SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 2 TO
|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 May 8, 2000: $
20,611,875 (See Item 5).
Number of shares outstanding of the Company's Common
Stock, $0.002 par value, as of May 8, 2000:
13,625,600 (See Note 9 to the accompanying Audited
Financial Statements.
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check
one): Yes__ No X
PART I
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. . . . . . . . . . . -6-
2. The Process . . . . . . . . . . . . -6-
b. Business of SynGen Technologies Limited . -7-
1. The Gas-To-Liquids (SYNGEN) Technology-8-
2. Standard System . . . . . . . . . . -9-
3. The Market. . . . . . . . . . . . . -9-
(a) Shell Oil Company . . . . . . -9-
(b) Exxon . . . . . . . . . . . . -9-
(c) Statoil of Norway . . . . . .-10-
(d) Sasol. . . . . . . . . . . . .-10-
(e) Syntroleum. . . . . . . . . .-10-
(f) Syncrude Technology, Inc. . .-10-
3. An Alternative to LNG . . . . . . .-10-
4. The Environment . . . . . . . . . .-11-
5. Products and Applications . . . . .-11-
6. Technology Development. . . . . . .-12-
(a) Phase One Development . . . .-12-
(b) Phase Two Development. . . . .-13-
c. Business of Stone Canyon Resources Inc..-13-
1. Oil and Gas Properties. . . . . . .-13-
(b) Rose Creek Lease. . . . . . .-14-
(c) Meadow Deep and D Sand Leases-14-
(d) Wilson Creek Prospect . . . .-15-
Other Requested Information . . . . . . . . . . .-16-
ITEM 2. DESCRIPTIONS OF PROPERTIES . . . . . . . . . .-17-
Principal Plants and Other Property . . . . . . .-17-
Oil and Gas Producing Activities. . . . . . . . .-18-
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . .-18-
Bataa Oil, Inc. . . . . . . . . . . . . . . . . .-18-
Boulder County Litigation . . . . . . . . . . . .-19-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . . .-20-
PART II. . . . . . . . . . . . . . . . . . . . . . . .-20-
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON COMPANYS
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. . . . .-20-
Stockholders. . . . . . . . . . . . . . . . . . .-20-
Dividends . . . . . . . . . . . . . . . . . . . .-20-
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . .-24-
(INDEX TO FINANCIAL STATEMENTS AND SUPPORTING
SCHEDULES. . . . . . . . . . . . . . . . . . . . . . .-24-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . .-24-
PART III . . . . . . . . . . . . . . . . . . . . . . .-25-
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF
THE EXCHANGE ACT . . . . . . . . . . . . . . . . . . .-25-
Directors and Officers of the Company and its
Subsidiaries . . . . . . . . . . . . . . . . . . . . .-25-
a. Management of the Company. . . . . . . .-25-
b. Management of Stone Canyon Colorado (a
wholly-owned subsidiary of the Company)
. . . . . . . . . . . . . . . . . . . . . . . . . . .-26-
c. Management of Carbon Resources Limited .-27-
d. Management of SynGen Technologies Limited-27-
Identification of Significant Employees. . . . .-28-
Family Relationships. . . . . . . . . . . . . . .-28-
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . .-28-
Cash Compensation . . . . . . . . . . . . . . . .-28-
Compensation Pursuant to Management Contracts.. .-29-
Other Compensation. . . . . . . . . . . . . . . .-30-
Compensation of Directors . . . . . . . . . . . .-30-
Termination of Employment and Change of Control
Arrangements . . . . . . . . . . . . . . . . . . . . .-30-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . .-30-
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . .-31-
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K . . . . . .-33-
(a) EXHIBIT INDEX . . . . . . . . . . . . . . . . . .-33-
SUPPLEMENTAL OIL AND GAS INFORMATION . . . . . . . . .-36-
ART 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 participated in a variety of
activities as follows:
1. The acquisition of U.S. petroleum and natural gas
lease rights in Colorado and Wyoming
2. The acquisition of Canadian petroleum and natural
gas leases rights in the Province of Alberta
3. The drilling of exploratory wells
On May 5, 1998, the Company, Carbon Resources Limited,
Laxarco Holding Limited and the Company's then-
controlling shareholder, Stone Canyon Canada, entered
into a share exchange agreement (the "First Laxarco
Agreement") whereby the Company was to acquire 75% of the
issued and outstanding shares of Carbon Resources
Limited, a company incorporated pursuant to the laws of
the Republic of Cyprus ("Carbon"), in exchange for the
issuance of 10,000,000 shares of the Company's common
stock. Under the terms of the First Laxarco Agreement,
Stone Canyon Canada granted to certain shareholders of
Laxarco Holding Limited an option to acquire up to
3,000,000 shares of common stock of the Company held by
Stone Canyon Canada. Pursuant to the terms of the First
Laxarco Agreement, an Escrow Agreement dated May 5, 1998
(the "Escrow Agreement"), was entered into by and between
the Company and Laxarco Holding Limited, a company
incorporated under the laws of the Republic of Cyprus
("Laxarco") whereby the 10,000,000 shares of the Company
issued pursuant to the First Laxarco Agreement were put
into escrow to be released upon the successful
completion of the gas-to-liquids technology under
development by Carbon. The certificates representing
seventy-five percent (75%) of the shares of Carbon were
also placed into escrow. (See "-The Company's Business-
Business of SynGen Technologies Limited" below.) Under
the terms of the Escrow Agreement, Laxarco has provided
an irrevocable voting power of attorney to the Board of
Directors of the Company until the 10,000,000 shares are
released from escrow. The certificates representing
seventy five percent (75%) of the issued and outstanding
shares of Carbon were also placed into escrow. The First
Laxarco Agreement further allows that in consideration of
Stone Canyon Canada granting to certain of the
shareholders of Laxarco the option on 3,000,000 shares of
the Company's common stock, Stone Canyon Canada would
have the right to require the Company to transfer the
shares of the Company's subsidiary, Stone Canyon
Colorado, to Stone Canyon Canada upon completion of the
intended transactions between Laxarco and the Company
under the First Laxarco Agreement . The First Laxarco
Agreement received shareholder approval on June 5, 1998.
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:
4. Acquired a proprietary technology for the conversion
of gas-to-liquids (the "SYNGEN Technology")
5. Conducted research and development of the SYNGEN
Technology
6. Entered into an agreement for the acquisition of a
proprietary technology for the upgrading of heavy
oil (the "CPJ Technology") (the SYNGEN Technology
and the CPJ Technology are referred to herein
collectively as the "Technologies")
7. Established a laboratory facility for the testing
and research and development of the technologies
On September 30, 1998, the Company and Carbon entered
into a letter agreement with Stone Canyon Canada for the
development of a 4 barrel per day SYNGEN demonstration
facility in exchange for granting to Stone Canyon Canada
the Canadian marketing and licensing rights to the SYNGEN
Technology.
On January 6, 1999, the Company, through Carbon, acquired
the shares of Lanisco Holdings Limited, a company
incorporated in the Republic of Cyprus ("Lanisco"), which
holds the rights to acquire the CPJ Technology, a
proprietary technology for the upgrading of heavy oil.
Under the terms of an agreement between Lanisco and the
inventor of the technology, Dr. Pierre Jorgensen, whereby
Lanisco acquired such rights, Lanisco and/or Carbon must
expend not more 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 below, "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 ("Texas T Petroleum"), whereby Texas T
Petroleum received an option to negotiate the acquisition
of up to 50% of the shares of Carbon in exchange for the
payment of $100,000 cash and the expenditure of an
additional $100,000 towards development of the CPJ
Technology. Synergy advanced $100,000 of such funds to
Lanisco Holdings Ltd. for the purchase of 1,000,000
units of Texas T Petroleum. Each unit is comprised of one
(1) share of common stock and a warrant to acquire an
additional share for $1.00 per share.
On February 12, 1999, the Company filed a Certificate of
Amendment with the Department of State of the State of
Colorado changing its name from Automated Transfer
Systems Corporation to Synergy Technologies Corporation.
The name change was accepted by the State of Colorado on
March 2, 1999.
On March 22, 1999, the Company, Stone Canyon Colorado (a
wholly owned subsidiary of the Company) and Revival
Resources Ltd., an Alberta corporation, entered into an
agreement whereby Stone Canyon Colorado acquired a 22.38%
APO interest an oil and gas property known as the Wilson
Creek Prospect, as well as Revival's respective interest
in certain other development leases located in the
Province of Alberta. See below " Business of Stone Canyon
Resources Inc." Under the terms of the agreement, the
Company issued a total of 63,801 shares of common stock
at a deemed value of US$0.53125 per share for total value
of US$33,895 in full and final payment for the leases.
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. 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. See "ITEM 3. LEGAL PROCEEDINGS."
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
paragraph of this subsection of Item 1).
On June 25, 1999, Carbon, which at the time was 75% owned
by the Company, and Laxarco entered into an amendment to
the Assignment of Technology Agreement, by which Carbon
had obtained the proprietary rights to the SYNGEN
Technology. The purpose of such Amendment was to
clarify Carbon's obligation regarding the construction
and completion of a pilot unit utilizing the SYNGEN
Technology, the commercialization thereof and to confirm
that neither party had committed any breaches of the
original agreement. Such amendment specifically
eliminated Carbon's obligation to raise $6 million U.S.
within one (1) year of the closing of the original
transaction. Instead, Carbon must complete construction
of a pilot unit utilizing the SYNGEN Technology by
November 1, 2000. See below "Business of Syngen
Technologies Limited - Technology Development (a) Phase
One Development".
On June 25, 1999, the Company also entered into a second
share exchange agreement with Laxarco to acquire the
remaining 25% of the shares of Carbon owned by Laxarco in
exchange for the issuance of 3,000,000 shares of the
Company's common stock (the "Second Laxarco Agreement"),
thus making Carbon a wholly-owned subsidiary of the
Company. The Company and Texas T Petroleum also agreed
with Laxarco that Laxarco shall have an exclusive right
for thirty (30) days to offer to purchase the CPJ
Technology in the event the Company and Texas T Petroleum
decide to no longer develop the CPJ Technology.
On June 25, 1999, the Company entered into an Amended and
Restated Escrow Agreement whereby the 3,000,000 shares of
the Company issued under the Second Laxarco Agreement
were added to the Escrow Agreement (the "Amended Escrow
Agreement"). The Amended Escrow Agreement calls for
Laxarco to deliver an irrevocable power of attorney in
favor of the Board of Directors of the Company to vote
such 3,000,000 shares until such time as they are
released from escrow. The Amended Escrow Agreement
further sets forth the events upon which the 10,000,000
and the 3,000,000 shares of the Company will be released
to Laxarco. The 10,000,000 shares 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 sh res 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 the subject Technology.
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. As a result, all of the outstanding shares of
SynGen were placed into escrow and all of the outstanding
shares of Carbon were released to the Company.
On June 26, 1999, the Company executed a share exchange
agreement with Texas T Petroleum, whereby Texas T
Petroleum will acquire fifty percent (50%) of the issued
and organized shares of Carbon in exchange for the
issuance of 2,000,000 units of Texas T Petroleum, each
unit consisting of one share of common stock and one
share purchase warrant entitling the holder to purchase
one additional share of Texas T Petroleum common stock at
$1.00 per share within two years from June 25, 1999, and
the payment of $900,000 by Texas T Petroleum for the
development of the CPJ Technology.
On January 14, 2000, the Company and Stone Canyon Canada
entered into a Financing and Security Agreement with Mr.
James E. Nielson and Wood River Trust, whereby Stone
Canyon Canada received a loan in the amount of $300,000
U.S., repayable from the proceeds received by Stone
Canyon Canada under the IERD grant program discussed
above. As part of the terms thereof, the Company has
granted each of the lenders the right to convert any part
of their respective portion of the principal of the loan
into restricted shares of its common stock at a deemed
price of $0.50 U.S. per share. The lenders will have the
right to include such shares in any appropriate
registration statement filed by the Company with the
Securities and Exchange Commission. Upon exercise of
such conversion right, all interest accrued on the
converted principal loan amount shall be automatically
forgiven. Such right must be elected no later than
ninety (90) days from the initial start-up of the
Company's SYNGEN reactor under construction in the
Province of Alberta. Upon exercise by any of such
lenders of their right to convert, they shall also
receive a warrant to purchase the same number of shares
at a price of $1.00 per share. Such warrant must be
exercised by December 15, 2002.
Pursuant to a second Financing and Security Agreement
executed in January 2000 between, Stone Canyon Canada,
the Company and 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, Carbon, Lanisco, Stone Canyon
Colorado and SynGen Technologies Limited. (See -"General
Description and Development of Business".)
a. Business of Carbon Resources Limited
In 1998 and 1999, Carbon acquired the rights to own and
develop two (2) unique proprietary technologies - the
SYNGEN Technology and the CPJ Technology. See "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 Dr. Pierre
Jorgensen, a retired French process engineer who spent
his career dealing with the fluid catalytic crackers,
cokers, visbreakers, and bottom of the barrel refinery
economics. Once retired, he spent years at Orleans
University to obtain a PhD. At his own expense, he
funded the experimental work on this process, which was
the basis of his doctoral thesis. The objective of 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 oil samples.
As stated above, Dr. Jorgensen set out to show that his
process was a suitable replacement for processing bottom
of the barrel oils. Accordingly, much of his comparison
studies were to compare his process against conventional
processing for various heavy feeds. The Company believes
that the CPJ Process produces a greater volume of
desirable middle distillate fractions than do the
conventional processes. The CPJ Process converts most of
the feed into products that can be recovered via
atmospheric distillation alone or marketed as an upgraded
crude oil.
2. The Process
The CPJ Process is a non-catalytic process and is
completely thermal driven. Based upon an instantaneous
thermal shock, the process breaks 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.
4. 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.
5. The Environment
In many countries of the world, associated gas from crude
oil production is vented or flared due to the lack of an
economic sales opportunity creating environmental
concerns. These emissions contribute substantially to
the global warming effect, as unburned hydrocarbons and
CO2 (considered greenhouse gases) are released into the
atmosphere, and efforts are being pursued on a global
basis to reduce these emissions.
6. Products and Applications
An increasingly important characteristic of all
SYNGEN/Fischer-Tropsch System products is the fact that
synfuel products are environmentally attractive in that
they do not contain undesirable and/or harmful aromatics,
nitrogen, or sulfur compounds. Legislation and
regulatory requirements continue to add support for the
broader use of synfuel products. The advantages of
synfuels are as follows:
No aromatic content
Smokeless jet fuel and diesel
No sulfur in products
Cetane number 70 or above (diesel)
Premium blending stocks
Smaller gas reserves required
No dedicated customers required
Refinery diesel is rated at a cetane number of 45.
Diesel produced by the SYNGEN/ Fischer-Tropsch System
will be very high grade diesel rated at a cetane number
of 70+. This superior diesel fuel should command a
premium price over regular diesel.
SYNGEN/Fischer-Tropsch System diesel will be used to
blend and enhance low quality or normal diesel fuels.
Diesel is used extensively in the trucking and
transportation industries, including the railroad
industry. SYNGEN/Fischer-Tropsch Systems products can
also be reformulated relatively inexpensively into Jet A
fuel for aircraft.
As a refined product, naphtha commands a price related
to, but in excess, of crude oil. SYNGEN/Fischer-Tropsch
System naphtha lends itself to numerous applications in
the chemical industry, notably as a premier ethylene
feedstock, and can also be transformed into a variety of
related fuel forms.
Although remote gas, which typically has no existing
pipeline infrastructure, may in most cases be the most
attractive source of gas for the SYNGEN/FischerTropsch
process, other potential sources include:
Refinery hydrocarbon waste gases which are
excess to refinery fuel needs
Alaskan natural gas, which after conversion to
synfuel could be transported to the US West
Coast refineries via the existing pipeline
Associated gas being flared during crude oil
production including offshore platforms
Coal gas
US natural gas converted specifically to target
the most stringent clean fuels specifications
US natural gas considered too high in
impurities for economic pipeline use.
7. Technology Development
The terms of the First Laxarco Agreement committed the
Company to fund the phase one and phase two development
of the 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 was on-
going in Orleans, France. On September 30, 1998, the
Company executed a letter agreement with Stone Canyon
Canada whereby Stone Canyon Canada has agreed to
construct a 4 barrel ("bbl") per day demonstration
facility in Alberta, Canada to showcase the SYNGEN
process in return for the Canadian marketing and
licensing rights to the process. The Company and Stone
Canyon Canada contracted the services of Bower Damberger
Rolseth Engineering Ltd., an Alberta corporation, in
early 1999 to prepare the mechanical design for the
4bbl/day facility and prepare a capital cost estimate.
In late 1999, the Company contracted with Nordic
Engineering to complete the engineering of the 4 barrel
per day facility, including certain design modifications.
In January of 2000, Beau Canada Exploration
Ltd., an Alberta corporation, and the Company executed a
letter agreement whereby it will provide the Company
with a site location where the 4 barrel demonstration
unit could be installed into existing infrastructure. In
consideration for this Beau Canada Exploration Ltd. was
granted 100,000 stock options for exercise at $2.25 per
share. Subsequently the Company has been informed that
Beau Canad Exploration Ltd. has sold the site location to
AltaGas Services Inc. It is the Company's understanding
that Beau Canada Exploration Ltd. assigned the letter
agreement to AltaGas Services Inc. with whom the Company
is finalizing definitive agreements for locating and
operating the demo unit.
Total capital costs, inclusive of the value assigned to
Beau Canada infrastructure, is expected to be $3.5
million CDN (approximately $2,411,500 based on the
average US dollar exchange rate).
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.
As of June 20, 1999, Stone Canyon Canada advised the
Company that it had received from a Canadian governmental
organization, a $700,000 CDN (approximately $483,000
U.S.) award to be used towards the funding of the 4 bbl
per day demonstration plant. The award came from the
Industry Energy Research and Development Program of
Natural Resources Canada, a Canadian Government's premier
organization devoted to the development of clean, energy-
saving technologies. The award comprises 25% of
allowable costs of the demonstration plant and will be
repayable by Stone Canyon Canada at a low interest rate
upon commercialization of the SYNGEN process.
(b) Phase Two Development
Second stage development will include the design,
engineering and construction of a 500 bbl per day SYNGEN
reactor. Current budgets estimate the total cost of this
project to be approximately $500,000 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 minimal interests in certain oil and gas leases in
Colorado and Wyoming and in the Province of Alberta,
Canada. The Company has determined to make any further
expenditures on exploration and development of its oil
and gas leases. The Company has verbally offered to
Stone Canyon Canada the shares of Stone Canyon Colorado.
The Company expects to conclude the disposition of the
shares during the second quarter in fiscal year 2000.
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 will then hold small percentage
interests in the Wilson Creek leases, some of which will
expire in year 2000.
Stone Canyon Colorado and the Company executed an
agreement with 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, theCompany 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. Stone Canyon Colorado will then
hold small percentage interests in the Wilson Creek
leases, some of which will expire in 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 rented 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. As of May 15, 2000,
the transfer was completed.
(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.
During 1996, Stone Canyon Colorado purchased interests in
certain of the leasehold properties described above in
ITEM 1. DESCRIPTION OF BUSINESS - The Company's Business-
Business of Stone Canyon Resources Inc. Through December
31, 1997, Stone Canyon Colorado paid $458,080 for
acquisition costs and development costs associated with
such interests. Such amount was paid to Bataa Oil, Inc.,
by the founding shareholders of Stone Canyon Colorado,
and Stone Canyon Colorado paid such amount to the
founding shareholders. Bataa Oil, Inc. served as
operator of each lease. Stone Canyon Colorado also
issued a total of 1,700,000 shares of its common stock to
the founders of Stone Canyon Colorado, including 411,842
shares of its common stock to Bataa and Bataa's designees
and 63,910shares to Richard and Anita Knight as part of
the consideration for such properties, which shares were
issued for shares of the Company as part of the share
exchange agreement in 1997 with the Company and Stone
Canyon Colorado.
Stone Canyon Colorado and the Company contend that Bataa
represented to Stone Canyon Colorado and/or its
affiliates that the price for these properties was set as
the price paid by Bataa for the same. Stone Canyon
Colorado and the Company have since learned that Bataa's
cost for these properties were far less than the amount
charged by Bataa. The Company has questioned the form of
legal title taken for the properties as well as adequate
documentation and disclosure of all underlying
obligations, liabilities and arrangements relating to the
properties, between Bataa Oil, Inc. and the vendors. The
Company has also learned that some of these leases have
been forfeited due to a failure to meet a drilling
obligation imposed by G & H Production. The Company was
not apprised of such obligations of prior to acquisition
of its interest in the leases. The Company has been
advised by legal counsel that the issuance of the shares
to Bataa Oil and its designees was without the kind,
amount or form of consideration as authorized by the
Board of Directors and could therefore be deemed to be an
invalid issuance. In order to protect the interests of
all shareholders, the Company has therefore placed a
"stop transfer" with the transfer company against all of
the founders shares, including the shares issued to Bataa
and Bataa's designees and Richard and Anita Knight.
As a result of this dispute, in May 1999, Bataa Oil,
Richard and Anita Knight and certain others filed a
complaint in the District Court, County of Denver, in the
State of Colorado (Case No. 99CV3482) against the
Company, its wholly-owned subsidiary, Stone Canyon
Colorado and Stone Canyon Canada, which was previously
the Company's sole controlling shareholder. The original
complaint asserted only one claim (breach of fiduciary
duty and mandatory injunction) against the Company to
compel it to remove restrictive legends from the
plaintiffs' shares of the Company's common stock. The
plaintiffs have amended their complaint twice, and as a
result, have named additional defendants to this lawsuit,
including members of the Company's Board of Directors,
the Company's transfer agent (Holladay Stock Transfer
Inc.) and other individuals. The plaintiffs' second
complaint also includes causes of action for
conversion, civil conspiracy and unjust enrichment. The
Company's Answer and Counterclaims denied all material
allegations, asserted numerous affirmative defenses and
asserted counterclaims against Plaintiffs 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
Company believes the purpose of these statements were in
general to interfere with and damage the business of the
Company and in particular to convince at least one market
analyst to reverse his "buy" recommendation to a "sell"
recommendation on Synergy stock.
The Company sought and received a Temporary Restraining
Order against Defendant David J. Calvin and Defendant
Bataa Oil, Inc., as well as, by applicable rule, anyone
acting on behalf of Bataa Oil, Inc. to stop any further
publication of such false and defamatory statements. By
stipulation between the parties and subsequent Order of
the Court, such Temporary Restraining Order became a
Preliminary Injunction which will remain in effect until
the trial in this matter.
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 COMPANY'S
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 on its 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.
In November 1998, the Company commenced a private
placement of its common stock under Rule 504 of
Regulation D at $0.50 per Unit. Each Unit consisted of
one share of common stock and one warrant exercisable at
any time two (2) years from the date of issue at $1.00
per share for each warrant exercised. The Company
completed this offering of 1,500,000 Units in April 1999
for a total value of $750,000. The Company issued
957,000 Units for cash of $478,500, 138,000 Units as
compensation for services valued at $69,000 and 405,000
Units as conversion of debt from investor deposits in the
amount of $202,500. No commission fees or other selling
expenses were paid. Subsequent to year end, the Company
offered to certain subscribers under the aforementioned
Rule 504 private placement the option of canceling the
warrant portion of the subscribed for Units and
participating in an offering of new Units made pursuant
to Regulation S promulgated by the Securities and
Exchange Commission under the Securities Act of 1933
("Regulation S"), with each Unit consisting of a share of
common stock and a warrant to purchase an additional
share for $3.50, exercisable at any time two (2) years
from the time of subscription. The Company has agreed to
keep the offering open until either fully subscribed or
April 2001 which would be the expiration date of the
warrants under the Rule 504 private placement. The
prices of these new Units is $1.00, which is the same
price as the share purchase warrants that have been
canceled. On January 19, 2000, 100,000 of these new
Units were subscribed for. Subsequent to period ended
March 31, 2000, the Company accepted this subscription.
In December 1999, the Company sold 53,000 units in
an offering conducted pursuant to Regulation S. Each
unit consisted of one share of common stock and a warrant
to purchase another share of common stock for $1.00 per
share. The Company received proceeds of $26,500 from
this offering. In January 2000, the Company sold an
additional 10,000 units from this offering receiving
$5,000.00 in proceeds. No commission fees or other
selling expenses were paid.
On January 19, 2000, the Company commenced a private
placement of shares of its common stock pursuant to
Regulation S. Subsequent to the period ended March 31,
2000, the Company accepted subscriptions to this offering
for the sale of 100,000 shares at $1.00 US per share. No
commission fees or other selling expenses were paid.
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.
LIQUIDITY
Cash flows from continued operations during 1999 and 1998
reflect new cash used of $(253,709) and $(663,569)
respectively while cash flows used by investing
activities for the same periods were $(243,191) and
$(90,690), and cash flows provided by financing
activities were $487,843 and $770,161, respectively.
At December 31, 1999 and 1998 the Company had working
capital of $(1,351,796) and $(618,138), 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 $
182,191 compared to total assets of $764,542 at December
31, 1998. This represents a decrease of $212,843 which
is attributable to the Company's write-off of the
Company's petroleum interests for the fiscal year. The
assets are comprised of an investment of $100,000 from
Texas T Petroleum for an option to negotiate the
acquisition of up to 50% of the shares of Carbon, $32,067
account receivable from Stone Canyon Canada, which shares
two common officers and directors with the Company,
$3,082 in cash, other receivables of $21,285, prepaid
expenses of $23,912, 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
10% due to increases in drilling operations, general and
administrative, and professional fees. The Company's
loss from continuing operations in 1999 was $1,814,752,
compared to a loss of $881,430 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 of $551,191, technology development of
$764,857, and general and administrative expenses of
$725,704. 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, 1999F-5
Consolidated Statement of Changes in Stockholders' Equity
(Deficit)
For the Cumulative Period from November 6, 1996 (Date
of Inception) through
December 31, 1999F-6
Consolidated Statement of Cash FlowsF-7
Notes to Consolidated Financial StatementsF-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 preceding Sarna & Co.'s
dismissal, there were no disagreements between the
Company and the former accounting firm on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
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/Director 12/97 to Present
John Gradek 47 Director 9/99 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 and a director of SynGen Technologies Limited
since June 25, 1999 and a director of Lanisco Holdings
Ltd., since August 1999. Ms. Danforth has spent the past
several years in the employ of publicly traded companies.
Ms. Danforth provides contract administrative and
accounting services to these companies and is familiar with
all aspects of day to day administration including public
reporting requirements under Canadian regulatory rules.
Ms. Danforth has recently expanded her duties to include a
stronger focus on the oil and gas sector and has attended
numerous courses and seminars offered by CAPL and the
University of Calgary to familiarize herself with the
industry. Ms. Danforth has been an officer of Stone
Canyon Canada from November 14, 1996 to date. Ms. Danforth
is currently completing her studies to become a certified
general accountant.
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 1/98 to Present
James Shone 25 Director 1/98 to Present
Jacqueline
Danforth 27 Secretary/Treasurer/
Director 11/96 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 Director 5/98 to Present
Jacqueline
Danforth 27 Director 5/98 to Present
Dema Consultants
Ltd. - Secretary 5/98 to Present
</TABLE>
Thomas Cooley, P.E.- Mr. Cooley has been a director of
Carbon since May 1998 and has been the President and 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
Thomas E. Cooley 58 President/Director 6/25/99 to Present
Jacqueline
Danforth 27 Director 6/25/99 to Present
Dema Consultants
Ltd. - Secretary 6/255/99 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
Jacquie Danforth 1997 0 0 0
Secretary,
Treasurer and
Director
Jacquie Danforth 1998 2,070 0 0
Secretary,
Treasurer
and Director
Jacquie Danforth 1999 0 0 0
Secretary,
Treasurer
and Director
Cameron Haworth 1997 0 0 0
President/Director
Cameron Haworth 1998 0 0 0
President/Director
Cameron Haworth 1999 0 0 0
Thomas Cooley, 1998 81,666.62* 0 $932
President/Director
of Syngen
Technologies
Limited and
Director of Carbon
Resources Limited
Thomas Cooley, 1999 8,000.00 0 172,000
President/Director
of SynGen
Technologies
Limited and
Director of Carbon
Resources Limited
</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 ELATIONSHIPS 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 26,640,142* shares
issued and outstanding as at May 8, 2000. (This figure does
not include 1,683,000 unexercised share purchase warrants.)
No Preferred Stock is outstanding as of the date hereof.
<TABLE>
<S> <C> <C> <C>
Title Name and Amount and Percent
of Address of Nature of of
Class Beneficial Owner Beneficial Owner Class
Common shares Laxarco Holding 13,000,000** 48.8
Limited Held directly
2 Sofouli Street,
Nicosia
Cyprus 1522
</TABLE>
* This figure includes $1,700,000 founders' shares against
which the Company has placed a stop transfer order . See
"ITEM 3 LEGAL PROCEEDINGS" .
** All of these shares are held in escrow pending the
Technologies becoming commercially viable. See "ITEM
1 DESCRIPTION OF BUSINESS - GENERAL DESCRIPTION AND
DEVELOPMENT OF BUSINESS,.
(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 May 8, 2000.
<TABLE>
<S> <C> <C> <C>
Title Name and Amount and Percent
of Address of Nature of of
Class Beneficial Owner Beneficial Owner Class
Common shares Thomas Cooley- 467,000 shares 1.75%
Director and owned directly
Officer of
SynGen
Technologies
Limited and
Director of
Carbon
Resources
Limited (1)
Common Cameron Haworth (2) 257,000 shares 1.0%
owned directly
Common James Shone 118,216 shares .4%
Director of owned directly
Synergy
Technologies
Corporation and
Stone Canyon
Colorado Inc. (3)
Common Jacqueline Danforth 435,357:70,500 1.6%
Director and shares owned
Officer of Synergy directly; 114,857
Technologies beneficially owned
Corporation, by Argonaut Management
Carbon Resources Group, of whom Jacqueline
Limited, SynGen Danforth is the sole
Technologies shareholder. officer and
Limited and Stone Canyon director
Colorado (4)
Common shares 1,277,572 shares 4.8%
held by
directors and
officers as a
group
</TABLE>
FN 1These shares are owned jointly by Mr. Cooley and his wife, Carolyn Cooley
FN 2 This number of shares includes options for 250,000 shares which Mr.
Haworth has the right to acquire within (60) days
FN 3This 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 (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 $18,000 US 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.
In September 1998 Stone Canada and Synergy Technologies
entered into a letter agreement under which Stone Canada
agreed to fund the development of a 4-bbl/day gas to
liquids demonstration facility under development by Carbon
in return for the Canadian marketing and licensing rights
to the technology. Pursuant to this agreement, at the
fiscal year ended December 31, 1998, Carbon issued an
invoice to Stone Canada in the amount of $370,799 for
reimbursement of all costs incurred by Carbon in respect of
the development of the 4-bbl/day facility.
During the fiscal year ended December 31, 1998, Stone
Canyon received cash advances from Stone Canada of $90,492.
Stone Canyon retired $40,982 of the outstanding loans
payable over fiscal 1998.
As of December 31, 1998, the consolidated receivable which
remained due from Stone Canada totaled $282,351.
During the fiscal year ended December 31, 1999, Stone
Canada advanced funds to Synergy and its subsidiaries to
reduce the amount outstanding at December 31, 1998. In
addition, as at December 31, 1999, Syngen (the Synergy
subsidiary to which the GTL Technology was transferred from
Carbon, see Notes 1 & 9) invoiced Stone Canada an
additional $65,646 for reimbursement of 4-bbl/day facility
expenses incurred over the year. As at December 31, 1999
the consolidated receivable which remained due from Stone
Canada totaled $32,067.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)EXHIBIT INDEX
<TABLE>
<S> <C> <C>
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 betweed
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 Assignement 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
dated10/19/1998, with Assignement 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.
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.
23 Consent of Hansen, Barnett & Maxwell Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
* Incorporated by reference to the Exhibits previously
filed with the Company's Registration Statement on Form 10-
SB filed with the Securities and Exchange Commission on
July 15, 1999,
** Incorporated by reference to the Exhibits previously
filed with the Company's Annual Report Form 10-KSB for the
period ending December 31, 1999.
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: May 8, 2000
SYNERGY TECHNOLOGIES CORPORATION
By: /S/ Cameron Haworth
Name:
Title: President
Directors:
/S/Cameron Haworth
/S/ Jacqueline R. Danforth
S/ John Gradek
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
AND
FINANCIAL STATEMENTS
December 31, 1999 and 1998
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
TABLE OF CONTENTS
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
5
November 7, 1996 (Date of Inception) to December 31,
1999
Notes to Consolidated Financial Statements
6
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801)
532-2200
Member of AICPA Division of Firms
Fax (801)
532-7944
Member of SECPS
345 East 300 South, Suite 200
Member of Summit International Associates
Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors
Synergy Technologies Corporation
We have audited the accompanying consolidated balance
sheet of Synergy Technologies Corporation and
subsidiaries (a company in the development stage) as of
December 31, 1999 and the related consolidated statements
of operations, stockholders= equity (deficit), and cash
flows for the two years then ended and for the cumulative
period from November 7, 1996 (date of inception) through
December 31, 1999. These financial statements are the
responsibility of the Company=s management. Our
responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Synergy Technologies
Corporation and subsidiaries as of December 31, 1999 and
the results of their operations and their cash flows for
the two years then ended and for the cumulative period
from November 7, 1996 (date of inception) through
December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial
statements, the Company has suffered losses from
operations and has had negative cash flows from operating
activities during the years ended December 31, 1999 and
1998 and cumulative from inception through December 31,
1999. These conditions raise substantial doubt about the
Company=s ability to continue as a going concern.
Management=s plans in regard to those matters are also
described in Note 1. The financial statements do not
include any adjustments relating to the recoverability
and classification of asset carrying amounts or the
amount and classification of liabilities that might
result should the Company be unable to continue as a
going concern.
<TABLE>
<S>
HANSEN, BARNETT & MAXWELL <C>
March 17, 2000
Salt Lake City, Utah
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1999
ASSETS
Current Assets
Cash $ 3,082
Receivables - related parties 32,067
Receivables - other 21,285
Prepaid expenses 23,912
Total Current Assets 80,346
Investment 100,000
Office equipment and computers net of accumulated
depreciation of $261 1,845
Total Assets $182,191
LIABILITIES AND STOCKHOLDERS= EQUITY (DEFICIT)
Current Liabilities
Accounts payable $1,063,805
Accrued expenses 32,833
Loans payable 322,361
Loans payable - related parties 13,143
Total Current Liabilities 1,432,142
Stockholders= Equity (Deficit)
Common stock, $0.002 par value; 100,000,000
shares authorized, 11,989,327 shares issued
and outstanding 23,980
Additional paid-in capital 1,484,455
Accumulated deficit (2,758,386)
Total Stockholders= Equity (Deficit) (1,249,951)
Total Liabilities and Stockholders= Equity $182,191
Commitments and contingencies (Note 9)
</TABLE>
The accompanying notes are an integral part of these Financial statements.
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> <C> <C>
Cumulative
Period From
November 7, 1996
(Date of Inception)
For the Years Ended to
December 31, December 31,
1999 1998 1999
Revenue
Option income $200,000 $ -- $200,000
Consulting income -- 8,927 8,927
200,000 8,927 208,927
Expenses
General and
administrative 725,704 640,030 1,400,938
Technology development
Note 1 764,857 79,308 844,165
Drywell expense 551,191 171,019 722,210
Total Expense 2,041,752 890,357 2,967,313
Loss before provision
for income tax (1,841,752) (881,430) (2,758,386)
Provision for Income Tax -- -- --
Net Loss $(1,841,752) $(881,430) $(2,758,386)
Basic and Diluted Loss
Per Common Share $(0.16) $(0.09) $(0.26)
Weighted Average Number
of Common Shares Used
in Calculation 11,671,768 10,070,745 10,608,728
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS= EQUITY
(DEFICIT)
FOR THE CUMULATIVE PERIOD FROM NOVEMBER 7, 1996
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<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 1,000 2 8 - 10
Capital-
ization,
$0.01 per share
Issuance of 2,900,007 5,800 23,200 - 29,000
shares for
cash, August
1997; $0.01
per share
Shares 2,549,500 (5,099) (5,099) - -
issued in
recapital-
ization
Unexchanged (7,143) (13) - - (13)
certificates
Shares 4,539,162 9,078 444,838 - 453,916
issued
in satisfaction
of debt,
October 1997,
$0.10 per share
Net loss - - - (35,204) (35,204)
Balance at 9,982,526 19,966 462,947 (35,204) 447,709
December 31,
1997
Issuance of 140,000 280 69,720 - 70,000
shares for
cash,
September
1998,
$0.50 per
share
Issuance 210,000 420 104,580 - 105,000
of shares
for
conversion
of loans
payable
September
1998,
$0.50 per
share
Net loss - - - (881,430) (881,430)
Balance 10,332,526 20,666 637,247 (916,634) (258,721)
at December
31, 1998
Issuance 957,000 1,914 476,586 - 478,500
of shares
for cash,
January
1999
through
April 1999,
$0.50 per
share
Issuance 138,000 276 68,724 - 69,000
of shares
for
services,
February
1999,
$0.50
per share
Issuance 63,801 128 33,894 - 34,022
of shares
for property
acquisition
March 1999,
$0.53125
per share
Shares issued 405,000 810 201,690 - 202,500
for
conversion of
investor
deposits
January 1999
through April
1999,
$0.50 per share
Issuance of 40,000 80 39,920 - 40,000
shares for
cash, April
1999 upon
exercise of
warrants,
$1.00 per
share
Issuance of 53,000 106 26,394 - 26,500
shares for
cash,
December
1999,
$0.50 per
share
Net loss - - - (1,841,752) (1,841,752)
for the year
Balance at 11,989,327 23,890 $1,484,455 $(2,758,386) $(1,249,951)
December 31,
1999
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> <C> <C>
Cumulative
Period From
November 7, 1996
(Date of Inception)
For the Years Ended to
December 31, December 31,
1999 1998 1999
Cash From Operating
Activities
Net loss (1,841,752) $(881,430) $(2,758,386)
Adjustment to
Reconcile net loss
net cash from
operations:
Dry well expense 551,191 171,019 722,210
Depreciation 261 334 595
Exchange rate loss 1,773 918 4,086
Loss on disposition
of assets 1,333 - 1,333
Changes in assets and
liabilities:
Accounts receivable (20,620) 13,772 (21,284)
Prepaid expenses and
deposits (22,163) 8,238 (23,926)
Accounts receivable -
related parties 338,732 (370,799) (32,067)
Accounts payable 704,703 390,379 1,132,805
Accrued expenses 32,833 - 32,833
Net Cash Flows From
Operating Activities (253,709) (667,569) (941,801)
Cash Flows From Investing
Activities
Acquisition of oil and
gas properties (141,085) (89,023) (688,188)
Acquisition of property
and equipment (2,106) (1,667) (3,773)
Acquisition of equity
security (100,000) - (100,000)
Net Cash Flows From
Investing Activities (243,191) (90,690) (791,961)
Cash Flows From Financing
Activities
Payment of related
party notes payable (294,483) 412,626 572,059
Proceeds from notes
Payable 280,656 41,705 322,361
Proceeds from (payments
of) investor deposits (43,330) 245,830 202,500
Sales of common stock 545,000 70,000 644,010
Net Cash Flows From
Financing Activities 487,843 770,161 1,740,930
Effect of Exchange Rate
Changes on Cash (1,773) (918) (4,086)
Net Change in Cash (10,830) 10,984 3,082
Cash at Beginning of Period 13,912 2,928 -
Cash at End of Period $3,082 $13,912 $3,082
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations C Synergy Technologies Corporation
(formerly Automated Transfer Systems Corporation)
(ASynergy@ or Athe Company@), was incorporated in Colorado
on February 10, 1997. Stone Canyon Resources, Inc.
(AStone Canyon@) was incorporated in Colorado on November
7, 1996. Stone Canyon=s operations began in 1997 and it
became a wholly owned subsidiary of the Company on
November 24, 1997. Both companies were involved in
acquiring and developing mineral, oil and gas resources,
and technologies related to those resources. The
Company=s other wholly owned subsidiaries, Carbon
Resources Limited, Lanisco Holdings Limited and Syngen
Technologies Limited, are Cyprus companies and were
organized on April 10, 1998, September 7, 1998 and May
13, 1999, respectively. These companies have been
involved in the proving of technology through research
and development since their inception.
Reorganization C On October 24, 1997, Synergy entered
into a reorganization agreement with Stone Canyon. As a
result of the reorganization, the Stone Canyon
shareholders became shareholders of the Company whereby
each share of Stone Canyon stock was exchanged for one
share of Synergy stock. A total of 2,901,007 shares were
approved for exchange by the Company. Of such amount all
but 7,143 shares have been exchanged.
The reorganization agreement has been considered the
reorganization of Stone Canyon and the acquisition of
Synergy in a purchase business combination. Prior to the
reorganization, Synergy had substantially no net assets
and no ongoing business; therefore, the 2,549,500 shares
of common stock outstanding at the date of the
reorganization were recorded at $0. The reorganization
was not deemed to be the acquisition of a business;
accordingly no pro forma information is presented. For
legal purposes, and per the reorganization agreement,
Stone Canyon is considered a wholly owned subsidiary of
Synergy.
Prior to the reorganization, Stone Canyon owed $453,916
to a related entity. In the reorganization, 4,539,160
shares of common stock were issued at $0.10 per share in
full satisfaction of the debt.
Acquisitions C As further discussed in Note 9, Synergy
entered into an agreement to acquire a 75% interest in
Carbon Resources Limited (ACarbon@), a subsidiary of
Laxarco Holding Limited (ALaxarco@), in May 1998 and
entered into an agreement for the remaining 25% in June
1999, for 10,000,000 and 3,000,000 shares of Synergy,
respectively. Pursuant to these agreements, the shares
of Carbon and the shares of Synergy were placed into
escrow.
In January 1999, Carbon, through its wholly owned
subsidiary, Lanisco Holdings Ltd. (ALanisco@), obtained
the right to acquire the patents for a heavy oil
upgrading technology (ACPJ@). The patents for this
technology were
placed in trust subject to certain research and
development expenditures and the payment of certain
royalties to the inventor.
As at June 1999, Carbon held the rights to a gas-to-
liquids (AGTL@) technology and Lanisco held the option to
acquire the patents for the CPJ technology. Synergy
organized Syngen Technologies Limited (ASyngen@) in June
1999 and transferred the GTL technology from Carbon to
Syngen and the shares of Carbon were released from escrow
in exchange for the placement of the Syngen shares into
escrow. Upon release of the Carbon shares from escrow,
Carbon and Lanisco became wholly owned subsidiaries of
Synergy. The acquisition of Carbon and Lanisco has been
recorded on the financial statements as a purchase with
no value attributed to the net assets. The Syngen shares
remain in escrow and the patents to the CPJ technology
remain in trust. Synergy, Stone Canyon Resources Ltd.
(AStone Canada@), a related company, and Texas T Petroleum
Ltd. (ATexas T@) have been funding the research and
development carried out by Syngen, Carbon and Lanisco.
Carbon and Lanisco incurred losses in 1998 from research
activity. Synergy has recognized all of the losses of
Carbon and Lanisco in its 1999 and 1998 statements of
operations, with no offset to minority interest. All of
the research and development activity for both years has
been recorded in the consolidation. The Syngen shares
are held in escrow for Laxarco and the CPJ patents are
held under the trust agreement. Syngen=s GTL research
and development activity has been recorded as an expense
in the consolidated financial statements. If the GTL
technology is not proven, the shares of Syngen will be
released from escrow to Laxarco. In that event, the
research and development costs will become a receivable
to Synergy from Syngen. It is undeterminable at this
time whether such a receivable would be collectible. If
the GTL technology is proven then the shares of Syngen
will be released from escrow to Synergy. The 13,000,000
shares of Synergy will be released from escrow to Laxarco
on the occurrence of the following: 10,000,000 shares
will be released upon the viability of either the GTL
technology or the CPJ technology, whichever occurs first.
The remaining 3,000,000 shares will be released upon the
viability of the second technology (either CPJ or GTL).
Should neither technology prove viable then the shares of
Synergy will be returned to treasury.
Principals of Consolidation C The accompanying
consolidated financial statements include the accounts
and transactions of Stone Canyon for all periods
presented, and the accounts and transactions of Synergy
from October 24, 1997, and the accounts and transactions
of Carbon and Lanisco and the activities of Syngen from
their inception. Intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates C 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 C The accompanying financial
statements have been prepared in conformity with
generally accepted accounting principles, which
contemplates continuation of Synergy as a going concern.
However, Synergy has had no significant income and has
had negative cash flows from operating activities during
the years ended December 31, 1999 and 1998 and cumulative
from inception through December 31, 1999, which
conditions raise substantial doubt about Synergy=s ability
to continue as a going concern. Synergy=s continued
existence is dependent upon its ability to obtain
additional financing. The Company will continue to raise
funds from the public and private markets and through
arrangements with certain related and unrelated companies
with which it is negotiating mutually beneficial
agreements for the use of the technologies. However,
there is no assurance that additional financing will be
realized.
Development Stage Enterprise C Since inception, the
Company has spent most of its efforts raising capital and
financing the research and development of certain
technologies; however, it has not yet had sales
sufficient to sustain operations and has relied upon cash
flows from financing activities (primarily debt and
equity issuances) to sustain operations. Therefore, the
Company is considered to be in the development stage.
Technology Development The amounts reported on the
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998 reflect expenditures on the
development of the technologies, net of certain GTL
development costs charged to Stone Canada for
reimbursement under the terms of a letter agreement
between the Company and Stone Canada executed in
September 1998 (Note 2(III)). The amounts reported for
the years ended December 31, 1999 and 1998 are net of
expenditures of $65,045 and $361,872, respectively.
Financial Instruments C The amounts reported as cash,
receivables, accounts payable, and accrued liabilities
are considered to be reasonable approximations of their
fair values. The fair value estimates presented herein
were based on market information available to management
at the time of preparation of the financial statements.
For the purpose of the statement of cash flows, cash and
cash equivalents are defined as demand deposits as well
as other funds with original maturities of three months
or less.
Foreign Currency Translation C Exchange gains and losses
from holding foreign currencies and having liabilities
paid in foreign currencies are included in the results of
operations.
Property and Equipment C 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>
<S> <C>
Estimated
Useful Life
Furniture and fixtures 3-7 years
Computer equipment 5 years
</TABLE>
Advertising C Advertising and marketing expense was
$28,613 and $162,268 for the years ended December 31,
1999 and 1998, respectively, and $196,465 for the
cumulative period from November 7, 1996 to December 31,
1999.
Basic and Diluted Loss Per Share C 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 C The
previously issued December 31, 1999 and 1998 financial
statements have been restated to consolidate Carbon and
its wholly owned subsidiary, Lansico. Carbon is
consolidated due to the releasing of the Carbon shares
from escrow as further explained in Note 9, ACarbon
Resources Limited@, at which time Carbon became a wholly
owned subsidiary.
Also, the activities of Syngen have been included in the
financial statements based on the Company and related
parties having funded Syngen since its inception. The
Company and related parties may not benefit from that
activity until, and unless, certain technology is proven
commercially viable. As further described in Notes 1 &
9, the shares of Syngen are in escrow pending the outcome
of the research and development.`
NOTE 2. RELATED PARTY TRANSACTIONS
(I) During the fiscal year ended December 31, 1999, the
Company and its subsidiaries were charged a total of
$211,040 in consulting fees by Glidarc Technologies
Inc. (a Texas corporation) for process management
services. An officer of Glidarc Technologies is also a
director of Carbon Resources Limited, a private Cyprus
corporation. As at December 31, 1999, an amount of
$190,720 for services rendered remained due and payable
to Glidarc Technologies, which amount is reflected on the
Balance Sheet in accounts payable. This amount was
settled for 304,898 shares of common stock of the
Company during the first quarter of fiscal year 2000.
(II) During the fiscal year ended December 31, 1999,
Synergy Technologies was charged $60,000 for management
services and $15,000 for rent by CMJ Consulting Ltd, a
private Alberta corporation, which, until September 30,
1999, shared a common officer and director to both
Synergy Technologies Corporation and its wholly owned
subsidiary, Stone Canyon. In addition, during the 1998
fiscal year, CMJ Consulting advanced to Synergy investor
deposits totaling $156,500, which amount remained
outstanding as at December 31, 1998. During fiscal 1999,
CMJ Consulting advanced an additional $31,383 to Synergy
and converted $166,000 of the outstanding investor
deposits to 332,000 shares of the common stock of Synergy
at $0.50 per Unit under a Regulation D Offering. A
further $69,000 from the outstanding accounts payable was
also converted to 138,000 shares of common stock of
Synergy at $0.50 per Unit under the Offering to February
17, 1999. CMJ purchased an additional 124,686 common
shares of Synergy Technologies under the Offering for
US62,343 in April 1999.
In the fiscal year ended December 31, 1999, Stone Canyon
was charged $18,000 for management services and $2,021
for rent by CMJ Consulting Ltd.
As of December 31, 1999, loans payable to related parties
consisted of $13,143 due and payable to CMJ Consulting
Ltd.
As of December 31, 1999, accounts payable included the
amount of $119,976 due and payable to CMJ Consulting Ltd.
As of September 30, 1999 the common officer and director
resigned from CMJ Consulting Ltd. making the company an
arm=s length corporation.
(III) During the fiscal year ended December 31, 1998,
Synergy Technologies received cash advances totaling
$200,770 from Stone Canada which shares two common
officers and directors with the Company. Amounts
advanced were recorded on the financial statements as
loans payable. In September 1998 Stone Canada elected to
convert $105,000 of the loans outstanding to 210,000
Units of common stock under Synergy=s Regulation S
offering at $0.50 per Unit.
In September 1998 Stone Canada and Synergy Technologies
entered into a letter agreement under which Stone Canada
agreed to fund the development of a 4-bbl/day gas to
liquids demonstration facility under development by
Carbon in return for the Canadian marketing and licensing
rights to the technology. Pursuant to this agreement, at
the fiscal year ended December 31, 1998, Carbon issued an
invoice to Stone Canada in the amount of $370,799 for
reimbursement of all costs incurred by Carbon in respect
of the development of the 4-bbl/day facility.
During the fiscal year ended December 31, 1998, Stone
Canyon received cash advances from Stone Canada of
$90,492. Stone Canyon retired $40,982 of the outstanding
loans payable over fiscal 1998.
As of December 31, 1998, the consolidated receivable
which remained due from Stone Canada totaled $282,351.
During the fiscal year ended December 31, 1999, Stone
Canada advanced funds to Synergy and its subsidiaries to
reduce the amount outstanding at December 31, 1998. In
addition, as at December 31, 1999, Syngen (the Synergy
subsidiary to which the GTL technology was transferred
from Carbon, see Notes 1 & 9) invoiced Stone Canada an
additional $65,646 for reimbursement of 4-bbl/day
facility expenses incurred over the year. As at December
31, 1999 the consolidated receivable which remained due
from Stone Canada totaled $32,067.
NOTE 3BRECEIVABLES - OTHER
Certain expenses for services rendered and supplies
acquired in Canada are subject to a federal Goods and
Services Tax of 7% which is refundable to the Company at
fiscal year end. This amount is refunded to the Company
upon filing of a GST return in Canada. For the year
ended December 31, 1999, the refund due to the Company
was $21,285.
NOTE 4BOIL AND GAS LEASES
Meadow Deep and D-Sand
On July 1, 1999, certain development leases known as the
AMeadow Deep@ acquired under a farmout agreement by Stone
Canyon in October 1996, reverted back to the original
lease holders undeveloped. In August and September 1999,
certain development leases known as the AD-Sand@ also
acquired by Stone Canyon under a farmout agreement with
certain founding shareholders October 1996 expired,
undeveloped.
Accordingly, during the year ended December 31, 1999, the
Company wrote off these oil and gas leases. (See Note 8
- - Litigation)
Wilson Creek
During the year the Company and Stone Canyon executed an
agreement with Revival Resources Ltd. to acquire Revival=s
22.38% after-payout interest in the Wilson Creek Prospect
as well as its receptive interests in certain other
development leases located in the Province of Alberta.
Under the terms of the agreement, the Company issued a
total of 63,801 shares of common stock valued at $34,022
in full and final payment for the leases. Subsequent to
year end, Stone Canyon received notice from the Operator
of the Wilson Creek leases of their intent to abandon the
14-34 well which had been completed in September 1998.
Stone Canyon concurred with this decision and has been
advised that the total contingent liability with respect
to the abandonment of the well in respect of their 33.57%
BPO interest is $16,965. Stone Canyon Colorado
anticipates abandonment activity will be completed in
second quarter of fiscal 2000 and accordingly has written
off this lease during the year ended December 31, 1999.
Certain other leases acquired during the year remain
undeveloped.
Hell=s Canyon and Rose Creek
During fiscal 1999 Stone Canyon continued to remit lease
rental payments for the Rose Creek leases to keep their
15% interest current and acquired an additional 5%
interest in the leases by way of a Stipulation of
Interest agreement in June 1999 to bring their total
interest in the Rose Creek prospect to 20%. As at
December 31, 1999 these leases remained undeveloped and
therefore no value has been reflected in the financial
statements.
In addition, during fiscal 1999, Stone Canyon continued
to remit lease rental payments for the Hell=s Canyon
leases to keep their 5% interest current. Stone Canyon
elected to acquire an additional 6.90% interest in this
lease in December 1999 to bring their total interest in
the Hell=s Canyon prospect to 11.90%. As at December 31,
1999 these leases remained undeveloped and therefore no
value has been reflected in the financial statements.
NOTE 5BLOANS PAYABLE
Loans payable of $322,361 as of December 31, 1999
reflect amounts advanced to Synergy Technologies and its
subsidiaries from various arms length corporations for
general working capital. These amounts bear no interest
and have no stated terms of repayment.
At December 31, 1999, these loans payable reflect a
total of $44,594 advanced by Texas T Petroleum Ltd in
respect of a refundable deposit pertaining to development
of the SYNGEN technology and $11,470 which remained due
and payable to Texas T Petroleum Inc. for drilling and
completion expenses incurred in fiscal 1998 with respect
to Stone Canyon=s 33.57% BPO interest in the Wilson Creek
well.
NOTE 6BINCOME TAXES
The Company did not have a current or deferred provision
For income taxes for the years ended December 31, 1999 and
1998. Deferred tax assets comprise of the following at December
31, 1999 and 1998:
<TABLE>
(S) <C> <C>
1999 1998
Operating loss carry forwards $1,025,633 $338,660
Organizational costs 2,437 3,249
Less: Valuation allowance (1,028,070) (341,909)
Net Deferred Tax Asset $ -- --
</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>
<S> <C> <C>
1999 1998
Tax benefit at statutory rate (34%) $(626,196) $(299,690)
Non-deductible expenses 539 -
State taxes, net of federal benefit 60,524) (29,088)
Deferred tax asset valuation change 686,161 328,778
Total Income Tax Benefit $ - $ -
</TABLE>
As of December 31, 1999, the Company had U.S. operating loss carry forwards of
approximately $1,825,468 which will expire if not used by 2019.
NOTE 7 B COMMON STOCK
In April 1998, the Company commenced a private placement
of its common stock pursuant to Regulation S at $0.50 per
Unit. Each Unit consisted of one share of common stock
and one warrant exercisable any time prior to April 15,
2000 at $1.00 per share for each warrant exercised. The
Company completed this offering in September 1998 with
cash proceeds of $70,000 on the sale of 140,000 Units and
conversion of loans payable of $105,000 on the sale of
210,000 Units. No commission fees or other selling
expenses were paid.
In November 1998, the Company commenced a private
placement of its common stock under Rule 504 of
Regulation D at $0.50 per Unit. Each Unit consisted of
one share of common stock and one stock warrant
exercisable at any time two (2) years from the date of
issue at $1.00 per share for each warrant exercised.
The Company completed this offering of 1,500,000 Units in
April 1999 for a total value of $750,00. The Company
issued 957,000 Units for cash of $478,500, 138,000 Units
as compensation for services valued at $69,000, and
405,000 Units as conversion of debt from investor
deposits in the amount of $202,500. No commission fees or
other selling expenses were paid. Subsequent to year
end, the Company offered to certain subscribers under the
aforementioned Rule 504 private placement the option of
canceling the warrant portion of the subscribed for Units
and participating in an offering of new Units made
pursuant to Regulation S promulgated by the Securities
and Exchange Commission under the Securities Act of 1933
(ARegulation S@), with each Unit consisting of a share of
common stock and a warrant to purchase an additional
share for $3.50, exercisable at any time two (2) years
from the time of subscription. The Company has agreed to
keep the offering open until either fully subscribed or
April 2001 which would be the expiration date of the
warrants under the Rule 504 private placement. The price
of these new Units is $1.00, which is the same price as
the share purchase warrants that have been cancelled. On
January 19, 2000, 100,000 of these new Units were
subscribed for.
In March 1999, the Company issued 63,801 common shares
for an additional interest in the Wilson Creek leases
discussed in Note 4. This portion of the lease interest
was valued at $34,022.
In December 1999, the Company commenced a private
placement of its common stock pursuant to Regulation S at
$0.50 per Unit. Each Unit consisted of one share of
common stock and one warrant exercisable for a period of
one year from the date of issue at $1.00 per share for
each warrant exercised. The Company completed this
offering subsequent to year end with total proceeds to
December 31, 1999 of $26,500 on the sale of 53,000 Units.
No commission fees or other selling expenses were paid.
The warrants issued in connection with the private
placements undertaken in the year ended December 31, 1999
are exercisable at $1.00 and expire within two years from
the date of issue. During April 1999, the Company issued
40,000 shares of common stock for cash proceeds of
$40,000, or $1.00 per share upon the exercise of
warrants. The following table summarizes the warrants to
purchase common stock issued and outstanding:
<TABLE>
<S> <C> <C>
Years Ended December 31,
1999 1998
Warrants to purchase common shares,
beginning of the year 350,000 --
Warrants issued during the year 1,553,000 350,000
Warrants exercised during the year (40,000) --
Warrants to purchase common shares,
end of year 1,863,000 350,000
</TABLE>
As further discussed in Note 9, AContingent Agreements
with Certain Companies@, a total of 13,000,000 shares of
the Company=s common stock under two stock exchange
agreements with a Cyprus corporation have been placed
into escrow pending the outcome of the technologies
reaching Acommercial 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 8BCOMMITMENTS AND CONTINGENCIES
Litigation C Bataa Oil, Inc.
During 1996, Stone Canyon purchased interests in certain
leasehold properties described above in Note 4. Through
December 31, 1997, Stone Canyon paid $458,080 for
acquisition costs and development costs associated with
such interests. Such amount was paid to Bataa Oil, Inc.,
by the founding shareholders of Stone Canyon and Stone
Canyon paid such amount to the founding shareholders.
Bataa Oil, Inc. also served as operator of each lease.
Prior to the merger with the Company, Stone Canyon issued
a total of 1,700,000 shares of its common stock to
certain founders of Stone Canyon, including 411,842
shares to Bataa and its designees and 63,910 shares to
Richard and Anita Knight, as part of the consideration
for such properties. Such shares were exchanged for an
equal number of shares of the Company as part of a share
exchange agreement executed in November 1997 between the
Company, Stone Colorado and Stone Canada.
Stone Canyon and the Company contend that Bataa
represented to Stone Canyon and/or its affiliates that
the price for these properties was set at the price paid
by Bataa for the same. Stone Canyon and the Company have
since learned that Bataa=s costs for these properties were
far less than the amount charged. The Company has
questioned the form of legal title taken for the
properties as well as adequate documentation and
disclosure of all underlying obligations, liabilities and
arrangements relating to the properties between Bataa
Oil, Inc. and the vendors. The Company has also learned
that some of these leases have been forfeited due to a
failure to meet a drilling obligation imposed by one of
the vendors. Stone Canyon was not appraised of such
obligation prior to the acquisition of its interest in
the leases. The Company has been advised by legal
counsel that the issuance of the shares to Bataa Oil and
its designees was without the kind, amount or form of
consideration as authorized by the Board of Directors and
could therefore be deemed to be an invalid issuance. In
order to protect the interests of all shareholders, the
Company has placed a "stop transfer" with the transfer
company against the founders shares including 411,842
shares of its common stock owned by Bataa Oil and its
designees and 63,910 shares owned by Richard and Anita
Knight.
As a result of this dispute, Bataa, Richard and Anita
Knight and certain others, filed a complaint in the
District Court, County of Denver, in the State of
Colorado against the Company, its wholly-owned
subsidiary, Stone Canyon and Stone Canada, which was
previously the Company=s sole controlling shareholder.
The original complaint asserted only one claim (Breach of
Fiduciary Duty and mandatory injunction) against the
Company to compel it to remove restrictive legends from
the plaintiffs shares of the Company's common stock. The
plaintiffs have amended their complaint twice, and as a
result, have named additional defendants to this lawsuit,
including members of the Company's Board of Directors,
the Company's transfer agent (Holladay Stock Transfer
Inc.), founding shareholders of Stone Canyon and other
individuals. The plaintiffs second complaint also
includes causes of action for conversion, civil
conspiracy and unjust enrichment. The Company's Answer
and Counterclaims denied all material allegations,
asserted numerous affirmative defenses and asserted
counterclaims against Plaintiffs Bataa Oil, David Calvin
and/or Richard and Anita Knight for an accounting, fraud,
intentional misrepresentation, breach of fiduciary duty,
damages and punitive damages.
The Company disputes the allegations made by the
plaintiffs, claims they are untrue and is vigorously
defending this lawsuit.
On January 27, 2000, the Company and Texas T Resources,
Inc., a Canadian corporation, filed an action in Boulder
County District Court, Colorado, (Case No. 2000 CV 131)
against Bataa Oil, its owner Mr. David Calvin and other
individuals, asserting claims for defamation (Libel or
Slander Per Se and Libel or Slander Per Quod), civil
conspiracy, international interference with prospective
business or economic advantage, injunction and punitive
damages. With regards to the Company, these claims are
based on events that occurred primarily in December
1999, in which the named Defendants, acting on their own
behalf or on behalf of Bataa Oil, Inc., made several
false and defamatory statements concerning the Company
and/or individuals identified by them as "principals" of
Synergy to market analysts, government agencies, elected
officials and private entities such as the NASD. The
Company believes the purpose of these statements were in
general to interfere with and damage the business of the
Company and in particular to convince at least one market
analyst to reverse his "buy" recommendation to a "sell"
recommendation on Synergy stock.
The Company sought and received a Temporary Restraining
Order against Defendant David J. Calvin and Defendant
Bataa Oil, Inc., as well as, by applicable rule, anyone
acting on behalf of Bataa Oil, Inc. to stop any further
publication of such false and defamatory statements. By
stipulation between the parties and subsequent Order of
the Court, such Temporary Restraining Order became a
Preliminary Injunction which will remain in effect until
the trial in this matter.
Licensing and Consulting Agreements C Effective September
30, 1998, Synergy Technologies entered into an agreement
with Stone Canada, whereby Stone Canada committed to fund
the design and construction of a 4 bbl per day
demonstration facility in the Province of Alberta in
exchange for the Canadian marketing and licensing rights
to Synergy=s proprietary Gas to Liquids technology.
NOTE 9B 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 C Carbon Resources Limited
(ACarbon@) is a private Cyprus corporation, a wholly owned
subsidiary of Synergy Technologies, and the 100%
shareholder of Lanisco Holdings Limited (a private Cyprus
corporation), which holds the rights to acquire the CPJ
Process, a proprietary and patented technology for the
upgrading of heavy crudes to conventional light oils.
On May 1, 1998 Carbon and Laxarco Holdings Ltd.
(ALaxarco@) (the sole shareholder of Carbon) entered into
agreements granting Carbon the rights to acquire the
patented SYNGEN technology contingent upon Carbon
fulfilling certain terms and conditions outlined in a
technology transfer agreement. On May 5, 1998, Carbon and
Laxarco entered into a share exchange agreement with
Synergy Technologies Corporation and Stone Canyon
Resources Ltd., (its then major shareholder), granting
Synergy Technologies the rights to
acquire 75% of the issued shares of Carbon (and thereby a
75% interest in the SYNGEN technology). Under the
exchange agreement, Synergy would exchange 10,000,000
shares of common stock for 75% of the shares of Carbon.
The share exchange was contingent upon Synergy
Technologies assuming the terms and conditions agreed to
by Carbon in the original technology transfer agreement.
3,750 common shares of Carbon (75% of the issued shares)
and 10,000,000 shares of Synergy Technologies Corporation
were placed in escrow subject to the terms of the
agreement.
On January 6, 1999, Carbon acquired all issued and
outstanding shares of Lanisco Holdings Limited, making
Lanisco a wholly owned subsidiary, which held the rights
to a second patent pending technology, the CPJ process,
subject to funding commitments.
On January 8, 1999, Synergy Technologies reached a verbal
agreement with Texas T Petroleum Ltd., a Colorado oil and
gas corporation, (ATexas T Petroleum@), whereby Texas T
Petroleum received an option to negotiate the acquisition
of up to 50% of the shares of Carbon in exchange for the
payment of $100,000 cash and the expenditure of an
additional $100,000 towards development of the CPJ
technology. Synergy advanced $100,000 of such funds to
Lanisco for the purchase of 1,000,000 Units of Texas T
Petroleum. Each Unit is comprised of one (1) share of
common stock and one stock warrant to acquire an
additional share for a period of three years from the
date of issue at $1.00 per share.
Effective June 25, 1999, Carbon, Laxarco Holding and
Synergy Technologies agreed to amend the original share
exchange agreement and Synergy Technologies was granted
the right to acquire the remaining 25% of the shares of
Carbon. Under the exchange agreement, Synergy would
exchange 3,000,000 shares of common stock for the
remaining 1,250 shares of Carbon. The 3,000,000 shares of
the Company and 1,250 shares of Carbon were placed with
the escrow agent.
To facilitate an agreement with respect to the CPJ
process, Carbon, Laxarco Holding and Synergy Technologies
agreed to amend the original share exchange agreements to
transfer the SYNGEN technology from Carbon to a newly
incorporated subsidiary of Synergy Technologies.
Effective June 25, 1999 Synergy Technologies incorporated
Syngen Technologies Limited and the SYNGEN technology was
transferred from Carbon to Syngen. The shares of Syngen,
the newly incorporated subsidiary, were placed in escrow
subject to the terms of the original technology transfer
agreement executed between Carbon and Laxarco, the
shares of Carbon were released from escrow and Carbon
became a wholly-owned subsidiary of Synergy Technologies.
The CPJ technology is held in escrow subject to funding
and development commitments by Synergy.
On June 26, 1999, Synergy Technologies executed a share
exchange agreement with Texas T Petroleum whereby Texas T
Petroleum will acquire fifty percent (50%) of the issued
and organized shares of Carbon in exchange for the
issuance of 2,000,000 Units of Texas T Petroleum, each
Unit consisting of one share of common stock and one
stock warrant entitling the holder to purchase one (1)
additional share of Texas T Petroleum at $1.00 per share
within two years of June 26, 1999, and the payment of
$900,000 by Texas T for the development of the CPJ
technology. The 2,000,000 Units of Texas T Petroleum and
5,000 shares of Carbon are reserved for issue upon
fulfillment by Texas T Petroleum of the terms of the
agreement.
During the course of fiscal 1999, Carbon has continued to
develop the CPJ technology held by its wholly owned
subsidiary, Lanisco Holdings Limited, under the financial
support of Texas T Petroleum Ltd. Carbon intends to
carry-on with development of the CPJ Process in co-
operation with Lanisco Holdings and Texas T Petroleum
during fiscal 2000.
Syngen Technologies Limited C Syngen Technologies Limited
(ASyngen@) 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 ASYNGEN@ which converts natural gas to
synthesis gas. (See Carbon Resources Limited above,
paragraph 6.) The shares of Syngen remain in trust with
an escrow agent until the fulfillment of the terms and
conditions of the agreements. Should Synergy Technologies
fail to fulfill the terms and conditions of the
agreements, the shares of Syngen (and therefore the
SYNGEN technology), would revert to the original holders
and the shares of Synergy Technologies Corporation in
trust with the escrow agent would be returned to
treasury.
Lanisco Holdings Limited and Texas T Petroleum, Ltd. C
Lanisco Holdings Limited (ALanisco@), 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 ACPJ@ which converts so called
heavy oils into lighter oils.
Lanisco entered into agreements January 6, 1999 whereby
it was granted the rights to acquire the CPJ technology
from the Inventor, in return for expending $1,000,000 to
commercialize the technology, and payment of a royalty of
65% of the net proceeds received from any license fees,
royalties or any such other revenues earned until payment
of a total of $1,000,000 to the Inventor, at which time
the royalty would revert to 35% of any net proceeds
received from any revenue generated by the technology.
(Net proceeds to be defined as gross revenues less
reasonable operating expenses including R&D expenses).
Two further agreements entered into in January 1999 and
June 1999, between Synergy Technologies (the 100%
shareholder of Carbon Resources Limited) and Texas T
Petroleum granted Texas T Petroleum the right to acquire
50% of the shares of Carbon (and thereby acquire a 50%
interest in the CPJ technology). Please refer to Carbon
Resources Limited above, paragraphs 4 and 7 for a
detailed explanation of these agreements.
At December 31, 1999, Lanisco, Carbon and Texas T
Petroleum worked in co-operation to re-construct the 1/2
bbl/day pilot CPJ unit at laboratory facilities in
Calgary, Alberta to permit testing of various heavy crude
samples for potential licensees.
In addition, Lanisco, Carbon Resources and Texas T
Petroleum have commissioned and received a detailed cost
estimate for the construction of a 100 bbl/day pilot unit
expected to commence construction in the Province of
Alberta in fiscal year 2000.
Lanisco intends to generate annual revenues through the
licensing of the CPJ technology to a variety of
international corporations and host countries, and by the
generation of royalty revenues from operational CPJ
facilities.
NOTE 10BSUBSEQUENT EVENTS
Pursuant to a private placement of its common stock
pursuant to Regulation S commenced in December 1999 at
$0.50 per Unit. Each Unit consisted of one share of
common stock and one warrant exercisable for a period of
one year from the date of issue at $1.00 per share for
each warrant exercised. In January 2000 10,000 Units were
sold for total proceeds of $5,000. A total of 63,000
Units were sold under the placement for total proceeds of
$31,500.
On January 5, 2000 the Company approved the Year 2000
Employees Stock Award Plan, which authorized awards of up
to 1,500,000 shares of common stock. As of March 17,
2000 a total of 1,114,815 shares were issued under the
plan as compensation for bonafide services actually
rendered.
On January 14, 2000, a Financing and Security Agreement
was entered into by and among Stone Canada and the
Company (collectively the ABorrowers@) and James E.
Nielson and Wood River Trust (collectively the ALenders@),
in regard to a loan in the amount of $300,000 for
allocation towards development of the 4-bbl/day per day
SYNGEN demonstration plant. As security for this loan,
Stone Canada has assigned to the Lenders all of its
rights to payment under its funding agreement with the
IERD. The Lenders= interest in the collateral expires
after a period of ninety (90) days following the initial
start up of the SYNGEN demonstration plant. At that time
prior thereto, the lenders may choose to convert the
loaned amount into 600,000 Units of Synergy Technologies,
with each unit to consist of one share of common stock
and one warrant to purchase an additional share of common
stock for $1.00 per share. Such conversion right applies
to all or any portion of the loan, at the Lenders=
discretion. If the loan is not converted, then the
principal amount of the loan ($300,000) and all accrued
interest thereon will be released to the Lenders as
payment in full, and any additional amounts in the escrow
account will be released to Stone Canyon.
On January 14, 2000, a second Financing and Security
Agreement was entered into by and among Stone Canada and
the Company (collectively the ABorrowers@) and Caribbean
Overseas Investments Ltd. (the ALender@) with the same
terms as the above-described financing agreement, except
the loan amount was $50,000, convertible into 100,000
Units.
On January 19, 2000, the Company commenced a private
placement of shares of its common stock pursuant to
Regulation S. Subsequent to the year ended December 31,
1999, the Company accepted subscriptions to this offering
for the sale of 100,000 shares at $1.00 per share.
In January 2000 Synergy approved the implementation of
three
stock option plans which had previously received
shareholder
approval, under which a total of 3,000,000 shares of common
stock were reserved for exercise by directors, officers,
advisory board members, employees and consultants at $1.00
per
share for a period of 10 years from the date of grant.
During
February 2000 the Company filed with the Securities and
Exchange Commission Registration Statements on Form S-8
in
respect of these three (3) stock option plans. As of March
17, 2000 a total of 80,000 options had been exercised.
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> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYNERGY
TECHNOLOGIES CORPORATION'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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,082
<SECURITIES> 0
<RECEIVABLES> 53,352
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 80,346
<PP&E> 2,106
<DEPRECIATION> 261
<TOTAL-ASSETS> 182,191
<CURRENT-LIABILITIES> 1,432,142
<BONDS> 0
0
0
<COMMON> 1,508,435
<OTHER-SE> (2,758,386)
<TOTAL-LIABILITY-AND-EQUITY> 182,191
<SALES> 0
<TOTAL-REVENUES> 200,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,041,752
<LOSS-PROVISION> (1,841,752)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,841,752)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,841,752)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,841,752)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
