of its board of
directors or shareholders or by contract.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company has agreed to pay all expenses associated with the preparation
and filing of this registration statement, including registration fees,
transfer agent's fees, printing and engraving fees and legal and accountings
fees. The selling security holders shall be responsible for any commissions
or selling fees incurred in connection with the sale of the securities
registered under this registration statement.
RECENT SALES OF UNREGISTERED SECURITIES
On April 15, 1998, the Company commenced a private placement of its Units
pursuant to Regulation S, promulgated by the SEC under the 1933 Act ("Reg.
S"). Each Unit consisted of one (1) share of common stock and one (1)
warrant exercisable any time prior to April 15, 2000. The Company 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.
43
<PAGE>
In November 1998, the Company commenced a private placement of its common
stock under Rule 504 of Regulation D at $0.50 per Unit. Each Unit consisted
of one share of common stock and one warrant exercisable at any time two (2)
years from the date of issue at $1.00 per share for each warrant exercised.
The Company completed this offering of 1,500,000 Units in April 1999 for a
total value of $750,000. The Company issued 957,000 Units for cash of
$478,500, 138,000 Units as compensation for services valued at $69,000 and
405,000 Units as conversion of debt from investor deposits in the amount of
$202,500. No commission fees or other selling expenses were paid.
Subsequent to year end, the Company offered to certain subscribers under the
aforementioned Rule 504 private placement the option of canceling the
warrant portion of the subscribed for Units and participating in an offering
of new Units made pursuant to Regulation S promulgated by the Securities and
Exchange Commission under the Securities Act of 1933 Regulation S), with
each Unit consisting of a share of common stock and a warrant to purchase an
additional share for $3.50, exercisable at any time two (2) years from the
time of subscription. The Company has agreed to keep the offering open
until either fully subscribed or April 2001 which would be the expiration
date of the warrants under the Rule 504 private placement. The prices of
these new Units is $1.00, which is the same price as the share purchase
warrants that have been canceled. On January 19, 2000, 100,000 of these new
Units were subscribed for. Subsequent to period ended March 31, 2000, the
Company accepted this subscription.
In December 1999, the Company sold 53,000 units in an offering conducted
pursuant to Regulation S. Each unit consisted of one share of common stock
and a warrant to purchase another share of common stock for $1.00 per share.
The Company received proceeds of $26,500 from this offering. In January
2000, the Company sold an additional 10,000 units from this offering
receiving $5,000.00 in proceeds. No commission fees or other selling
expenses were paid.
On January 19, 2000, the Company commenced a private placement of shares of
its common stock pursuant to Regulation S. Subsequent to the period ended
March 31, 2000, the Company accepted subscriptions to this offering for the
sale of 100,000 shares at $1.00 US per share. No commission fees or other
selling expenses were paid.
UNDERTAKINGS
The Company undertakes that it shall
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental
change in the information in the Registration Statement; and
notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) promulgated
under the Securities Act if, in the aggregate, the changes in the volume
and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table
in the effective Registration Statement.
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new
registration statement of the securities offered, and the offering
of the securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold
at the end of the offering.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SYNERGY TECHNOLOGIES CORPORATION
Dated: October 4, 2000
/s/ JOHN GRADEK
-----------------
By: John Gradek, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ JOHN GRADEK October 4, 2000
---------------
Chief Executive Officer and Board
of Directors
/s/ CAMERON HAWORTH October 4, 2000
-------------------
President and Board of Directors
/s/JACQUELINE DANFORTH October 4, 2000
----------------------
Secretary-Treasurer and Board of Directors
/s/THOMAS E. COOLEY October 4, 2000
-------------------
Board of Directors
/s/JAMES SHONE October 4, 2000
-------------------
Board of Directors
/S/DUANE F. BAUMERT October 6, 2000
-------------------
Board of Directors
/S/JAMES E. NIELSON October 10, 2000
-------------------
Board of Directors
44
<PAGE>
INDEX OF EXHIBITS FILED HEREWITH
REGULATION
S-B NUMBER EXHIBIT REFERENCE
3(i) Articles of Incorporation Filed Herewith
3(ii) Bylaws Filed Herewith
4 Speciman Stock Certificate Filed Herewith
10.1 Assignment of Technology Agreement by
and between Laxarco Holding Limited
and Carbon Resources Limited dated
May 1, 1998 Incorporated by reference to
Exhibit 6.1 to the Registrant's
Registration Statement on Form
10-SB filed July 15, 1999
10.2 Share Exchange Agreement by and among
Laxarco Holding Limited, Carbon
Resources Limited, the Registrant and
Stone Canyon Resources Ltd. dated
May 5, 1998 Incorporated by reference to
Exhibit 6.2 to the Registrant's
Registration Statement on Form
10-SB filed July 15, 1999
10.3 Amended and Restated Escrow Agreement
by and between the Registrant and
Laxarco Holding Limted dated June
25, 1999 Incorporated by reference to
Exhibit 6.3 to the Registrant's
Registration Statement on Form
10-SB filed on July 15, 1999
10.4 Option Letter Agreement by and between
Laxarco Holding Ltd., Texas T Petroleum
Inc. and the Registrant dated June 25,
1999 Filed Herewith
10.5 Amendment No. 1 to the Assignment of
Technology Agreement by and between
Laxarco Holding Limited and Carbon
Resources Limited dated June 25, 1999 Incorporated by reference to
Exhibit 6.1 to the Registrant's
Registration Statement on Form
10-SB filed July 15, 1999
10.6 Amendment No. 1 to the Share Exchange
Agreement by and among Laxarco Holding
Limited, Carbon Resources Limited, the
Registrant and Stone Canyon Resources
Ltd. dated June 25, 1999 Incorporated by reference to
Exhibit 6.10 to the Registrant's
Registration Statement on Form
10-SB filed July 15, 1999
10.7 Share Exchange Agreement by and among
Laxarco Holding Limited, Carbon
Resources Limited and the Registrant
dated June 25, 1999 Incorporated by reference to
Exhibit 6.12 to the Registrant's
Registration Statement on Form
10-SB filed July 15, 1999
10.8 Share Exchange Agreement by and between
Texas T Petroleum Inc. and the
Registrant dated June 25, 1999 Incorporated by reference to
Exhibit 6.12 to the Registrant's
Registration Statement on Form
10-SB filed July 15, 1999
10.9 Amended and Restated Assignment of
Technology Transfer Agreement by and
between Pierre Jorgensen, the Registrant,
Lanisco Holdings Ltd., a subsidiary of
the Registrant, and Capital Reserve
Corporation, dated September 25, 2000 Filed Herewith
16 Letter on change in certifying
accountant Incorporated by reference to
Exhibit 16 to the Registrant's
Current Report on Form 8-K/A
filed on April 18, 2000
21 List of Subsidiaries of the Registrant Filed Herewith
23 Consent of Hansen, Barnett & Maxwell Filed Herewith
27 Financial Data Schedule Filed Herewtih
<PAGE>
