SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1 TO
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
ACT OF 1934
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
(Address of principal executive offices including zip code)
Issuer's telephone number, including area code: (403) 269-2274
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of class: COMMON STOCK, $0.002 PAR VALUE
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 Company was required to file such reports), and (2) has
been subject to the filing requirements for the past 90 days.
Yes X No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Company's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.
Issuer's revenues for its most recent fiscal year. $200,000.00
Aggregate market value of the voting stock held by non-affiliates of
the Company as of March 29, 2000: $105,141,770(See Item 5).
Number of shares outstanding of the Company's Common Stock, $0.002 par value,
as of March 2, 2000: 26,285,442
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check one): Yes__ No X
PART I . . . . . . . . . . . . . .1
ITEM 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . .1
General Description and Development of Business . . . . . .1
The Company's Business. . . . . . . . . . . . . . . . . . .5
a. Business of Carbon Resources Limited . . . . . . .5
1. The Heavy Oil (CPJ) Technology . . . . . . . .5
2. The Process . . . . . . . . . . . . . . . . .6
b. Business of SynGen Technologies Limited . . . . . .7
1. The Gas-To-Liquids (SYNGEN) Technology . . . . .8
2. Standard System . . . . . . . . . . . . . . .8
3. The Market. . . . . . . . . . . . . . . . . .9
(a) Shell Oil Company . . . . . . . . . . .9
(b) Exxon . . . . . . . . . . . . . . . . .9
(c) Statoil of Norway . . . . . . . . . . .9
(d) Sasol. . . . . . . . . . . . . . . . . .9
(e) Syntroleum. . . . . . . . . . . . . . 10
(f) Syncrude Technology, Inc. . . . . . . 10
3. An Alternative to LNG . . . . . . . . . . . 10
4. The Environment . . . . . . . . . . . . . . 10
5. Products and Applications . . . . . . . . . 10
6. Technology Development. . . . . . . . . . . 11
(a) Phase One Development . . . . . . . . 12
(b) Phase Two Development. . . . . . . . . 13
c. Business of Stone Canyon Resources Inc.. . . . . 13
1. Oil and Gas Properties. . . . . . . . . . . 13
(a) Hell's Canyon Lease . . . . . . . . . 13
(b) Rose Creek Lease. . . . . . . . . . . 14
(c) Meadow Deep and D Sand Leases . . . . 14
(d) Wilson Creek Prospect . . . . . . . . 15
Other Requested Information . . . . . . . . . . . . . . . 15
ITEM 2. DESCRIPTION OF PROPERTIES. . . . . . . . . . . . . . . 17
Principal Plants and Other Property . . . . . . . . . . . 17
Oil and Gas Producing Activities. . . . . . . . . . . . . 17
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . 18
Bataa Oil, Inc. . . . . . . . . . . . . . . . . . . . . . 18
Boulder City Litigation . . . . . . . . . . . . . . . . . 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . 19
PART II . . . . . . . . . . . . . 19
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON COMPANYS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . 19
Stockholders. . . . . . . . . . . . . . . . . . . . . . . 19
Dividends . . . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND CHANGES IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS . 20
Results of Operations . . . . . . . . . . . . . . . . . . 23
Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . 24
Changes in Financial Position . . . . . . . . . . . . . . 24
Comparison of Results of Operations for the Fiscal Periods ended
December 31, 1997 and 1998 and subsequent six month period ended
June 30, 1999.. . . . . . . . . . . . . . . . . . . . . . . . 25
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . 26
Short Term. . . . . . . . . . . . . . . . . . . . . . . . 26
Long Term . . . . . . . . . . . . . . . . . . . . . . . . 26
Capital Resources . . . . . . . . . . . . . . . . . . . . 27
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . 27
INDEX TO FINANCIAL STATEMENTS AND SUPPORTING SCHEDULES. . 27
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . 27
PART III. . . . . . . . . . . . . . . . . . . . 28
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. . . . . . . 28
Directors and Officers of the Company and its Subsidiaries28
a. Management of the Company. . . . . . . . . . . . 28
b. Management of Stone Canyon Colorado
(a wholly-owned subsidiary of the Company) . . . . . 30
c. Management of Carbon Resources Limited . . . . . 30
d. Management of SynGen Technologies Limited. . . . 30
Identification of Significant Employees. . . . . . . . . 31
Family Relationships. . . . . . . . . . . . . . . . . . . 31
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . 32
Cash Compensation . . . . . . . . . . . . . . . . . . . . 32
Compensation Pursuant to Management Contracts.. . . . . . 33
Other Compensation. . . . . . . . . . . . . . . . . . . . 33
Compensation of Directors . . . . . . . . . . . . . . . . 33
Termination of Employment and Change of Control Arrangements33
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS34
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . 37
(a) EXHIBIT INDEX. . . . . . . . . . . . . . . 37
SUPPLEMENTAL OIL AND GAS INFORMATION . . . . . . . . . . . . . 40
PART I
ITEM 1. 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.
The Company was incorporated for the business of providing ATM customers
with a solution for automated teller machine and electronic transfer
processing. The Company was unsuccessful in its research and development. As
of October, 1997, the Company had no operations.
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 has participated in a variety of activities as follows:
The acquisition of U.S. petroleum and natural gas lease rights in
Colorado and Wyoming . The acquisition of Canadian petroleum and natural gas
leases rights in the Province of Alberta. The drilling of exploratory wells.
In March, 1998, Stone Canyon Colorado entered into an agreement with Stone
Canyon Canada whereby Stone Canyon Colorado acquired a 33.57% before pay-out
("BPO") interest and a 16.79% after pay-out ("APO") interest in certain
development lease lands location in Wilson Creek Alberta (the "Wilson Creek
Prospect"). Under the terms of the agreement, Stone Canyon Colorado was
required to pay 100% of the drilling and completion costs associated with the
first well drilled on the lease to earn its 16.79% APO interest.
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 acquired 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. (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 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 the
completion of all of the intended transactions between Laxarco and the Company.
The First Laxarco Agreement received shareholder approval on June 5, 1998.
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:
The acquisition of a proprietary technology for the conversion of
gas-to-liquids
The research and development of the gas-to-liquids technology (the
"SYNGEN Technology")
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")
The establishment of a laboratory facility for the testing and
research and development of the technologies
On September 30, 1998, the Company and Carbon entered into an agreement
with Stone Canyon Canada for the development of a 4 barrel per day SYNGEN
demonstration facility in exchange for granting to Stone Canyon Canada
the Canadian marketing and licensing rights to the SYNGEN Technology.
On June 20, 1999, Stone Canyon Canada concluded agreements with Natural
Resources Canada's Industry Energy Research and Development Program ("IERD")
to secure a $700,000 CDN(approximately $483,000 US) repayable contribution
towards the development of the 4-barrel per day SYNGEN demonstration facility.
The contribution 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, convertible into shares of the Company's common stock (as discussed
in the last two paragraphs of this subsection of Item 1).
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 the CPJ Technology, a proprietary
technology for the upgrading of heavy oil. Under the terms of an agreement
between Lanisco and 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 must pay to
Jorgensen a royalty of 65% of the proceeds received from any licensing fees
or royalties derived from the CPJ Technology net of all operating costs until
payment of $1,000,000 at which time Jorgensen's royalty will revert to 35%
of all proceeds received from any licensing fees or royalties, net of all
operating costs. The agreement called for the shares of Lanisco to be
transferred to Carbon upon execution of the agreement. The agreement also
establishes a trust whereby Carbon's legal counsel will hold 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 The Company's Business - Business of Carbon Resources Limited.
On January 8, 1999, the Company reached a verbal agreement with Texas T
Petroleum Ltd., a Colorado oil and gas corporation, whereby Texas T Petroleum
received an option to negotiate the acquisition of up to 50% of the shares of
Carbon, for the payment of $100,000.00 cash and the expenditure of an additional
$100,000 towards development of the CPJ Technology. Synergy advanced
$100,000.00 to Lanisco Holdings Ltd. which funds were used for the purchase of
1,000,000 units of Texas T Petroleum Ltd.
On June 26, 1999, the Company executed a share exchange agreement with
Texas T Petroleum Ltd., a Colorado corporation ("Texas T"), whereby Texas T
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, 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 common stock at $1.00 per
share within two years from June 25, 1999, and the payment of $900,000 by Texas
T for the development of the CPJ Technology.
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 an oil and gas property known as the Wilson Creek Prospect, below as
well as Revival's respective interest in certain other development leases
located in the Province of Alberta. See "- 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.
In May 1999, the Company became involved in litigation with certain
founding shareholders regarding the purchase by the Company from certain
founders of oil and gas lease interests in wells located in Colorado and
Wyoming. The Company later discovered that its interests in certain leases
were lost due to a previously undisclosed arrangement made by the finder of the
properties, who is also a founding shareholder and the operator of such leases.
See ITEM 3. LEGAL PROCEEDINGS below.
Prior to the commencement of this litigation, the Company had discovered
that the value of these properties was far less than what had been represented.
The Company made numerous requests for certain documentation and confirmations
to its founding shareholder, who also was the operator and original purchaser of
the leases. Due to the lack of response, the Company concluded that it had not
received value for its shares and therefore the shares were wrongfully and
illegally obtained. The Company placed a stop-transfer order against all of the
founders' shares in order to protect the interests of all shareholders. As a
result, the operator and certain of the founding shareholders brought suit
against the Company and one other founding shareholders. See ITEM 3. LEGAL
PROCEEDINGS.
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 by November 1, 2000.
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 also agreed
with Laxarco that Laxarco shall have an exclusive right for thirty (30) days to
offer to purchase the CPJ Technology in the event the Company and Texas T 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 will 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 will be released upon the latter of the two (2) events. The
release of any of the shares is further conditioned upon the Company receiving
perfection of title to both of the Technologies.
On June 25, 1999, the Company incorporated SynGen Technologies Limited
pursuant to the laws of the Republic of Cyprus and transferred its interest in
the SYNGEN Technology from Carbon to SynGen Technologies Limited.
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 grant
program received by Stone Canyon Canada. 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 rights to include such shares in the Company's next secondary offering made
through the means of a registration statement filed with the SEC. Upon exercise
of such conversion right, all interest accrued on the converted principal
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, such lender 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.
Pursuant to a second Financing and Security Agreement executed in January
2000, between, on the one hand, Stone Canyon Resources Ltd. and Synergy
Technologies Corporation and, on the other hand, Caribbean Overseas Investment
Ltd., under the same terms as disclosed in the immediately preceding paragraph,
a further $50,000 US in loan proceeds was received.
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 ITEM
1. DESCRIPTION OF PROPERTIES.
The Company conducts its operations through its wholly-owned subsidiaries,
Stone Canyon Colorado and SynGen Technologies Limited and through its 50% owned
subsidiary, Carbon. (See "-General Description and Development of Business".)
a. Business of Carbon Resources Limited
Carbon Resources Limited has acquired the right to develop two (2) unique
Proprietary technologies - the SYNGEN Technology and the CPJ Technology. See
ITEM 1 - 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 Limited. 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 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 Mr. 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, Mr. 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. Mr. Jorgensen's pilot plant was in operation
in Orleans during 1989-1990 and was reassembled in Orleans in 1999 for
evaluation of potential client oils.
As stated above, Mr. Jorgensen set out to show that his process was a
suitable replacement for processing the bottom of the barrel. 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 long
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 steam, CO2, and/or nitrogen gas. This effect is
quickly obtained in a jet nozzle shearing the feed molecules.
This very high speed, prepared mixture then returns to thermodynamic steady
state in a reactor soaker, giving stable end products, in a short time and at an
adequate moderate pressure. The choice of operating temperature is also geared
to avoid glassy deposits on the reactors from the metals content of the heavy
crude feed. Extractor-separators working at near atmospheric pressure separate
the products without the requirement for large and expensive vacuum technology.
The convenient set of extractors, acting in a blending extracting mode, produce
recycle streams and final products. The first extractor, which is hot, keeps
the polyaromatic components, containing high metals and ash content, out of
most of the products. The water extract contains substantial metals and
sulfurous compounds.
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)
Key Words Denoting Characteristics of the Technology
Conservative H/C ratio.
No Hydrogen rejection
No limitation on metals, sulfur, nitrogen, or water on feed.
Quick mechanical-energetic activation of reaction by:
Blending shearing nozzle transferring energy from steam (or gases such as CO2)
to feed.
Feed preheated to just under natural thermal cracking conditions, avoiding coke
deposits in the furnace.
Controlled breaking of heavy molecules into two equal parts (avoiding gas
production) and, furthermore, negligible hydrogen is rejected.
Rapid stabilization of final products in a void pressurized reactor soaker
(without catalyst or trays).
Little or no coke production. Only small production of friable soot deposits
extracted, giving a soft powder, which is entrained in by-products (heavy gas
oil or heavy fuels).
Mixer-decanter-extractor operating at near atmospheric pressure to separate
final products and recycle streams.
No Vacuum operation required for separation of hydrocarbons.
Hot Extractor produces polyaromatic products with high metals content that
results in the demetallization of the feed and avoids strong metals deposit on
the reactor soaker wall from the recycle.
The decanted liquid water contains an extraction of metals, potential ash
sediments, and sulfurous compounds.
Due to water, final primary products are produced in stable but easy to break
oil-water emulsions.
b. Business of SynGen Technologies Limited
On June 25, 1999, the Company incorporated SynGen Technologies Limited, 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 (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
a 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 US 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.
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 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 offers 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 patent has been issued and U.S.
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 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, so little or no OPEX
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
would 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 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 initial 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. Versions of the standard system will
continue to evolve and technology enhancements will continually be made to the
basic system to fit both onshore and offshore locations.
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 now been operating for two years in Malaysia, at
a reported cost of $1.2 billion. The high cost is partly due to the fact that
Shell uses a fixed tube reactor, which was developed by Gulf in 1980. A second
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) Statoil of Norway
Based upon third party information, it is believed that Statoil lacks
satisfactory catalyst technology and at the present time is not pursuing
commercialization.
(d) 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.
(e) 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 to be as efficient or cost effective, as compared
to the SYNGEN technology.
(f) Syncrude Technology, Inc.
Syncrude Technology Inc. is a Texas corporation operating out of
Pittsburgh, Pennsylvania. They claim a revolutionary Slurry Bubble Column
Reactor but to date only bench scale data is available to support their claims.
3. An Alternative to LNG
Gas-to-Liquids 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 gas-to-liquids 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 precludes 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.
4. 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.
5. 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:
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.
6. Technology Development
The terms of the First Laxarco Agreement committed the Company to fund the
phase one and phase two development of the gas-to-liquids Technology of which
Carbon held a 100% interest, subject to the payment of 25% of the revenues
attributable to the licensing of gas-to-liquids Technology to Laxarco. The
Company was required to fund a total of $6,000,000 over the entire
project.
(a) Phase One Development
Phase One development of the SYNGEN technology has been 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, agreed to 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
was granted 100,000 stock options for exercise at $2.25 per share.
Total capital costs, inclusive of the value assigned to the Beau Canada
infrastructure is expected to be $3.5 million CDN.
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.
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 for a minimum 90
day period to determine optimum operating parameters for the overall process.
The Fischer-Tropsch process is a proven process, however, SynGen Technologies
will be using a proven hydrocarbon chain limiting catalyst supplied under
license from the Novocherkassk Plant of Synthetic Products near Rostov,
Russia. SynGen Technologies is of the opinion that operation of its
SYNGEN/Fischer Tropsch demonstration plant will allow for its technical
personnel to gather data and modify the process resulting in greater improved
efficiencies and/or operating parameters for the SYNGEN process. SYNGEN
expects a further 30 days from the end of the test period will be required to
compile test data and prepare a report presenting results. Stone Canyon Canada
has advised the demonstration plant should be ready to commence testing in
mid-2000. In addition, various other applications for the SYNGEN reactor,
including hydrogen generation for fuel cells, will be tested.
(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 US. 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.
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 varying interests in certain oil and gas leases in Colorado and
Wyoming and in the Province of Alberta, Canada. Exploration has already begun
on some properties with limited success.
1. Oil and Gas Properties
(a) Hell's Canyon Lease
In 1997,Stone Canyon Colorado acquired a 5% interest in 720 acres in Wyoming
known as the Hell's Canyon Lease. The Hell's Canyon lease is in northeastern
Wyoming. The acreage is located in Sections 16 and 9, Township 52 North, Range
70 W6M, in Campbell County, Wyoming. The lease area purchased encompasses 1 and
1/8 Sections in total and has the spacing to provide three to five well sites.
In November, 1997 Stone Canyon Colorado participated in the drilling of the
first exploratory well on the Hell's Canyon Lease. Based on geological
information on the prospect provided by the operator, Bataa, Oil, Inc., on
additional information the Operator determined the optimal well site
location to be in the NENW of Section 16. Geological reports prepared for the
Operator indicated that should the first test well encounter in excess of 50
feet of Minnelusa sandstone then the resulting field could accommodate four to
five productive wells.
The Hell's Canyon State 21-16 test well was drilled to a total depth of 8,120
feet in mid November, 1997, was declared to be a dry hole and was subsequently
abandoned. Drilling and abandonment costs in respect to Stone Canyon Colorado's
interest totaled $16,937 US.
During the fiscal year ended December 31,1999 Stone Canyon Colorado
continued to remit lease rental payments for the Hell's Canyon leases to keep
its 5% interest current. Bataa Oil Inc., the former operator of the lease,
elected to allow their interest to expire and operatorship was subsequently
assumed by Azalea Oil Company LLC. Concurrently, Stone Canyon Colorado was
offered the right to acquire a pro-rata interest in the leasehold formerly held
by Bataa Oil Inc. Stone Canyon Colorado elected to acquire an additional 6.90%
interest in the leases in December 1999 to bring their total interest in the
Hell's Canyon prospect to 11.90%. At present there is no development planned
on this lease.
(b) Rose Creek Lease
Stone Canyon Colorado acquired a 15% interest in the Rose Creek Leases, which
are located 16 miles west of Meeteetse, Wyoming and 25 miles south of Cody,
Wyoming, encompassing all or part of 9 Sections in Townships 48 and 49 North,
Range 103, W6M for a total of 2,808 acres. The Company participated in the
drilling of the first test well on this lease in April 1997. The operator,
Bataa Oil, Inc., situated the well site for the State 32-3 well on what was
believed to be the highest point of the northeast-southwest of the Phosphoria
and Tensleep formations at an optimal position of approximately 4,500 ft.
The first test well was drilled to a total depth of 5,503 feet and was logged.
Attempts to complete encountered substantial water in the Tensleep zone and a
squeeze job was unsuccessful. Further attempts to complete the Upper and Lower
Phosphoria formations again encountered substantial water and were unsuccessful.
The Operator recommended a polymer shut off treatment that was rejected by the
joint venture partners and the well was declared to be a dry hole in July
1997 and was subsequently abandoned.
Total funds expended on the drilling, completion and abandonment of the State
23-3 well totaled $82,500.00 US.
During fiscal 1999 Stone Canyon Colorado continued to remit lease rental
payments for the Rose Creek leases to keep their 15% interest current. Bataa
Oil Inc., the former operator of the Rose Creek leases, elected to allow its own
interests to expire and operatorship was subsequently assumed by Azalea Oil
Company LLC. Concurrently, Stone Canyon Colorado was offered the right to
acquire a pro-rata interest in the leaseholds formerly held by Bataa Oil Inc.
Stone Canyon Colorado elected to acquire 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%.
In December 1999, Stone Canyon Colorado was advised by Azalea Oil Company LLC
Of their intent to purchase, re-process and interpret General American
Geophysical lines with a view to further development of the leases. Stone
Canyon Colorado elected to participate in this geophysical analysis at a total
cost of $1,340. Results of the analysis are pending as of the date of this
report.
(c) Meadow Deep and D Sand Leases
In August 1996, Stone Canyon Colorado reached an agreement with several
parties to purchase a cumulative 50% interest in the Meadow Deep and D Sand
Development Leases located in the States of Wyoming and Colorado, which
encompass a total combined area of 5,162.5 acres. Under the agreements, Stone
Canyon Colorado was responsible to pay 100% of the drilling costs of the first
test well drilled in the Meadow Deep leases to earn its 50% after payout
interest. The D Sand Leases were to be drilled on the basis of each respective
party's working interest percentage.
Stone Canyon Colorado acquired a 100% before payout working interest in the
Meadow Deep Prospect, subject to a 7.00% Ad Valorem and Severance Tax, freehold
royalty of 12.5% and gross overriding royalty of 5.0%.
On July 1, 1999, the Meadow Deep leases reverted back to the original lease
holders undeveloped. Accordingly all costs associated with the acquisition of
the leases were expensed in fiscal year ended December 31, 1999. The
acquisition of these leases and their subsequent reversion to the original
lease holders is currently a matter under dispute with certain founding
shareholders of Stone Canyon Colorado which has become part of a legal action
commenced in May 1999 in Denver County, Colorado.
The D-Sand leases expired undeveloped on the following dates: August 6, 1999;
August 13, 1999; August 14, 1999 and September 8, 1999 respectively.
Accordingly all costs associated with the acquisition of the leases were
expensed in fiscal year ended December 31, 1999. See ITEM 3 "LEGAL
PROCEEDINGS".
(d) 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 metres
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 and the Company executed an agreement with Revial
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.
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.US. Stone Canyon Colorado
anticipates abandonment activity will be completed in second quarter of fiscal
year 2000.
Other Requested Information
(1)-(2) Distribution methods; Statutes of publicly announced products- None.
The Company is currently in the development phase of its technologies products.
(3) Competitive Conditions. The oil and gas industry is highly competitive.
The Company faces competition from large numbers of oil and gas companies,
public and private drilling programs and major oil companies engaged in the
acquisition, exploration, development and production of hydrocarbons in all
areas in which it may attempt to operate in the future. Many of the programs and
companies so engaged possess greater financial and personnel resources than the
Company and therefore have greater leverage to use in developing technologies,
establishing plants and markets, acquiring prospects, hiring personnel and
marketing. Accordingly, a high degree of competition in these areas is expected
to continue. The markets for crude oil and natural gas production have increased
substantially in recent years. Oil prices have stabilized generally, but the
world market for crude oil should be considered unstable due to uncertainty in
the Middle East. There is considerable uncertainty as to future production
levels of major oil producing countries. Significant increases in production
could create additional downward pressure on the price of oil. A precipitous
drop in oil & natural gas prices in the future market occurred in January 1998,
but the Company does not expect to be adversely affected further.
(4) Sources of raw materials and names of technologies - None. The Company is
currently in the development phase of its technologies and products. The Company
has executed a license agreement with the Novocherkassk Plant of Synthetic
Products in Rostov, Russia, to utilize its proprietary catalyst. The Company
will purchase the catalyst as required.
(5) Dependence on a Single Customer or a Few Customers - None. The Company
has no customers at this time.
(6) Patents - The Company, through its subsidiaries, has the following
patents and patent applications on file in regards to the Technologies (all of
which have been assigned to one of its subsidiaries):
1. French Patent Application No. 97-10989: A CZERNICHOWSKI, P.
CZERNICHOWSKI "Assistance Electrique D'Oxydation Partelle d'Hydrocarbures Legers
Par L'Oxygene". Filing Date 01.09.97 This patent was issued on October
29, 1999.
2. French Patent Application No. 97-00364: A CZERNICHOWSKI, P.
CZERNICHOWSKI, "Conversion D'Hydrocarbures Assistee par Les Arcs Electrirques
Gissants En Presence De La Vapeur D'Eau Et/ou De Gaz Carbonique". Filing Date:
13.01.97. This patent will be issued effective May 5, 2000.
3. USA and PCT Patent Applications Nos. US5371-00100 and PCT/US98/00393:
A CZERNICHOWSKI, P. CZERNICHOWSKI, "Conversion of hydrocarbons assisted by
Gliding electric arcs in the presence of water vapor and/or carbon dioxide".
Filing date: 12.01.98. This patent was issued on November 30, 1999.
4. USA and PCT Patent Applications Nos US5407-00500 and PCT/US98M8027:
A CZERNICHOWSKI, P. CZERNICHOWSKI, "Electrically assisted partial oxidation of
light hydrocarbons by oxygen". Filing Date: 23.08.98. This patent was issued
on December 28, 1999.
5. French Patent Application No. 981283: P JORGENSEN, "Conversion
Profonde jumelant la demetallisation et la conversion de bruts, residus ou
huiles lourdes en liquides legers, a l'aide de composes oxygens purs ou impurs
(H20, CO2, CO accompangnes de H2, N2 SH2 etc)". Filing date 16.10.98
(7)-(8) Need for Governmental Approval; Government Regulations - The Company
at this time is unaware of any governmental laws, rules or regulations that are
applicable to its operations or those of its subsidiaries. The Company is aware
that in order to commence construction and operation of demonstration plants for
the technologies in the Province of Alberta, Canada, certain approvals from the
Alberta Energy Utility Board and other Alberta regulatory bodies will be
necessary. The Company expects that should it determine to construct the plants
in any jurisdiction that there will be governmental laws, rules or regulations
with which the Company must comply.
(9) Company Sponsored Research and Development
(a) Since the acquisition of the SYNGEN Technology in May 1998, the Company
Has expended $478,859 to the quarter ended March 31, 1999 in the development
thereof in consulting fees and expenses directly related to the "prove-up" of
the SYNGEN Technology.
(b) Since its acquisition in January 1999, the Company has expended
$100,121 to the quarter ended March 31, 1999 in the further research and
development of the CPJ Technology.
ITEM 2. 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 subleases this property from Capital Reserve Canada
Limited at the rate of $12,500 per month. See ITEM 12 "CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS". The Company subleases 4,345 square feet of
office space and 3,950 square feet of laboratory space. These facilities serve
as headquarters and laboratory space for its research and development activities
on its technologies.
(2) 14 Rue Jean Moulin
Orleans, France
The Company rents this property for $1,038 US per month. This
property includes 2,000 square feet and the Company uses these facilities for
its research laboratories where it tests and develops its CPJ and SYNGEN
Technologies. Subsequent to December 31, 1999, the Company, due to the lab
space leased at the Calgary facilities, decided to shut down the laboratories
at the Orleans facility and move to its Canadian facility. This transfer will
be completed by April 2000.
(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.
Oil and Gas Producing Activities
See ITEM 1. DESCRIPTION OF BUSINESS - The Company's Business
- - Business of Stone Canyon Resources Inc. - Oil and Gas Properties.
ITEM 3. LEGAL PROCEEDINGS
Bataa Oil, Inc.
In October 1999, the Company, through its wholly-owned subsidiary, Stone
Canyon Colorado, purchased interests in the leasehold properties described above
in ITEM 2. DESCRIPTION OF BUSINESS - The Company's Business- Stone Canyon
Resources Inc. Through December 31, 1997, the Company 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 the Company,
and the Company paid such amount to the founding shareholders. Bataa Oil, Inc.
served as operator of each lease. The Company also issued 411,842 shares of its
common stock to Bataa and Bataa's designees as part of the consideration for
such properties.
The Company contends that Bataa represented to the Company, its subsidiaries
and/or its affiliates that the price for these properties was set as the price
paid by Bataa for the same. The Company has 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
vendor, G & H Production. 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 such 411,842 shares
of its common stock issued to Bataa Oil and its desginees, as well as the shares
of all founders of the Company.
As a result of this dispute, in May 1999, Bataa Oil, 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 a significant shareholder, 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 (Halladay Stock Transfer Inc.) and other individuals. The
plaintiffs' second complaint also includes causes of action against Synergy 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 Batta 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 plaintifs, claims they are
untrue and is vigorously defending this lawsuit.
Boulder County Litigation
On January 27, 2000, the Company and Texas T Resources, Inc., a Canadian
corporation, filled 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 or 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 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, that Temporary Restraining Order
became a Preliminary Injunction which will remain in effect until the trial in
this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered
by this report to a vote of securityholders.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON COMPANYS COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) The Company's common stock is currently traded on the "OTC/BB" market.
The following table sets forth high and low bid prices of the Company's common
stock for 1999 and 1998.
<TABLE>
High Low
<S> <C> <C>
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
</TABLE>
Such over the counter market quotations reflect interdealer prices, without
retail mark up, mark down or commission and may not necessarily represent actual
transactions.
Stockholders
As of March 2, 2000, the Company had 1,559 shareholders of record of its
common stock reflected onits March 2, 2000 shareholders list.
Dividends
No dividends on outstanding common stock have been paid within the last two
fiscal years, and interim periods. The Company does not anticipate or intend
upon paying dividends for the foreseeable future.
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
excercisable 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.
On November 30, 1998, the Company commenced a private placement of its common
Stock under Rule 504 of Regulation D, promulgated by the Securities Exchange
Commission (the "SEC") under the Securities Act of 1933 (the "1933 Act"), at
$0.50 per Unit. Each Unit consisted of one (1) share of common stock and one
(1) stock warrant. The Units were priced at $0.50 US per Unit. The Company
completed this offering on April 6, 1999, with proceeds of $750,000 for 1.5
million Units. No commission fees or other selling expenses were paid.
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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND CHANGES IN FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's business is the development of technologies related to the oil
and gas industry. During the year ended 1999, the Company conducted financings
and concluded joint development agreements which allowed for the continuing
development of its technologies. Capital from equity issues or borrowings or
partnering with industry partners to fund the on-going technology development is
required to fund future operations. Therefore the financial statements included
in this report for the fiscal years ended December 31, 1999 and 1998 are not
necessarily indicative of the Company's future operations.
Plan of Operation
The Company, as of December 31, 1999, had limited cash resources. It intends
and needs to raise additional funds to meet its cash requirements during the
next twelve (12) months. The Company intends to raise such funds from the sale
of equity securities through private placements.
The Company has advanced funds during the last fiscal year to its
subsidiaries, Carbon Resources, Ltd., Lanisco Holdings, Ltd., and Syngen
Technologies Limited to fund research and development on the SYNGEN Technology
and the CPJ Technology. The amounts advanced were for (a) the design,
development and marketing of a 4 barrel per day demonstration facility in the
Province of Alberta utilizing the SYNGEN Technology; and (b) the design and
development of a 4 Barrel per day demonstration unit utilizing the CPJ
Technology. See ITEM 1. DESCRIPTION OF BUSINESS.
The Company expects its 4 barrel per day SYNGEN Technology pilot plant will be
built and operating in May or June, 2000. The Company is currently installing
its " barrel per day CPJ Technology demonstration unit in its laboratory in
Calgary. It expects to commence testing heavy oil samples in this demonstration
unit during April 2000.
The Company and its partners expect to expend $1.9 million on the construction
of the 4 barrel per day pilot plant in fiscal year 2000 and $138,000 on the CPJ
Technology demonstration unit during the same period.
The Company does not expect any significant changes to its number of
employees. However, the total number of people employed by the Company's
subsidiaries could increase as the above-described pilot plant and demonstration
unit are completed and become operable.
The Company also intends to begin the engineering and construction of a 100
barrel per day heavy oil pilot plant during fiscal year 2000. The total cost of
such is approximated at $2 million to $3.1 million. The Company currently
expects that it will need to find a joint venture partner that would fund such
costs in order to build this pilot plant.
LIQUIDITY
Cash flows from continued operations during 1999 and 1998 reflect new cash
used of $(294,703) and $(664,537) respectively while cash flows provided by
investing activities for the same periods were $(327,053) and $500,138, and cash
flows provided by financing activities were $614,000 and $175,000, respectively.
At December 31, 1999 and 1998 the Company had working capital of $(325,009)
and $(167,495), respectively. If the Company should generate an operating loss
for 2000 comparable to the loss incurred for 1999, its working capital could be
negatively impacted. However, the Company anticipates that its ongoing
financings in conjunction with ongoing development which will bring potential
funding partnerships will generate sufficient revenues to meet operating
expenses. 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 financing or to find joint venture partners for its
technologies then the Company will not have sufficient funds to meet its cash
and operating expense requirements.
During the third quarter of fiscal 1998, the Company completed a private
placement of units of the Company's common stock pursuant to Regulation S. A
total of 350,000 units were sold at a price of $0.50 per unit, each unit
consisting of one share of common stock and one warrant exercisable any time
prior to April 15, 2000 at $1.00 per share. The Company raised gross proceeds
of $175,000.00. No commission fees or other selling expenses were paid.
During the second quarter of fiscal 1999, the Company completed a private
placement of units of the Company's common stock pursuant to 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 a price of $1.00 per share any time
good for three years from the date of issue (check this). The Company raised
gross proceeds of $750,000.00 for 1,500,000 units. No commission or other
selling expenses were paid. Subsequent to the placement a total of 40,000
warrants were exercised at $1.00 per share for a total of $40,000.00.
ASSETS
As at December 31, 1999 the Company had total assets of $ 483,098 compared to
total assets of $695,941 at December 31, 1998. This represents a decrease of
$212,843 which is attributable to the Company's write of the Company's petroleum
interests for the fiscal year. The Company has funded its subsidiaries by way
of loans in the amount of $ 455,550. The remaining assets are cash $3,082,
other receivables of $19,247, prepaid expenses of $3,374, and office equipment
of $1,845.
RESULTS OF OPERATIONS
As of the date of this filing the Company has limited sources of income.
During 1999, the Company relied for the most part upon the sale of stock to pay
its expenses, except for income derived in the amount of $200,000 from an option
on part of its heavy oil technology. Management expects to get some income from
fees from clients for testing of their heavy oil samples, however the fees will
be minimal as compared to the funds required for the ongoing development of the
Company's technologies. The Company must be able to raise funds either by
borrowing, equity financings or agreements for licensing or the joint venture of
the technologies currently under development by the Company.
The Company's net operating loss for 1999 increased by 28% due to increases in
Drilling operations, general and administrative, and professional fees. The
Company's loss from continuing operations in 1999 was $1,008,036, compared to a
loss of $790,204 in 1998.
The Company's operating expenses were comprised primarily of oil and gas
drilling costs and the write off of oil and gas assets $551,191, advertising and
marketing $28,613, investor relations $83,590, and professional fees of
$307,496, administrative fees of $48,000, management fees of $78,000, corporate
development fees of $90,000 consulting fees of and office expenses of $21,146.
The Company's working capital could be negatively impacted in fiscal year 2000
By operating expenses and the Company may not be able to continue operations
unless it can raise further funding.
The Independent Auditors' Report states that substantial doubt has been raised
about the Company's ability to continue as a going concern. 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.
Synergy Technologies has advanced funds totaling $355,550 for the development
of two proprietary and patented technologies to three related corporations which
will become subsidiaries of Synergy upon fulfillment of the terms of certain
share exchange agreements. See Item 1, Description of Business - General
Description and Development of Business. In addition, these related
Corporations have been advanced additional funds totaling $190,582 from Texas T
Petroleum Ltd., joint venture partner in the CPJ technology and $436,265 has
been charged to Stone Canyon Resources Ltd. for reimbursements of SYNGEN
development costs to December 31, 1999 under the terms of a joint development
agreement.
ITEM 7. FINANCIAL STATEMENTS
The following documents are filed as a part of this report:
Financial Statements: (See Financial Exhibits Index below and Financial
Exhibits furnished as Pages F-1 through F-14 at the end of this report).
(INDEX TO FINANCIAL STATEMENTS AND SUPPORTING SCHEDULES)
Page
Report of Independent Public Accountants F-3
Financial Statements:
Consolidated Balance Sheet - Dec. 31, 1999 F-4
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-5
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
For the Cumulative Period from November 6, 1996 (Date of Inception)
Through December 31, 1999 F-6
Consolidated Statement of Cash Flows F-7
Notes to Consolidated Financial Statements F-8-16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
(a) 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 preceeding 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.
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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Officers of the Company and its Subsidiaries
a. Management of the Company
The following table furnishes the information concerning the directors of the
Company as of DATE 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
Cameron Haworth 39 President, Director 12/97 to Present
James Shone 25 Director 12/97 to Present
Jacqueline Danforth 27 Secretary/Treasurer, Director 12/97 to Present
John Gradek Director 09/99 to Present
</TABLE>
Mr. Cameron Haworth, B.Sc. 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 is currently 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, 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 & 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.
James Shone, B.Comm., 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. John Gradek, Director Mr. Gradek has been a director of the Company since
September 14, 1999. Mr. Gradek has worked for Canadian Pacific Railway during
the last six years and is currently the Director of Capacity Planning.
Previously, Mr. Gradek was employed by Canadian Pacific as Director of
Locomotive Fleet Management and as a key participant in the corporations 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 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.
b. Management of Stone Canyon Colorado (a wholly-owned
subsidiary of the Company)
Directors and Officers of Stone Canyon Colorado are as follows:
<TABLE>
<S> <C> <C> <C>
Name Age Title Term of Service
Cameron Haworth 39 President, Director 12/97 to Present
James Shone 25 Director 12/97 to Present
Jacqueline Danforth 27 Secretary/Treasurer, Director 12/97 to Present
</TABLE>
For information on Cameron Haworth, Jacqueline Danforth and James Shone, see
"Management of Synergy Technologies Corporation", above.
c. Management of Carbon Resources Limited
Directors and Officers of Carbon Resources Limited are as follows:
<TABLE>
<S> <C> <C> <C>
Name Age Title Term of Service
Thomas E. Cooley 58 President, Director 05/98 to Present
Jacqueline Danforth 27 Director 05/98 to Present
Dema Consultants Ltd. - Secretary 05/98 to Present
</TABLE>
Thomas Cooley, P.E.- Mr. Cooley has been the President and director of Carbon
since May 1998 and has been a director of SynGen Technologies Limited since
June 25, 1999. Mr. Cooley is the former President of Kvaerner Membrane Systems,
a company which supplies polymeric membrane based systems worldwide for CO2
removal. A well regarded process engineer, he pioneered the use of membranes
for natural gas treating and has been active in the field for over 20 years.
Mr. Cooley received his B.S. in Chemical Engineering from Rice University and
is a registered P.E. in both Texas and Alberta. He is often referred to as the
"father of natural gas treating membranes". Mr. Cooley holds three U.S.
patents. Mr. Cooley is an officer and director of Media Dreams, dba Glidarc
Technologies (see " CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS").
Dema Consultants Ltd., a Cyprus corporation, is the registered secretary of
Carbon.
For information on Jacqueline Danforth, see "Management of Synergy Technologies
Corporation", above.
d. Management of SynGen Technologies Limited
Directors and Officers of SynGen Technologies Limited are as follows:
<TABLE>
<S> <C> <C> <C>
Name Age Title Term of Service
Jacqueline Danforth 27 Director 6/25/99 to Present
Thomas E. Cooley 58 Director 6/25/99 to Present
Dema Consultants Ltd. Secretary 6/25/99 to Present
</TABLE>
For information on Ms. Danforth, see "-Management of Synergy Technologies
Corporation" above; for information on Mr. Cooley, see "-Management of Carbon
Resources Limited" above.
The Board of Directors of SynGen has no nominating, auditing or compensation
committee.
The term of office for each director is one (1) year, or until his/her
successor is elected at the Company's annual meeting and qualified. The term of
office for each officer of the Company is at the pleasure of the board of
directors.
Identification of Significant Employees
Dr. Albin Czernichowski Dr. Czernichowski, who is the co-inventor of the
SYNGEN process, currently teaches and performs his research as the 1st class
professor at the University of Orleans (France). A graduate in Chemical
Engineering at the Technical University of Wroclaw (Poland), he also received
his Ph.D. and Habilitation grades in Physical Chemistry and then the full
professor position (1979). For almost 40 years he has been involved in
different fields of Plasma Chemistry. Supervisor of 21 Master's and 18 Ph.D
theses, he is the author of 6 monographs and textbooks, 63 papers published in
scientific journals, 155 other papers (conferences, communications), 30 patents
and more than 62 reports. For the past 10 years he has been developing plasma
reactors for hydrocarbon conversion processes such as heavy hydrocarbons
cracking and hydrogenation, light hydrocarbons cracking, reforming or partial
oxidation in order to produce H2, CO, C2H2, C2H4 as well as the hydrogen sulfide
destruction and its full or partial alorization for oil & gas industry and
geothermy. Work related to environmental clean up has included such
applications as VOC abatement in flue gases, flue-gas SOX or NOX reduction to
elements, soot after-burning, and CO2 dissociation.
Robert W. Cooley Mr. Cooley who is currently involved in project management
for SynGen Technologies and Carbon holds a degree in Business Administration
from Texas A & M University. Since his graduation in 1972, Mr. Cooley has been
employed with a number of major manufacturers related to the oil and gas
industry, holding positions in marketing, sales and project mangement. Mr.
Cooley's most recent employment was in the capacity of Manager, Projects, for
Kvaerner Membrane Systems from 1994 to 1998 during which time his
responsibilities included overseeing of engineering design and project
management.
Family Relationships
Robert Cooley is the brother of Thomas Cooley.
ITEM 10. EXECUTIVE COMPENSATION
Cash Compensation
Compensation paid by the Company for all services provided during the three
fiscal years ended December 31, 1997, 1998 and 1999 to each of the Company's
five most highly compensated executive officers whose cash compensation exceeded
$60,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF EXECUTIVES
----------------------------------------
Annual Compensation
<S> <C> <C> <C> <C>
(a) (b) (c) (e) (i)
Name and Principal Year Salary($) Other Annual Other
Position Compensation
Jacqueline Danforth
Secretary/Treasurer
and Director 1997 0 0 0
Jacqueline Danforth
Secretary/Treasurer
and Director 1998 0 0 0
Jacqueline Danforth
Secretary/Treasurer
and Director 1999 0 0 0
Cameron Haworth
President/Director 1997 0 0 0
Cameron Haworth
President/Director 1998 0 0 0
Cameron Haworth
President/Director 1999 0 0 0
Thomas Cooley,
President of Carbon
Resources Limited 1998 81,666.62* 0 $932
Thomas Cooley,
President of Carbon
Resources Limited 1999 8,000.00 0 175,200
</TABLE>
*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.
Compensation Pursuant to Management Contracts.
Ms. Danforth receives $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 did not pay any compensation services provided as directors during
the fiscal year ended December 31, 1999.
Termination of Employment and Change of Control Arrangements
None.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Beneficial owners of five percent (5%) or greater, of the Company's Common
Stock based upon 26,285,442* shares issued and outstanding as at March 2, 2000.
(This figure does not include 1,683,000 unexercised share purchase warrants.)
No Preferred Stock is outstanding as of the date hereof.
Title Name and Amount and Percent
of Address of Nature of of
Class Beneficial Owner Beneficial Owner Class
Common shares Laxarco Holding Limited 10,000,000** 38%
2 Sofouli Street, Nicosia
Cyprus 1522
Held directly
*This figure includes 411,842 shares that the Company contends has been
fraudulently obtained and seeks the return thereof to treasury. See Item -
LEGAL PROCEEDINGS.
** This figure does not include 3,000,000 shares reserved for issue but not yet
issued as of the date of this filing
(b) The following sets forth information with respect to the Company's Common
Stock beneficially owned by each Officer and Director, and by all Directors and
Officers as a group as of March 2, 2000.
Title of Class Name of Beneficial Owner Amount and Nature of Percent of Class
Beneficial Ownership
Common Thomas Cooley- 477,000 shares owned 1.8%
Director and Officer directly
of Carbon Resources
Limited (1)
Common Cameron Haworth (2) 107,000 shares owned
directly 0.40%
Common James Shone 100,000 shares owned 0.38%
Director of Synergy directly
Technologies
Corporation and
Stone Canyon Colorado
Inc. (3)
Common Jacqueline Danforth 433,357 shares owned 1.6%
Director and Officer directly; 114,857 shares
of Synergy Technologies beneficially owned by
Corporation, Carbon Argonaut Management
Resources Limited, Group, of whom Jacqueline
SynGen Technologies Danforth is the sole
Limited and Stone shareholder, officer and
Canyon Colorado (4) director
Common shares held 1,117,357 shares 3.9%
by directors and
officers as a group
FN 1 These shares are owned jointly by Mr. Cooley and his wife, Carolyn Cooley
FN 2 This number of shares includes options for 100,000 shares which Mr.
Haworth has the right to acquire within sixty (60) days.
FN 3 This number of shares includes options for 100,000 shares which Mr. Shone
has the right to acquire in sixty (60) days.
FN 4 This number of shares includes options for 250,000 shares which Ms.
Danforth has the right to acquire within sixty (60) days.
ITEM 12. CERTAIN RELATIONSHIPS AND 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 excercisable 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.
To the fiscal year ended December 31, 1999, Stone Canyon Resources Inc. (a
wholly owned subsidiary of Synergy Technologies) was charged $US18,000 for
management services (1998 - $18,000) and $2,021 for 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. Synergy
retired an additional $53,500 of the outstanding loans payable over fiscal 1998
and as at December 31, 1998 $42,236 remained due to Stone Canyon Resources Ltd.
Please note the amount payable reported above includes certain invoiced expenses
incurred during the general course of business.
During the fiscal year ended December 31, 1999, Stone Canyon Resources Ltd.
advanced an additional $116,447 to Synergy as general working capital. As at
December 31, 1999, Synergy had remitted total payments of $151,903 towards the
outstanding loans payable and their remained a total amount due to Stone Canyon
Resources Ltd. of $6,814.
During the fiscal year ended December 31, 1998, Stone Canyon Resources Inc. (a
wholly owned subsidiary of Synergy Technologies Corporation) received cash
advances from Stone Canyon Resources Ltd. (the private Alberta corporation) of
$90,492. Stone Canyon Resources Inc. retired $40,982 of the outstanding loans
payable over fiscal 1998 and as at December 31, 1998, $49,480 remained due to
Stone Canyon Resources Ltd. Please note the amount payable reported above
includes certain invoiced expenses incurred during the general course of
business.
During the fiscal year ended December 31, 1999, Stone Canyon Resources Ltd.
advanced an additional $4,433 as general working capital, with no further
payments remitted by Stone Canyon Resources Inc. during fiscal 1999 to reduce
the loan account. As at December 31, 1999 $51,027 remained due and payable to
Stone Canyon Resources Ltd.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
Index
Number Description Reference
2.1 Articles of Incorporation filed with the *
Secretary of State February 10, 1997.
2.2 Articles of Exchange by and between *
Automated Transfer Systems, Inc. and
Stone Canyon Resources, Inc. filed with
the Secretary of State November 24, 1997
2.3 Amendment to the Articles of
Incorporation filed with the Secretary of
State March 2, 1999. *
3.1 Specimen Certificate of Common Stock
par value $0.002 per share *
6.1 Assignment of Technology Agreement by
and between Laxarco Holding Limited and
Carbon Resources Limited dated May 1,
1998 *
6.2 Share Exchange Agreement by and among
Laxarco Holding Limited, Carbon
Resources Limited, The Company and
Stone Canyon Resources, Ltd. dated May
5, 1998 *
6.3 Escrow Agreement by and between the
Company and Laxarco Holding Limited
dated May 16, 1998 *
6.4 Agreement for Investor Relations Services
and Compensation by and between Lance
W. Bauerlein and the Company dated
August 20, 1998. *
6.5 Assignment of Technology by and between
Pierre Jorgensen and Lanasco Holdings, a
subsidiary of the Company, dated January
6, 1999. *
6.6 Agreement by and between the Company *
and Eisenberg Communications effective
February 16, 1999.
6.7 Agreement of Purchase and Sale by and *
between Revival Resources Ltd., Stone
Canyon Resources, Inc. and the Company
dated March 22, 1999.
6.8 Option letter agreement between Laxarco *
Holding Ltd., Texas T Petroleum and the
Company dated June 25, 1999.
6.9 Amendment No. 1 to the Assignment of *
Technology Agreement by and between
Laxarco Holding Limited and Carbon
Resources Limited dated June 25, 1999. *
6.10 Amendment No. 1 to the Share Exchange
Agreement by and between Laxarco Limited,
Carbon Resources Limited, the Company
and Stone Canyon Resources Ltd. dated
June 25, 1999. *
6.11 Amended and Restated Escrow Agreement
by and among the Company and Laxarco
Holding Limited dated June 25, 1999. *
6.12 Share Exchange Agreement by and between
Laxarco Holding Limited, Carbon Resources
Limited and the Company dated June
25, 1999. *
6.13 Share Exchange Agreement between Texas T
Petroleum Ltd. and the Company dated
June 25, 1999. *
7.1 French Patent Application No. 97-10989: A *
CZERNICHOWSKI, P. CZERNICHOWSKI
"Assistance Electrique D'Oxydation Partelle
d'Hydrocarbures Legers Par L'Oxygene".
Filing Date: 01.09.97 ; accepted on October
20, 1997.
7.2 Notice of Recordation of Assignment Document, *
United States Patent and Trademark Office,
serial number 09144318, recordation dated
08/31/1998,with Assignment of Assignor's
Interest, assigning to Laxarco Holding
Limited all rights in French Patent
Application No. 97-10989.
7.3 French Patent Application No. 97-00364: A *
CZERNICHOWSKI, P. CZERNICHOWSKI,
"Conversion D'Hydrocarbures Assistee par
Les Arcs Electrirques Gissants En Presence
De La Vapeur D'Eau Et/ou De Gaz Carbonique".
Filing Date: 13.01.97; this patent will be
issued effective May 5, 2000.
7.4 Notice of Recordation of Assignment Document, *
United States Patent and Trademark Office,
serial number 09005647, recordation dated
10/19/1998, with Assignment of Assignor's
Interest, assigning to Laxarco Holding
Limited all rights in French Patent Application
No. 97-00364.
7.5 French Patent Application No. 981283: P *
JORGENSEN, "Conversion profonde jumelant la
demetallisation et la conversion de bruts,
residus ou huiles lourdes en liquides legers,
a l'aide de composes oxygens purs ou impurs
(H20, CO2, CO accompangnes de H2, N2 SH2 etc)".
Filing date 16.10.98.
7.6 USA and PCT Patent Applications Nos.US5371-00100
and PCT/US98/00393: A CZERNICHOWSKI, P. CZERNICHOWSKI,
"Conversion of hydrocarbons assisted by gliding
electric arcs in the presence of water vapor and/or
carbon dioxide". Filing date: 12.01.98. This patent
was issued on November 30, 1999. Filed herewith
7.7 USA and PCT Patent Applications Nos US5407-00500
and PCT/US98M8027: A CZERNICHOWSKI, P. CZERNICHOWSKI,
"Electrically assisted partial oxidation of light
hydrocarbons by oxygen". Filing Date: 23.08.98.
This patent was issued on December 28, 1999. Filed herewith
23 Consent of Hansen, Barnett & Maxwell *
SUPPLEMENTAL OIL AND GAS INFORMATION
Certain of the Company's undeveloped oil and gas properties are located within
The continental United States and the balance of undeveloped properties are
located in Alberta, Canada. No reserve studies have been done, nor is it
feasible to reliably estimate reserves on the small working interests of the
Company.
Present Value of Estimate Future Net Revenues From Proved Developed Oil and
Gas Reserves. None can be made due to the insubstantial, uncertain nature of the
working interests in non-producing wells owned by the Company.
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: April 12, 2000.
SYNERGY TECHNOLOGIES CORPORATION
By: Cameron Haworth
- -------------------------
Name: Cameron Haworth
Title: President
Directors:
Cameron Haworth
- ------------------------
Jacqueline R. Danforth
- ------------------------
John Gradek
- ------------------------
James Shone
- ------------------------
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
AND
FINANCIAL STATEMENTS
December 31, 1999 and 1998
F-1
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Report of Independent Certified Public Accountants 1
Financial Statements:
Consolidated Balance Sheet - December 31, 1999 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 3
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Cumulative Period from November 7, 1996
(Date of Inception) to December 31, 1999 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 5
Notes to Consolidated Financial Statements 6
<TABLE/>
F-2
<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 subsidiary (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 generally accepted auditing standards. 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 subsidiary 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 generally accepted accounting principles.
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-3
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1999
</TABLE>
<TABLE>
ASSETS
<S> <C>
Current Assets
Cash $ 3,082
Receivables - related parties 455,550
Receivable - other 19,247
Prepaid expenses 3,374
Total Current Assets 481,253
Petroleum and natural gas interests -
Office equipment and computers net of accumulated
depreciation of $261 and $0, respectively 1,845
1,845
Total Assets $ 483,098
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses $ 605,308
Investor deposits -
Loans payable 131,784
Loans payable - related party 71,015
Total Current Liabilities 808,107
Stockholders' Equity (Deficit)
Common stock, $0.002 par value; 100,000,000
shares authorized, 11,989,327 and 10,332,526 issued 23,980
Additional paid-in capital 1,484,455
Accumulated deficit (1,833,444)
Total Stockholders' Equity (Deficit) (325,009)
Total Liabilities and Stockholders' Equity $ 483,098
<TABLE/>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
</TABLE>
<TABLE>
<S> <C> <C> <C>
Cumulative From
November 7, 1996
(Date of Inception)
For the Years Ended Through
December 31, December 31,
1999 1998 1999
Revenue
Option income $ 200,000 $ - $ 200,000
General and Administrative Expenses
Advertising and marketing 28,613 162,268 196,465
Dry well expense 551,191 171,019 722,210
General and administrative 237,146 139,417 393,302
Investor relations 83,590 231,441 315,031
Professional fees 307,496 86,059 406,436
Total Expense 1,208,036 790,204 2,033,444
Loss for Period (1,008,036) (790,204) (1,833,444)
Provision for Income Tax - - -
Net Loss $(1,008,036) $ (790,204) $(1,833,444)
Basic and Diluted Loss Per
Common Share $ (0.09) $ (0.08) $ (0.21)
Weighted Average Number of Common
Shares Used in Calculation 11,671,768 10,074,317 8,613,950
<TABLE/>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT CHANGES IN STOCKHOLDERS' EQUITY DEFICIT
FOR THE CUMULATIVE PERIOD FROM NOVEMBER 7, 1996
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity(Deficit)
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
Unexchanged certificates (7,143) (13) - - (13)
Shares issued in recapitalization 2,549,500 5,099 (5,099) - -
Shares issued in satisfaction of debt,
October 1997, $0.10 per share 4,539,162 9,078 444,838 - 453,916
Net loss for the year - - - (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 350,000 700 174,300 - 175,000
Net loss for the year - - - (790,204) (790,204)
Balance at December 31, 1998 10,332,526 20,666 637,247 (825,408) (167,495)
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 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 for the year - - - (1,008,036) (1,008,036)
Balance at December 31, 1999 11,989,327 $ 23,980 $1,484,455 $(1,833,444)$ (325,009)
<TABLE/>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<S> <C> <C> <C>
Cumulative From
November 7, 1996
(Date of Inception)
For the Years Ended Through
December 31, December 31,
1999 1998 1999
Cash From Operating Activities
Net loss $(1,008,036) $ (790,204) $(1,833,444)
Adjustment to reconcile net loss
net cash from operations:
Dry well expense 551,191 171,020 722,211
Depreciation 261 - 261
Exchange rate loss 1,773 918 4,086
Changes in assets and liabilities:
Accounts receivable (18,582) 13,772 (19,247)
Prepaid expenses and deposits (1,625) 8,238 (3,388)
Accounts receivable - related parties (150,718) (304,832) (455,550)
Accounts payable 331,033 236,551 605,308
Net Cash Flows From Operating Activities (294,703) (664,537) (979,763)
Cash Flows From Investing Activities
Acquisition of oil and gas properties (141,085) (89,023) (688,188)
Acquisition of property and equipment (2,106) - (2,106)
Disposition of investors deposits - 245,830 245,830
Proceeds (payments)from notes payable
- related parties (180,296) 251,311 524,931
Proceeds from notes payable (3,566) 92,020 88,454
Net Cash Flows From Investing Activities (327,053) 500,138 168,921
Cash Flows From Financing Activities
Sales of common stock 614,000 175,000 818,010
Net Cash Flows From Financing Activities 614,000 175,000 818,010
Effect of Exchange Rate Changes on Cash (1,773) (918) (4,086)
Net Change in Cash (9,529) 9,683 3,082
Cash at Beginning of Period 12,611 2,928 -
Cash at End of Period $ 3,082 $ 12,611 3,082
<TABLE/>
The accompany notes are an integral part of these financial statements.
F-7
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Synergy Technology Corporation (formerly Automated
Transfer Systems Corporation) (Synergy , was incorporated in Colorado on
February 10, 1997. Stone Canyon Resources, Inc. ("Stone Canyon" was
incorporated in Colorado on November 7, 1996. Both companies have been involved
in acquiring and developing mineral, oil and gas resources, and technologies
related to those resources. Stone Canyon's operations began in 1997.
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 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 merger has been accounted
for as the reorganization of Stone Canyon. 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.
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.
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 market and through arrangements with
related companies with which it is negotiating mutually beneficial agreements
for the use of certain technology. 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 acquiring certain technology; 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.
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.
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:
</TABLE>
<TABLE>
<S> <C>
Estimated
Useful Life
Furniture and fixtures 3-7 years
Computer equipment 5 years
<TABLE/>
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 - Prior financial statements have been
restated to exclude certain contracts for the acquisition of a business wherein
the issuance of shares is contingent upon a third party verifying that certain
technology had reached specific levels of viability. As a result, previously
recorded technology associated with the acquisition and other assets and
liabilities have also been excluded from the financial statements as a result of
the restatement. See Note 9 for a discussion of these contingent agreements.
NOTE 2 RELATED PARTY TRANSACTIONS
Tansactions with Subsidiaries - The receivables from related parties
represent funds advanced to related corporations which will become subsidiaries
of the Company upon fulfilment of the terms of certain share exchange
agreements. (See Note 9) The amounts discussed below represent funds advanced
for the design, development and marketing of a 4bbl per day demonstration
facility in the Province of Alberta utilizing proprietary SYNGEN technology and
the design and development of a 1/2 barrel demonstration unit utilizing the
proprietary CPJ Process. The amount recorded as a receivable on the balance
sheet includes project development costs chargeable to the 4 bbl per day SYNGEN
demonstration facility and the 1/2 barrel CPJ unit . The accounts bear no
interest and are subject to no specific terms of repayment. These receivables
are as follows:
</TABLE>
<TABLE>
<S> <C> <C>
1999
Carbon Resources, Ltd. $ 116,595
Lanisco Holding, Ltd. 108,354
Syngen Technologies, Ltd. 230,601
Total Related Party Receivable $ 455,550
<TABLE/>
Other Related Party Transactions
(I) During the fiscal year ended December 31, 1999, Synergy Technologies was charged
a total of $32,800 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 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, which amount is
reflected on the Balance Sheet in accounts payable and accrued liabilities.
(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 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 $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
US$62,343 in April 1999.
To the fiscal year ended December 31, 1999, Stone Canyon
Resources Inc. (a wholly owned subsidiary of Synergy Technologies) was charged
$18,000 for management services and $2,021 for rent by CMJ Consulting Ltd.
As at September 30, 1999 the common officer and director resigned from CMJ Consulting Ltd.
making the company an arm's length corporation.
(III) 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. Synergy retired an additional
$53,500 of the outstanding loans payable over fiscal 1998.
During the fiscal year ended December 31, 1999, Stone Canyon Resources Ltd. advanced
an additional $116,447 to Synergy as general working capital.
During the fiscal year ended December 31, 1998, Stone Canyon Resources Inc. (a wholly
owned subsidiary of Synergy Technologies Corporation) received cash advances from
Stone Canyon Resources Ltd. (the private Alberta corporation) of $90,492. Stone
Canyon Resources Inc. retired $40,982 of the outstanding loans payable over fiscal 1998.
During the fiscal year ended December 31, 1999, Stone Canyon Resources Ltd. advanced
an additional $4,464 as general working capital to Stone Canyon Resources Inc.
As at December 31, 1999 consolidated Loans payable to Related Parties were as follows:
</TABLE>
<TABLE>
<S> <C>
1999
Stone Canyon Resources Ltd. $ 57,872
CMJ Consulting Ltd. 13,143
Total Related Party Receivable $ 71,015
<TABLE/>
Other related party amounts reflected on the Balance Sheet in accounts payable and accrued liabilities are as follows:
</TABLE>
<TABLE>
<S> <C>
1999
Stone Canyon Resources Ltd. $ -
CMJ Consulting Ltd. 119,976
Total Related Party Receivable $ 119,976
<TABLE/>
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 $19,247.
NOTE 4 - OIL AND GAS LEASES
(A) 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 Colorado in October 1996, reverted
back to the original lease holders undeveloped and certain development leases
known as the "D-Sand" also acquired by Stone Canyon Resources Inc. under a
farmout agreement with certain founding shareholders October 1996 expired
undeveloped on the following dates:
August 6, 1999; August 13, 1999; August 14, 1999 and September 8, 1999
respectively.
Accordingly during the year ended December 31, 1999, the Company wrote off
these oil and gas leases. (See Note 8 - Litigation)
(B) Wilson Creek
Subsequent to year end Stone Canyon Colorado 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 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% BPO interest is
US$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.
(C) Hell's Canyon and Rose Creek
During fiscal 1999 Stone Canyon Colorado 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 Colorado continued to remit lease
rental payments for the Hell's Canyon leases to keep their 5% interest current.
Stone Canyon Colorado 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 $131,784 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 Resources Inc.'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 are comprised of
the following at December 31, 1999 and 1998:
</TABLE>
<TABLE>
<S> <C> <C>
1999 1998
Operating loss carry forwards. . . . . $680,899 $304,628
Organizational costs . . . . . . . . . 2,437 3,249
Less: Valuation allowance. . . . . . . (683,336) (307,877)
Net Deferred Tax Asset . . . . . . . . $ $
<TABLE/>
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:
</TABLE>
<TABLE>
<S> <C> <C>
1999 1998
Tax benefit at statutory rate (34%). . $ (342,732) $(268,669)
Non-deductible expenses. . . . . . . . 538 -
State taxes, net of federal benefit. . (35,265) (26,077)
Deferred tax asset valuation change. . 377,469 294,746
Total Income Tax Benefit . . . . . . . $ $
<TABLE/>
As of December 31, 1999, the Company had U.S. operating loss carry orwards of
approximately $1,825,468 which will expire if not used by 2019.
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 proceeds of $175,000 on the sale of 350,000 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 in April 1999, with proceeds of $750,000 for
1,500,000 Units. No commission fees or other selling expenses were paid.
The warrants associated with the private placements were not allocated any of
the unit purchase price for financial reporting. Subsequent to the placements,
warrants were exercised for 40,000 shares at the exercise price of $1.00 per
share. As of December 31, 1999, there were 1,810,000 warrants outstanding.
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.
As further discussed in Note 8, "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 certain technology 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.
In October 1999, the Company, through its wholly-owned subsidiary, Stone Canyon
Colorado, purchased interests in certain leasehold properties described above in
Note 4 - Oil and Gas Leases. Through December 31, 1997, the Company 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 the Company,
and the Company paid such amount to the founding shareholders. Bataa Oil, Inc. also
served as operator of each lease. The Company also issued 411,842 shares of its common
stock to Bataa and Bataa's designees as part of the consideration for such properties.
The Company contends that Bataa represented to the Company, its subsidiaries
and/or its affiliates that the price for these properties was set at the price paid
by Bataa for the same. The Company has since learned that Bataa*s cost 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 G & H Production. 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 which the Company was not apprised 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 such 411,842 shares of its common stock issued to Bataa Oil and its desginees.
As a result of this dispute, Bataa, 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 Colorado and a significant shareholder, Stone
Canyon Canada, which was previously the Company's sole controlling shareholder. The
original complaint asserted only one claim (Breach of Fiduciary Duty and manitory
injunction) against the Company to compel itto 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 Comapny's transfer agent
(Holladay Stock Transfer Inc.) and other individuals. The plaintiffs second complaint
also includes causes of action against Synergy for conversion, civil conspiracy and
unjust enrichment. The Company's Answer and Counterclaims denied all material allegations,
asserted numerous affirmative defenses asd asserted counterclaims against Plaintiffs Batta
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 plaintifs, claims they are untrue and is
vigorously defending this lawsuit.
On January 27, 2000, the Company and Texas T Resources, Inc., a Canadian corporation,
filled 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 or 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 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, that
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 Canyon Resources Ltd. ("Stone-
Canada"), whereby Stone-Canada committed to fund the design and construction of
a 4 bbl per day demonstration facility in the Province of Alberta in exchange
for the Canadian marketing and licensing rights to Synergy's proprietary Gas to
Liquids technology.
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 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 patent pending 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. 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.
Effective January 1999, Carbon incorporated a wholly owned subsidiary, Lanisco
Holdings Limited, to acquire the rights to a second patent pending technology,
the CPJ process, subject to funding commitments.
Effective June 25, 1999, Carbon, Laxarco Holdings 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. The remaining 1,250 shares of Carbon and the 3,000,000 shares of Synergy
Technologies Corporation were placed with the escrow agent. Should Synergy fail
to fulfill the terms of the technology transfer agreement, the shares of Carbon
revert back to Laxarco Holdings Ltd. and the shares of Synergy Technologies
Corporation return to treasury.
To facilitate an agreement with respect to the CPJ process, Carbon, Laxarco
Holdings 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 Corporation and Texas T Petroleum Ltd. (a
private Colorado corporation) entered into an agreement whereby Texas T
Petroleum was granted the right to acquire 50% of the shares of Carbon Resources
Limited (and thereby acquire a 50% interest in the CPJ Process), in exchange for
the payment to Synergy Technologies of $100,000 to acquire the option on the
technology, US$1M towards development of the technology and the issuance to
Synergy of 2,000,000 Units of the common stock of Texas T Petroleum Ltd., each
Unit consisting of one common share and one share purchase warrant. Texas T
Petroleum Ltd. will acquire its 50% interest in Carbon upon fulfillment of the
terms of the June 26, 1999 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. Syngen acquired the rights to the
SYNGEN technology in June 1999 by way of a transfer from Carbon Resources
Limited ("Carbon"). Under the terms of the acquisition agreements Syngen and
Synergy Technologies Corporation agreed to be bound by the terms and conditions
of the two previously executed share exchange agreements. The agreements granted
Synergy the rights to the issued shares of Carbon, which held the rights to the
SYNGEN technology. The share exchange agreements granted Synergy Technologies
Corporation the right to acquire all of the issued and outstanding shares of
Syngen. 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
US$1M 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 US$1M 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).
A further agreement entered into in January 1999 and finalized June 26, 1999,
between Synergy Technologies Corporation (the 100% shareholder of Carbon
Resources Limited) and Texas T Petroleum Ltd. (a private Colorado corporation)
granted Texas T Petroleum the right to acquire 50% of the shares of Carbon
Resources Limited (and thereby acquire a 50% interest in the CPJ technology), in
exchange for the payment to Synergy Technologies of $100,000 to acquire an
option on the technology, US$1M towards development of the technology and the
issuance of 2,000,000 Units of the common stock of Texas T Petroleum Ltd.,
each Unit consisting of one common share and one share purchase warrant. Synergy
Technologies Corporation advanced the $100,000 to Lanisco Holdings Limited
which acquired 1,000,000 Units of Texas T Petroleum Ltd. at a deemed price of
$0.10 per share and registered these shares in the name of Lanisco Holdings Limited.
2,000,000 Units of the common stock of Texas T Petroleum and 2,500 shares of the
common stock of Carbon Resources are held in escrow subject to Texas T successfully
fulfilling the terms of the agreement.
At December 31, 1999, Lanisco, Carbon Resources and Texas T Petroleum Ltd. are
working 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 summer
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 1999at $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 a further
10,000 Units were sold in January 2000 for total proceeds of $5,000. A total of
63,000 Units were sold under the placement for total proceeds of $31,500.
Pursuant to a Financing and Security Agreement executed January 14, 2000 by and
between Stone Canyon Resources Ltd. and Synergy Technologies Corporation
(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 barrel SYNGEN demonstration
facility, Stone Canyon Resources Ltd. has agreed to hold an equal amount of
funds receivable by way of a refund from Natural Resources Canada, in trust as
collateral for a period of 90 days following the initial start up of the SYNGEN
demonstration facility, at which time the Lenders may choose either (i) to
convert the loaned amount to shares of Synergy Technologies or (ii) a
release of funds held in trust at which time Stone Canyon Resources Ltd. would
receive the shares of Synergy Technologies Corporation.
Pursuant to a second Financing and Security Agreement executed January, 2000 by
and between Stone Canyon Resources Ltd. and Synergy Technologies Corporation
(collectively the "Borrowers") and Caribbean Overseas Investment Ltd. (the
"Lender") under the same exact terms as disclosed above, a further $50,000 in
loan proceeds was received.
In January 2000 Synergy approved the implementation of 3 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 the date of
this report a total of 80,000 options had been exercised.
In January 2000 Synergy approved the implementation of a Year 2000 Stock Award
Plan totaling 1,500,000 common shares under which certain employees and
consultants may be granted shares or options to purchase shares at exercise
price to be determined by the Board of Directors or its designees in exchange
for bonafide services actually rendered to the Company to the period ended
January 31, 2000. During February 2000 the Company filed with the Securities
and Exchange Commission a Registration Statement on Form S-8 in respect of this
Plan. As of the date of this report a total of 1,107,958 shares had been issued
under this plan.
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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYNERGY
TECHNOLOGIES COPORATION'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> DEC-31-2000
<CASH> 3,082
<SECURITIES> 0
<RECEIVABLES> 19,247
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 481,253
<PP&E> 0
<DEPRECIATION> 261
<TOTAL-ASSETS> 483,098
<CURRENT-LIABILITIES> 808,107
<BONDS> 0
0
0
<COMMON> 23980
<OTHER-SE> (1833444)
<TOTAL-LIABILITY-AND-EQUITY> 483,098
<SALES> 0
<TOTAL-REVENUES> 200,000
<CGS> 0
<TOTAL-COSTS> 1,208,036
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,008,036)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,008,036)
<EPS-BASIC> (0.09)
<EPS-DILUTED> 0
</TABLE>
