14
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-26721
SYNERGY TECHNOLOGIES CORPORATION
(Exact name of small business issuer
as specified in its charter)
COLORADO 84-1379164
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
335 - 25th Street, S.E., Calgary, Alberta Canada T2A 7H8
(403) 269-2274
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date:
33,073,275 shares of Common Stock, $0.002 par value, as of August 9, 2001.
Transitional Small Business Disclosure Format
(check one): Yes [ ] No [X]
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
(UNAUDITED)
PREPARED BY MANAGEMENT
JUNE 30, 2001
2
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(PREPARED BY MANAGEMENT) FOR THE
SIX MONTH PERIOD ENDED JUNE 30, 2001
TABLE OF CONTENTS
PAGE
Financial Statements:
Unaudited Consolidated Balance Sheets - As at June 30, 2001 and 4
year ended December 31, 2000
Unaudited Consolidated Statements of Operations for the three and 5
six months ended June 30, 2001 and 2000, and for the period from
November 7, 1996 (Date of Inception) to June 30, 2001
Unaudited Consolidated Statement of Cash Flows for the three and 6
six months ended June 30, 2001 and 2000, and for the period from
November 7, 1996 (Date of Inception) to June 30, 2001
Unaudited Consolidated Statement of Changes in Stockholders' Equity 8
for the six months ended June 30, 2001 and the years ended December
31, 2000 and 1999
Notes to Unaudited Consolidated Financial Statements 9
3
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
AS AT JUNE 30, 2001 AS AT DECEMBER 31,
(UNAUDITED) 2000
---------------- ---------------
CURRENT ASSETS
Cash $ 120,812 $ 76,059
Receivables (Note 5) 24,955 84,761
Receivables - related parties (Note 4a)) 60,229 2,842
Prepaid expenses 60,648 73,714
---------------- ---------------
TOTAL CURRENT ASSETS 266,644 237,376
INVESTMENTS (Note 3)
SynGen technology 38,028,244 38,028,244
CPJ technology 1,386,500 1,062,500
Investment in private U.S. corporation 1,000,000 1,000,000
---------------- ---------------
TOTAL INVESTMENTS 40,414,744 40,090,744
Office equipment and computers, net of accumulated
depreciation $29,855 62,140 80,361
---------------- ---------------
TOTAL ASSETS $ 40,743,528 $ 40,408,481
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 706,303 $ 212,794
Accounts payable - related parties 115,960 -
Accrued expenses 53,613 85,437
Notes payable - related parties (Notes 4 (b) 89,827 -
Shareholders' deposits 266,521
---------------- ---------------
TOTAL CURRENT LIABILITIES 1,232,224 298,231
LONG TERM LIABILITIES (Note 6)
Notes payable 2,250,000 2,250,000
Notes payable - related parties - 1,000,000
Accrued interest on notes 254,758 134,086
---------------- ---------------
2,504,758 3,384,086
Investment in joint ventures (Note 3) 36,839 -
---------------- ---------------
TOTAL LIABILITIES 3,773,821 3,682,317
STOCKHOLDERS' EQUITY
Common stock, $0.002 par value, 50,000,000 shares
Authorized, 31,379,814 (29,541,164 -2000) issued and
outstanding 63,740 60,077
Additional paid in capital 47,617,956 45,786,313
Deferred compensation (46,560) (89,770)
Accumulated deficit (10,665,429) (9,030,456)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 36,969,707 36,726,164
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,743,528 $ 40,408,481
================ ===============
Going Concern Note 2
The accompanying notes are an integral part of these financial statements.
4
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
CUMULATIVE PERIOD
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS FROM NOVEMBER
JUNE 30 ENDED JUNE 30 7, 1996 (DATE OF
2001 2000 2001 2000 INCEPTION) TO JUNE
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 2001(UNAUDITED)
----------------------------------------------------------------------------------
OTHER INCOME
Interest income 491 - 1,053 - 32,496
Consulting income - - - - 8,927
------------------------------------------------------------------------------------------------------------------------------------
491 - 1,053 - 41,423
EXPENSES
General and administrative 608,940 412,377 1,004,522 722,223 4,174,101
Stock option compensation 21,603 74,687 43,210 510,125 934,770
Compensation related to warrants - - - - 343,744
Technology development 176,579 194,515 407,572 372,851 2,654,784
Dry well expenses - - - - 722,210
------------------------------------------------------------------------------------------------------------------------------------
807,122 681,579
TOTAL EXPENSES 1,455,304 1,605,199 8,829,609
------------------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (806,631) (681,579) (1,454,251) (1,605,199) (8,788,186)
OTHER EXPENSES
Amortization of debt discount and offering
costs - (900,000) - (900,000) (2,250,000)
Accrued interest on notes payable (52,973) - (120,671) - (254,757)
Share of expenses inccurred by joint venture (137,379) - (174,694) - (174,694)
Gain on disposition (Notes 3(b)) 90,263 - 114,643 - 802,208
------------------------------------------------------------------------------------------------------------------------------------
NET LOSS BEFORE TAXES (906,720) (1,581,579) (1,634,973) (2,505,199) (10,665,429)
------------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAX - - - -
------------------------------------------------------------------------------------------------------------------------------------
NET LOSS $(906,720) $(1,581,579) $ (1,634,973) $ (2,505,199) $ (10,665,429)
====================================================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE
$ (0.03) $ (0.12) $ (0.05) $ (0.19) $ (0.73)
====================================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN
CALCULATION 31,194,005 13,676,256 30,724,302 13,166,131 14,635,075
====================================================================================================================================
The accompanying notes are an integral part of these financial statements.
5
SYNERGY TECHNOLOGIES CORPORATION AND SUBSIDARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX FOR THE SIX CUMULATIVE PERIOD
FOR THE THREE MONTHS MONTHS ENDED MONTHS ENDED FROM NOVEMBER 7,
ENDED JUNE 30, 2001 JUNE 30, 2000 1996 (DATE OF
JUNE 30, 2001 JUNE 30, 2000 (UNAUDITED) (UNAUDITED) INCEPTION) TO JUNE
30, 2001
(UNAUDITED)
CASH FROM OPERATING ACTIVITIES
Net loss (906,720) (1,581,579) (1,634,973) (2,505,199) (10,665,429)
Adjustments to reconcile net loss
to net cash from operations
Dry well expense - - - - 722,210
Depreciation 8,750 3,411 18,803 3,411 38,256
Amortization of unearned
compensation 21,603 74,687 43,210 510,125 934,770
Amortization of debt discount
and offering costs - 900,000 - 900,000 2,250,000
Accrued interest on notes payable 52,973 - 120,671 - 254,757
Issuance of shares for services 565,806 - 565,806 7,822 963,635
Issuance of warrants for services - - - - 343,744
Investment in joint ventures 36,839 - 36,839 - 36,839
Exchange rate loss (11,512) 7,922 930 10,179 35,907
Loss on disposition of assets 904 - 904 - (685,328)
Changes in assets and liabilities
Accounts receivable 34,162 (10,882) 59,804 (61,353) (24,956)
Prepaid expenses and deposits (14,289) (1,567) 13,066 (3,642) (60,663)
Accounts receivable - related
parties (4,187) 264,457 (57,386) (51,878) (60,228)
Accounts payable 127,205 59,830 169,509 (15,353) 1,070,277
Accounts payable - related
parties 142,943 - 142,943 - 142,943
Accrued expenses (37,325) (2,824) (31,825) 77,659 53,612
--------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 17,152 (286,545) (551,699) (1,128,229) (4,649,654)
CASH FROM INVESTING ACTIVITIES
Acquisition of oil and gas
properties - - - - (688,188)
Acquisition of property and
equipment 152 (25,576) (1,483) (28,425) (102,631)
Acquisition of equity security - - - - (100,000)
--------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING
ACTIVITIES 152 (25,576) (1,483) (28,425) (890,819)
CASH FROM FINANCING ACTIVITIES
Proceeds from (payments to)
notes payable - related parties (214,139) - 62,844 (13,143) 621,760
Proceeds from (payments to)
notes payable - 95,398 - 396,661 814,401
Proceeds from investor deposits 266,521 - 266,521 200,000 469,021
Proceeds from option income - - - - 200,000
6
Net proceeds from convertible
debt - 855,000 - 855,000 2,137,500
Sales of common stock 39,000 18,999 269,500 535,999 1,454,510
--------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING
ACTIVITIES 91,382 969,397 598,865 1,974,517 5,697,192
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 11,512 (7,922) (930) (10,179) (35,907)
NET CHANGE IN CASH 120,198 649,354 44,753 807,684 120,812
CASH AT BEGINNING OF PERIOD 614 161,412 76,059 3,082 -
--------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 120,812 $ 810,766 $ 120,812 $ 810,766 $ 120,812
====================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
-------------- ------------ ---------------- ---------------- ------------------ --------------
TOTAL
STOCKHOLDERS'
ADDITIONAL ACCUMULATED UNEARNED EQUITY
SHARES AMOUNT PAID IN CAPITAL DEFICIT COMPENSATION (DEFICIT)
-------------- ------------ ---------------- ---------------- ------------------ --------------
BALANCE AT DECEMBER 31, 1999 11,989,327 $23,980 $ 1,484,455 $(2,958,385) $(1,449,950)
Cancellation of founders shares (496,736) -
Issuance of shares for cash 710,000 1,420 353,580 355,000
Issuance of shares for royalty
education 500,000 1,000 1,061,500 1,062,500
Issuance of stock options 981,330 981,330
Issuance of warrants for services
September 29, 2000 343,744 343,744
Issuance of convertible debt 2,137,500 2,137,500
Issuance of shares from escrow 14,943,510 29,887 37,998,357 38,028,244
Warrants for stock, January through
December 2000 431,000 862 430,138 431,000
Issuance of shares for services
February 16, 2000 at average prices 1,359,063 2,718 890,919 893,637
Options exercised 105,000 210 104,790 105,000
Unearned compensation (89,770) (89,770)
Net loss for the period (6,072,071) (6,072,071)
-------------- ------------ ---------------- ---------------- ------------------ --------------
BALANCE AT DECEMBER 31, 2000 29,541,164 $60,077 $45,786,313 $(9,030,456) $ (89,770) $ 36,726,164
============== ============ ================ ================ ================== ==============
Units for stock - debenture 1,000,000 2,000 998,000 1,000,000
Unites for stock - Cash 264,000 528 263,472 264,000
Options exercised 5,500 11 5,489 5,500
Re-issue of founders shares 7,143 -
Shares for services 562,007 1,124 564,682 565,806
Unearned compensation 43,210 43,210
Net loss for the period (1,634,973) (1,634,973)
-------------- ------------ ---------------- ---------------- ------------------ --------------
BALANCE AT JUNE 30, 2001 31,379,814 $63,740 $47,617,956 $(10,665,429) $(46,560) $36,969,707
============== ============ ================ ================ ================== ==============
The accompanying notes are an integral part of these financial statements.
8
SYNERGY TECHNOLOGIES CORPORATION AND SUBSIDARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
All dollar amounts used herein refer to U.S. dollars unless otherwise indicated.
These statements are prepared using Generally Accepted Accounting Principals as
well as the terms outlined or explained in the year end 10-KSB filing along with
any changes as noted in the March 31, 2001 10-QSB.
All significant transactions among the parent and consolidated subsidiaries have
been eliminated. The consolidated quarterly financial statements are unaudited.
These statements include all adjustments (consisting of normal recurring
accruals) considered necessary by management to present a fair statement of the
results of operations, financial position and cash flows. The results reported
in these consolidated financial statements should not be regarded as necessarily
indicative of results that may be expected for the entire year.
NOTE 2 - GOING CONCERN
BUSINESS CONDITION - The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
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 quarter ended June 30, 2001 and cumulatively from inception through
June 30, 2001, 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 attempt to 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. If Synergy is unable to
realize this additional financing, it could cease to be a going concern.
Development Stage Company - 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. To date the Company has had minimal
revenues and has substantial debt, therefore, the Company is considered to be in
the development stage.
For the current developments taking place within the organization, refer to the
Plan of Operation section following the notes to the financial statements.
NOTE 3 - INVESTMENTS, ACQUISITIONS AND TECHNOLOGY DEVELOPMENT
Investments reported on the Consolidated Balance Sheet of the Company include
the following:
JUNE 30, DECEMBER 31,
2001 2000
------------- ---------------
Investment in SynGen Technology (See Note 3(a) below) $ 38,028,244 $ 38,028,244
Investment in CPJ Technology (See Note 3(b) below) 1,386,500 1,062,500
Investment in private U.S. corporation (See Note 3(b) below) 1,000,000 1,000,000
------------- ---------------
$ 40,414,744 $ 40,090,744
============= ===============
(a) SynGen: There were no changes during the current quarter.
(b) CPJ: During the quarter ended June 30, 2001, the Company recorded a
liability of $324,000 to the inventor, Dr. Jorgensen, based on the amended
royalty agreement signed in fiscal 2000, whereby, Dr. Jorgensen was to receive
proceeds of not less than $250,000 from the sale of 100,000 shares of Synergy
Technologies Corporation by February 28, 2001 and an additional $250,000 from
the sale of a further 100,000 shares by February 28, 2002. As of June 30, 2001,
Dr. Jorgensen had not sold any of the shares and therefore, based on the June
29, 2001 closing stock price of $0.88 per share, the difference in net proceeds
is $324,000.
9
For the purposes of these financial statements, all operations of Carbon have
been fully consolidated up to November 1, 2000, and subsequently, the Company's
interest in Carbon has been recorded using the Equity Method.
Investment in Carbon as at June 30, 2001:
--------------------------------------------------------------------------------
o Shares of Carbon
2,500 shares valued at Cyprus(pound)1.00 per share $ 5,029
o Advances to Carbon 671,296
o 50% of net liabilities of Carbon (713,164)
o Deferred gain on disposition of shares -
------------------
$ (36,839)
--------------------------------------------------------------------------------
During the quarter ended June 30, 2001 the deferred gain reported in the
previous quarter has been totally allocated against the Company's 50% interest
in the post disposition losses of Carbon of $341,582 (Synergy's portion -
$170,791).
NOTE 4 - RELATED PARTY TRANSACTIONS
(a) Related party receivables as reported on the Consolidated Balance
Sheets of the Company as at June 30, 2001 include amounts advanced to
Drake Synergy Petroleum Ltd., a Nigerian corporation and 50% owned
joint venture between the Company and Drake Oil Limited, less the
Company's 50% interest in the loss from those operations.
As at June 30, 2001 amounts included in the related party receivable due
from Drake Synergy Petroleum are as follows:
--------------------------------------------------------------------------------
o Shares of Drake Synergy Petroleum Ltd.
2,500,000 shares valued at 1 Naira per share $ 22,727
o Advances to Drake Synergy Petroleum 67,236
o 50% of net liabilities of Drake Synergy Petroleum (29,734)
--------------
$ 60,229
--------------------------------------------------------------------------------
(b) Notes payable of $89,827 reported on the Consolidated Balance Sheets of
the Company as at June 30, 2001 represent total cumulative amounts
advanced to Synergy for general operations from its 50% owned
joint-venture with Carbon Resources Limited. The notes bear interest at
a rate of prime plus 1% per annum and have no specific terms of
repayment.
(c) During the six-month period ended June 30, 2001, the Company and its
subsidiaries were charged a total of $71,604 in consulting fees by
Glidarc Technologies Inc. (a Texas corporation) for process management
services and technical personnel. Mr. Thomas Cooley, an officer of
Glidarc Technologies, is also the Company's Chief Executive Officer and
a member of the Board of Directors. Mr. Cooley also serves on the Board
of Directors of Syngen Technologies Limited, a wholly owned subsidiary
of the Company, and Carbon, the Company's 50% joint venture. An
amount of $18,124 relating to services provided by Glidarc Technologies
through June 30, 2001 remained due and payable to Glidarc as at the end
of the quarter.
(d) During the twelve month period ended December 31, 2000, the Company was
charged $15,083 for consulting services and reimbursement of actual
expenses by Huntingtown Associates LLC (a Connecticut corporation) of
which Mr. Baumert is the sole proprietor. Mr. Baumert is a member of
the Company's Board of Directors. Huntingtown Associates charges
consulting services provided by Mr. Baumert at a rate of $1,500 per day
plus expenses. An amount of $7,230 remained due and payable to
Huntingtown Associates as at June 30, 2001.
(e) Stone Canyon Resources Ltd.: Accrued interest on the promissory note of
$32,096 up to the date of retirement remained due and payable as at
June 30, 2001. In addition, an amount of $115,960 is reported on the
Consolidated Balance Sheet of the Company as at June 30, 2001, which
amount represents cash advances to Synergy in respect of general
operations. This amount has no set terms of repayment.
10
NOTE 5- RECEIVABLES
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 refundable to the Company in Canadian
Dollars upon filing of a GST return. Total receivables of $24,955 include a GST
refund due to the Company of $10,137, as well as certain other receivables
totaling $14,818.
NOTE 6 - LONG TERM LIABILITIES
(a) Convertible promissory note's interest in the amount of $222,662 has
been accrued to June 30, 2001 and is included on the Consolidated
Balance Sheet as Accrued interest on notes.
(b) The promissory note issued to Stone Canyon Resources Ltd. has accrued
interest of $32,096 which remained outstanding at the end of the
quarter.
NOTE 7 - COMMON STOCK
(a) Cash proceeds of $39,000 were received for the purchase of 39,000
Units at $1.00 per Unit pursuant to an offering commenced first
quarter 2000 and made pursuant to Regulation S. Each Unit consists
of a share of common stock and a warrant to purchase an additional
share for $3.50, exercisable at any time two years from the time
of subscription. There are no further Units available for purchase
under this offering.
(b) During the quarter ended June 30, 2001 the remaining 7,143 shares
that had not been converted into Synergy stock from the transfer
of Stone Canyon Resources Inc. in August 1997, were received and
issued.
(c) During the quarter ended June 30, 2001, 375,000 shares were issued
to a certain investment firm for investor relations and
promotional support. The shares are recorded in the Consolidated
Statement of Operations under the General and administrative
category at the value of the stock on the date of execution of the
agreement.
(d) During the quarter ended June 30, 2001, 187,007 shares were issued
pursuant to an S-8 registration for Directors and senior personnel
who had accrued salaries during the first six months of the
current fiscal year. The shares were issued at the average trading
value of the stock during the term of the accrued salaries.
(e) The following table summarizes the warrants issued, exercised and
expired during quarter ended June 30, 2001 and the fiscal year
ended December 31, 2000 an those warrants which remain outstanding
as at June 30, 2001:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2001 DECEMBER 31,
2000
================= =============
Warrants to purchase common shares, beginning of year 914,666 1,863,000
Warrants issued during the period
At $1.00 per share - 710,000
At $3.00 per Unit - 84,666
At $3.50 per share (Note 7(a)) 1,264,000 -
Warrants exercised during the period, $1.00 per share - (431,000)
Warrants cancelled during the period, $1.00 per share - (1,264,000)
Warrants expired unexercised during the period, $1.00 per share (130,000) (48,000)
----------------- -------------
Warrants to purchase common shares, end of period 2,048,666 914,666
================= =============
11
STOCK OPTIONS
The Company has four stock option plans as follows:
o 1998 Directors and Employees Stock Option Plan (approved by
shareholders June 5, 1998) (Plan "A");
o 1999 Directors and Employees Stock Option Plan (approved by
shareholders June 29, 1999 (Plan "B");
o 1999 Directors and Advisory Board Members Stock Option Plan (approved
by shareholders September 30, 1999) (Plan "C"); and,
o 2000 Employees Stock Option and Stock Award Plan (approved January 5,
2000) (Plan "D").
The following table will summarize options and awards granted, and options and
awards available for grant to the quarter ended June 30, 2001:
PLAN A PLAN B PLAN C PLAN D
1998 1999 1999 2000
------------------ ----------------- ----------------- -------------------
Total shares authorized under plan: 900,000 1,000,000 1,100,000 1,500,000
Options/awards granted:
Employees (i) 250,000 335,000 - 146,573
Directors (i) 400,000 425,000 400,000 36,315
Non-employees, consultants (ii) 250,000 200,000 - 1,316,175
Advisory Board members (ii) - - 500,000 -
------------------ ----------------- ----------------- -------------------
Total options granted 900,000 960,000 900,000 1,499,063
------------------ ----------------- ----------------- -------------------
Available for grant at June 30, 2001 - 40,000 200,000 937
================== ================= ================= ===================
(i) Options granted to employees and directors for their services as
directors and employees are accounted for using the intrinsic
value method. There was no value attributed to options granted
during the quarter.
(ii) The options granted to non-employees and advisory board members
are accounted for by the fair value method. The aggregate fair
value of options granted and shares issued pursuant to these plans
during the fiscal year ended December 31, 2000 was $803,830, of
which $714,060 was charged to earnings in 2000, $43,210 during the
current fiscal year and $46,560 was deferred until future periods.
The fair value of the options was determined by using the
Black-Scholes option-pricing model with the following assumptions:
dividend yield of 0.0%, weighted average expected volatility of
170%, weighted average risk-free interest rate of 6.44% and
expected life of 1 year.
The following table summarizes the status of the Company's stock options
(excluding stock awards) and changes thereto during the quarter ended June 30,
2001:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE,
JUNE 30, 2001
----------------------------------
Outstanding at beginning of year 2,795,000 -
Granted during period 200,000 1.05
Cancelled during period (200,000) 1.50
Exercised during period (5,500) 1.00
----------------------------------
Outstanding at end of quarter 2,789,500 $ 1.09
==================================
12
NOTE 8 - OTHER EVENTS
On June 15, 2001, Ms. Jacquie Danforth resigned her positions as a Director of
Synergy and any and all of its subsidiaries as well as Secretary Treasurer of
Synergy.
Mr. Cameron Haworth resigned as President of Synergy effective June 30, 2001.
Mr. Haworth remains a Director of Synergy.
As part of its strategy to list on a major exchange, Synergy has appointed Burg
Simpson Eldredge Hersh Jardine PC in Denver as its corporate counsel. In
addition, Synergy will appoint Ruffa & Ruffa, P.C. in New York as securities
counsel in early third quarter 2001.
There has been no material changes in the on-going litigation of the
organization during the quarter. Refer to the March 31, 2001 10-QSB for details
on outstanding issues.
13
PLAN OF OPERATION
Synergy's business is the development and licensing of technologies related to
the oil and gas industry. Capital from equity issues or borrowings or partnering
with industry is necessary to fund Synergys future operations and technology
development.
During July and August, 2001, Synergy received subscriptions of $1,500,000, of
which $192,932 is to be collected during August 2001, via a private placement
from Synergy employees, Directors and various funding companies. These funds
will cover the next twelve (12) months of operations based on current
projections. Plans to raise additional funds when needed are very well advanced.
Synergy has three (3) discrete technologies consisting of:
(1) conversion of stranded natural gas into synthetic naphtha and
diesel called GTL;
(2) the CPJ process which upgrades heavy oil to more valuable and
easily refined lighter oils; and
(3) SynGen, the cold plasma technology to produce hydrogen rich
streams from natural gas, PLG, gasoline, and diesel.
GTL
Synergy continues to evaluate opportunities to participate in a plant utilizing
all or some of its GTL technology in the near future. Its Drake Synergy
Petroleum Limited joint-venture company in Nigeria is pursuing such an
opportunity. For such a venture to be successful, the gas supply for a 20-year
term must first be secured. Discussions to-date with firms as potential sources
of financing, have been promising pending a gas contract. Sulfur free and
aromatic free products produced from a plant, will be shipped by tanker from
Nigeria to market in the US and/or Europe.
CPJ
Discussions continue with operators in Alberta to site a 5000 bpd upgrader at a
host site, which will provide some degree of infrastructure. The upgraded
product from the plant will likely be used as synthetic diluent to ship
additional heavy crude to market by pipeline. Such a plant will have a
commercial basis but will also serve as a pilot plant for the very large heavy
oil upgraders planned for the later part of the decade. For example, one
Albertan operator plans to put in service trains of 100,000 bpd in size. For
them, the 5000 bpd unit is considered a necessary size pilot unit to instill
confidence for their intended program.
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SYNGEN
Beginning in the first quarter of 2001, Synergy has really forcused on the fuel
cell potential for its SynGen reforming technology. It has become readily
apparent that commercial fuel cell applications, both stationary and onboard,
will be fossil fuel based for the foreseeable future. A 5-litre size SynGen
reactor has been installed in the Synergy Calgary laboratory. Tests have shown
that natural gas, gasoline, and diesel can be reformed into hydrogen rich
streams suitable for MCFC and SOFC fuel cells. Discussions are underway to
develop a relationship via formal licensing of SynGen with a SOFC manufacturer.
Work continues on Synergy's other SynGen systems, including the Bantry test
site.
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