U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 2054
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-26721
SYNERGY TECHNOLOGIES CORPORATION
(Exact name of small business issuer
as specified in its charter)
COLORADO 84-1379164
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
335 25th Street, S.E., Calgary, Alberta Canada T2A 7H8
(403) 269-2274
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period
that the registrant was required to file such reports),
and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the last
practicable date:
26,711,090 shares of Common Stock, $0.002 par value, as
of August 7 , 2000. (See Notes 9 and 10 to the
accompanying Unaudited Financial Statements).
Transitional Small Business Disclosure Format
(check one): Yes No _X_
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Financial Statements
(Unaudited, Prepared by Management)
For the Periods Ended
June 30, 2000 and 1999
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
TABLE OF CONTENTS
Page
Consolidated Financial Statements (unaudited):
Consolidated Balance Sheet B June 30, 2000 (unaudited) 4
Consolidated Statements of Operations for 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 (unaudited) 5
Consolidated Statements of Cash Flows for 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 (unaudited) 6 - 7
Notes to Consolidated Financial Statements 8 -22
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
ASSETS
<TABLE>
<CAPTION>
2000
<S> <C>
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 - trade $ 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; 100,000,000
Shares authorized, 13,711,090 shares issued and outstanding 27,424
Additional paid-in capital 4,339,765
Unearned compensation (184,792)
Accumulated deficit (5,263,585)
Total Stockholders' Equity (Deficit) (1,081,188)
Total Liabilities and Stockholders' Equity $ 1,171,769
</TABLE>
Contingent Agreements - Note 9
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.
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
JUNE 30, 2000
<TABLE>
<CAPTION>
For the three For the six Cumulative Period
months ended months ended from November 7,
June 30 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 Administrative 412,377 180,788 722,223 350,976 2,123,161
Stock Option
Compensation 74,687 - 510,125 - 510,125
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 1,605,199 1,301,772 4,572,512
Loss From Operations (681,579) (310,774) (1,605,199) (1,101,318) (4,363,585)
Other Expense
Amortization of Debt
Discount and Offering
Costs (900,000) - (900,000) - (900,000)
Net Loss Before Income
Taxes (1,581,579) (310,774) (2,505,199) (1,101,318) $(5,263,585)
Provision for
Income Tax - - - - -
Net Income (Loss) $(1,581,579) $(310,774) $(2,505,199) $(1,101,318) $(5,263,585)
Basic and Diluted
Gain (Loss) per
Common Share $ (0.12) $ (0.03) $ (0.19) $(0.10) $(0.48)
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>
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.
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
JUNE 30, 2000
<TABLE>
<CAPTION>
For the Six Months Ended Cumulative Period From
June 30 November 7, 1996
(Date of Inception)
2000 1999 To June 30, 2000
<S> <C> <C> <C>
Cash From Operating
Activities
Net Loss $ (2,505,199) $ (1,101,318) $(5,263,585)
Adjustment to
reconcile net
loss to net cash
from operations
Dry Well Expense - 551,095 722,210
Depreciation 3,411 - 4,006
Amortization of
Unearned
Compensation 510,125 - 510,125
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>
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.
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 C SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Consolidated Financial Statements C 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 C Synergy Technologies Corporation
(formerly Automated Transfer Systems Corporation)
(ASynergy@ or Athe Company@), was incorporated in
Colorado on February 10, 1997. Stone Canyon Resources,
Inc. (AStone 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 C 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.
Acquisitions C As further discussed in Note 9, in
May, 1998, Synergy entered into an agreement with
Laxarco Holding Limited (ALaxarco@) to acquire a 75%
interest in Carbon Resources Limited (ACarbon@), 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 ACPJ@). 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. (AStone 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 C 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 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 C 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)
ARELATED 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
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, ACarbon
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
(1) 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.
(2) 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.
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 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 and Caribbean Overseas Investments Ltd.
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.
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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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 February 23, 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 February 22, 2003. The options
granted were valued at their fair value of $171,000.
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:
<TABLE>
<CAPTION>
June 30,2000
Weighted Average
Exercise Price
Shares
<S> <C> <C>
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
</TABLE>
The following table summarizes information about stock
options outstanding at June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options
Exercisable
<S> <C> <C> <C> <C> <C>
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 6.30.2000 Life Price at 6.30.2000 Price
$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 For the six Cumulative from
months ended months ended (Date of
June 30 June 30 Inception)
through
2000 1999 2000 1999 June 30, 2000
<S> <C> <C> <C> <C> <C>
Net Loss:
As reported $681,579 $310,774 $1,605,199 $1,101,318 4,363,585
Prof Forma - - 1,895,199 - 4,653,585
Basic and
diluted loss
per share:
As reported $ 0.05 0.03 0.12 0.10 0.40
Pro Forma - - 0.14 - 0.42
</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 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.
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 C 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.
(ALaxarco@) (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 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
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.
NOTE 10 - SUBSEQUENT EVENTS
(1) 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.
(2) 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.
(3) 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. 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 ASYNGEN@.
(Refer to Note 9 - COMMITMENTS AND CONTINGENCIES
above).
(4) 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.
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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 Companys
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.
The Company's business is the development of
technologies related to the oil and gas industry.
Capital from equity issues or borrowings or partnering
with industry is necessary to fund the Company's future
operations and technology development. Therefore the
financial statements included in this report for the
periods ended June 30, 2000 and 1999 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
on its patented and proprietary heavy oil upgrading
technology known as the ACPJ Technology@ and its
patented and proprietary gas-to-liquids technology
referred to as the "SYNGEN Technology". 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. The amounts advanced were for (a) the
design, development and marketing of a 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 2 barrel per
day CPJ Technology test unit in its laboratory in
Calgary in the let 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 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 2000, the Company intends to
begin the detailed engineering and construction of a
100 barrel per day heavy oil pilot plant. The total
cost of this pilot plant is approximated at $5 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 pilot plant.
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 throughout the
next quarter ending September, 2000. 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
partners 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 $1.5 million, 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 continued operations during the period
ended June 30, 2000 and 1999 reflect new cash used of
$(1,128,229,) and $(108,505) respectively, while cash
flows provided by investing activities for the same
periods were $(28,425) and $(275,011) and cash flows
provided by financing activities were $1,974,518 and
$439,056, respectively.
At June 30, 2000 and 1999, the Company had working
capital of $(308,048) and $(536,132), respectively. If
the Company generates an operating loss for the year
2000 comparable to the loss incurred for 1999, its
working capital could be negatively impacted. However,
the Company anticipates funding from potential users of
the technology, in conjunction with its financings,
will generate sufficient capital to meet operating
expenses for the next twelve (12) months. If the
Company's operating expenses for fiscal year 2000 are
significantly greater than that of fiscal year 1999,
and the Company is unable to complete further
financings or to find partners for its technologies,
then the Company will not have sufficient funds to meet
its cash and operating expense requirements.
Assets
As at June 30, 2000 the Company had total assets of
$1,171,769 compared to total assets of $415,854 at June
30, 1999. This represents an increase of $755,915,
which is attributable to an increase in cash due to
deposits from a private placement conducted by the
Company (see "Part II, Item 2. Changes in 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 totalling $100,000 and office equipment of
$26,860.
Results of Operations
As of the date of this filing the Company has limited
sources of income. During the quarter ended June 30,
2000, the Company relied primarily upon the sale of
securities to pay its operating expenses. See "Part
II, Item 2. Changes in Securities" below. The Company
also relied upon funds from its technology funding
partners to pay for most of the research and
development costs incurred during this quarter. See
the last paragraph of this Section below. Management
expects to earn some income from testing of heavy oil
samples for clients, however these fees 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 CJ
Technology who is obligated to fund $1,000,000 towards
the development of the Technology to earn its fifty
percent 50% interest therein. This funding commitment
has been met to date with $139,978 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 the second quarter
of the year 2000 decreased by 26.2% due to a decrease
in the Company's general and administrative expenses
associated with a charge of compensation related to
stock options in the first quarter of the year 2000 of
$435,438 versus $74,687 in the second quarter. 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. However, the Company did
incur in the first quarter of this fiscal year an
accounting charge of $435,438 associated with the
granting of stock options to members of its advisory
board and non-employees. See Note 7 to the Unaudited
Financial Statements included herewith. The Company's
net loss from continuing operations during this quarter
was $681,579, compared to a loss of $310,774 for the
same quarter in the preceding year.
The Company's operating expenses (other than the one-
time accounting charge) were comprised primarily of
general and administrative expenses of $722,223 and
technology development of $372,851. While the
Company's total expenses for the second quarter of year
2000 increased by 66% from the same quarter last year,
general and administrative expenses for the same
periods increased by 128% 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 $4,147,436 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 $860,022 and $2,645,615 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material developments in any litigation
involving the Company during the quarter ended June 30,
2000. The Company hereby incorporates the information
set forth in "Item 2. Legal Proceedings" of its
Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2000 filed with the Securities and Exchange
Commission.
ITEM 2. CHANGES IN SECURITIES
On January 19, 2000, the Company commenced a private
placement of shares of its common stock pursuant to
Regulation S promulgated by the Securities and Exchange
Commission (the ASEC@) under the Securities Act of 1933
(the "Securities Act"). 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"). The notes were
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 warrants to purchase an additional
share of common stock at $8.00 per share (the "Units").
The Notes are convertible into the Units at the price
of $3.00 per unit. The private placement was conducted
pursuant to Regulation D promulgated by the SEC under
the Securities Act and was offered only to accredited
investors or others deemed appropriate by the Company.
As of June 30, 2000, the Company had accepted
subscriptions for $1,055,000 of convertible promissory
notes and then on July 26, 2000, the private placement
was fully subscribed and closed. 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 subsequent to the
quarter ended June 30, 2000, a warrant for 32,000 Units
to other individuals for finders= fees in completing
this private placement.
The proceeds from this private placement are being used
by the Company in continuing development of the
Company's two proprietary technologies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
(a) On June 28, 2000, the annual meeting of
shareholders of the Company was held for the purpose
of: (a) electing Hansen, Barnett & Maxwell, Certified
Public Accountants, the Company's independent auditors;
(b) authorizing the Board of Directors to fix the
remuneration of the auditors; (c) determining the
number of members of the Board of Directors at four
(4); and (d) electing members of the Company's Board of
Directors. No proxies were solicited by the Company in
connection with such annual meeting of shareholders.
(b) The Company's entire Board of Directors, as
constituted prior to such meeting and as previously
reported in the Company's public reports filed with the
Securities and Exchange Commission, were re-elected at
such meeting.
(c) There were 14,609,846 shares of the Company's
common stock represented at the meeting in person and
by proxy, representing 54.69% of the Company's issued
and outstanding shares of capital stock.
The vote as to each of the matters described in (a)
above was as follows:
Item In Favor Against Abstained
(a) election of
independent Auditors 14,609,846 -0- -0-
(b) fixing remuneration
of auditors 14,609,846 -0- -0-
(c) number of members
of Board 14,609,846 -0- -0-
(d) election of members
to the Board 14,609,846 -0- -0-
ITEM 5. OTHER INFORMATION
On June 14, 2000, the Company entered into a Memorandum
of Understanding with Drake Oil Limited, a Nigerian
limited liability company, to establish a special
purpose company to implement a valorization of an
associated natural gas project. The project is
contemplated to involve the design, financing,
construction, development and operation of plants
utilizing the Company's proprietary process known as
SYNGEN for the manufacture, production and sale of
syncrude from associated natural gas in Nigeria. As
part of this agreement, the Company will make available
to the special purpose company exclusive use of and
access to the SYNGEN technology in Nigeria. The
parties are currently working on the organization of
the special purpose company in Nigeria which is
anticipated to be called "Drake Synergy Nigeria Ltd."
On January 15, 2000, the Company verbally agreed to a
five (5) year sublease to sublet 8,295 square feet of
office and laboratory space in Calgary, Alberta. In
June 2000, the Company executed a written sublease
agreement for such space. The Company pays $12,500
per month in lease payments under this agreement. The
Company has committed to another 1,835 sq ft of space
for its engineering department as of August 1, 2000 on
similar terms to the initial space. The Company has
received notice of a change of ownership in the
building effective August 31, 2000 at which time the
Company intends to execute a formal lease with the new
owner on substantially the same terms and conditions as
the existing sublease. The Company utilizes this
space for its corporate headquarters, as well as siting
and operating its 4 bbl/day demonstration unit
utilizing its CPJ Technology.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(a) EXHIBIT INDEX B see index provided below after the
signature of this Form 10-QSB
(b) REPORTS ON FORM 8-K:
The Company reported on a Form 8-K, dated July 20 2000,
the appointment of Mr. John Gradek to the office of
Chief Executive Officer. Mr. Gradek has served as a
member of the Company's Board of Directors since
September 14, 1999 and will continue to serve on the
Board in addition to fulfilling the role of CEO.
SIGNATURES
In accordance with the requirements of the Exchange
Act, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
SYNERGY TECHNOLOGIES CORPORATION
(Registrant)
Date: August 14, 2000
By:/s/ Cameron Haworth
Tile: President
By:/s/ Jacqueline Danforth
Title: Secretary
Index Number Description Reference
3.1 Articles of
Incorporation filed
with the Secretary. *
3.2 Articles of Exchange
by and between
Automated Transfer
Systems, Inc. and
Stone Canyon Resources,
Inc. filed with
the Secretary of
State November 24, 1997. *
3.3 Amendment to the Articles
of Incorporation filed
with the Secretary
of State March 2, 1999. *
4.1 Specimen Certificate of
Common Stock par value
$0.002 per share. *
27 Financial Data Schedule Filed Herewith
*These documents are incorporated by reference to the
Company's Registration Statements on Form 10-SB filed
on July 15, 1999.
