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: SEPTEMBER 30, 2002
[ ] 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.)
1689 Hawthorne Drive, Conroe, Texas 77301-3284
(936) 788-8220
(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:
48,309,035 shares of Common Stock, $0.002 par value, as of November 19, 2002.
Transitional Small Business Disclosure Format
(check one): Yes No X
--- ---
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
(UNAUDITED)
PREPARED BY MANAGEMENT
SEPTEMBER 30, 2002
2
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(PREPARED BY MANAGEMENT) FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002
TABLE OF CONTENTS
PAGE
Financial Statements:
Consolidated Balance Sheet - As at September 30, 2002 and December 4
31, 2001
Consolidated Statement of Operations for the three and nine months 5
ended September 30, 2002 and 2001, and for the period from February
10, 1997 (Date of Inception) to September 30, 2002
Consolidated Statement of Cash Flows for the three and nine months 6
ended September 30, 2002 and 2001, and for the period from February
10, 1997 (Date of Inception) to September 30, 2002
Consolidated Statement of Changes in Stockholders' Equity for the 7
nine months ended September 30, 2002 and the years ended December
31, 2001 and 2000
Notes to Consolidated Financial Statements 8
3
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
AS AT AS AT
SEPTEMBER 30, 2002 DECEMBER 31, 2001
(UNAUDITED)
----------------------------------------------------
CURRENT ASSETS
Cash $ 39,727 $ 38,746
Receivables (Note 5) 3,140 38,560
Prepaid expenses 75,904 39,727
----------------------------------------------------
TOTAL CURRENT ASSETS 118,771 117,033
INVESTMENTS (Note 3)
SynGen Technologies 400,000 3,500,000
CPJ Technologies 600,000 1,432,500
Investment in Private US corporation - 1,000,000
----------------------------------------------------
1,000,000 5,932,500
Investment in joint venture (Note 3(c)) 50,420 80,768
----------------------------------------------------
TOTAL INVESTMENTS 1,050,420 6,013,268
Office equipment and computers, net of accumulated depreciation
of $38,179 50,512 59,780
----------------------------------------------------
TOTAL ASSETS $ 1,219,703 $ 6,190,081
====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 827,782 $ 1,018,649
Accrued expenses (Note 6(a)) 961,230 74,744
Notes payable (Note 6(b)) 210,000 2,250,000
Accrued interest on notes (Note 6(c)) 52,658 368,182
----------------------------------------------------
TOTAL CURRENT LIABILITIES 2,051,670 3,711,575
LONG TERM LIABILITIES
Notes payable (Note 7) 1,085,000 135,223
Investment in joint venture - 97,490
----------------------------------------------------
TOTAL LIABILITIES 3,136,670 3,944,288
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.002 par value, 100,000,000 shares
authorized, 46,670,083 shares issued and outstanding 94,321 69,333
Additional paid in capital 57,665,491 49,633,286
Deferred compensation - (13,879)
Deficit accumulated during development stage (59,676,779) (47,442,947)
----------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,916,967) 2,245,793
(SEE NOTE 2 - BANKRUPTCY PROCEEDINGS)
----------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,219,703 $ 6,190,081
====================================================
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 FROM
FEBRUARY 10,
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS 1997 (DATE OF
SEPTEMBER 30, ENDED SEPTEMBER 30, INCEPTION) TO
2002 2001 2002 2001 SEPT. 30, 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
REVENUE
Interest Income 7 3,069 70 4,123 35,879
Consulting Income - - - - 8,927
-----------------------------------------------------------------------------------------------------------------------------------
7 3,069 70 4,123 44,806
EXPENSES
General and administrative 313,061 774,239 2,021,471 1,778,761 7,853,493
Stock option compensation - 23,096 13,879 66,306 997,830
Compensation related to warrants - - - - 343,744
Technology development 359,454 139,968 652,643 547,540 3,615,300
Other technology costs (Note 6(a)) 480,700 - 895,900 - 895,900
Dry well expenses - - - - 722,210
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,153,215 937,303 3,583,893 2,392,607 14,428,477
-----------------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (1,153,208) (934,234) (3,583,823) (2,388,484) (14,383,671)
OTHER EXPENSES
Amortization of debt discount and offering
costs - - - - (2,250,000)
Conversion inducement - - (888,548) - (888,548)
Interest accrued on notes payable (22,394) (56,712) (154,082) (177,384) (522,264)
Share of expenses incurred by joint (9,300) (71,365) (43,280) (246,059) (342,161)
venture
Write-down of technology (7,564,099) - (7,564,099) - (42,092,343)
Gain on disposition - - - 114,643 802,208
-----------------------------------------------------------------------------------------------------------------------------------
(7,595,793) (128,077) (8,650,009) (308,800) (45,293,108)
-----------------------------------------------------------------------------------------------------------------------------------
NET LOSS BEFORE TAXES (8,749,001) (1,062,311) (12,233,832) (2,697,284) (59,676,779)
-----------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAX - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
NET LOSS $(8,749,001) $(1,062,311) $(12,233,832) $(2,697,284) $(59,676,779)
===================================================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.20) $ (0.03) $ (0.30) $ (0.09) $ (2.99)
===================================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED
IN CALCULATION 43,351,977 33,243,670 40,662,048 31,676,586 19,928,867
===================================================================================================================================
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
CUMULATIVE PERIOD FROM
FOR THE THREE MONTHS FOR THE NINE MONTHS FEBRUARY 10, 1997
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, (DATE OF INCEPTION) TO
2002 2001 2002 2001 SEPTEMBER 30, 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------
CASH FROM OPERATING ACTIVITIES
Net loss (8,749,001) (1,062,311) (12,233,832) (2,697,284) (59,676,779)
Adjustments to reconcile net loss to net cash
from operations
Dry well expense - - - - 722,210
Depreciation, amortization and write-downs 7,572,786 32,122 7,608,014 94,135 45,426,509
Conversion inducement - - 888,548 - 888,548
Accrued interest on notes payable 27,371 56,712 126,964 177,384 495,146
Issuance of shares for services 16,758 214,823 1,193,484 780,629 2,500,441
Issuance of warrants for services - - - - 343,744
Settlement of debt and acquisition of CPJ - - 357,529 - 357,529
Re-issue of founders shares - 106,500 38,500 106,500 145,000
Investment in joint ventures 9,300 (32,788) 33,490 4,051 50,209
Exchange rate loss (6,629) 23,450 11,044 24,380 73,374
Loss on disposition of assets - - - 904 (684,239)
Changes in assets and liabilities
Accounts receivable 21,404 (14,513) 35,421 45,291 (3,140)
Prepaid expenses and deposits 2,453 13,887 (36,177) 26,953 (75,920)
Accounts receivable - related parties - 60,228 - 2,842 -
Interest paid on convertible notes (225,138) - (225,138) - (225,138)
Accounts payable 36,422 (221,016) (190,866) (51,508) 1,145,763
Accounts payable - related parties - 10,145 - 153,088 153,088
Accrued expenses 506,988 46,430 886,487 14,605 961,230
----------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (787,286) (766,331) (1,506,532) (1,318,030) (7,402,425)
CASH FROM INVESTING ACTIVITIES
Acquisition of oil and gas properties - - - - (688,188)
Acquisition of property and equipment - (12,137) (20,770) (13,620) (140,175)
Acquisition of equity security - - - - (100,000)
----------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES - (12,137) (20,770) (13,620) (928,363)
CASH FROM FINANCING ACTIVITIES
Proceeds from (payments to) notes payable
- related parties - (89,827) - (26,983) 531,933
Proceeds from (payments to) notes payable - 8,844 (55,223) 8,844 768,296
Net proceeds from convertible debt - - - - 2,137,500
Sales of common stock 815,000 1,317,674 1,594,550 1,587,174 4,603,660
Other - (266,521) - - 402,500
----------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 815,000 970,170 1,539,327 1,569,035 8,443,889
EFFECT OF EXCHANGE RATE CHANGES ON CASH 6,629 (23,450) (11,044) (24,380) (73,374)
NET CHANGE IN CASH 34,343 168,252 981 213,005 39,727
CASH AT BEGINNING OF PERIOD 5,384 120,812 38,746 76,059 -
----------------------------------------------------------------------------
CASH AT END OF PERIOD $ 39,727 $ 289,064 $ 39,727 $ 289,064 39,727
============================================================================================================================
The accompanying notes are an integral part of these financial statements.
6
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------
TOTAL
ADDITIONAL PAID ACCUMULATED UNEARNED STOCKHOLDERS'
SHARES AMOUNT IN CAPITAL DEFICIT COMPENSATION EQUITY (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 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
===========================================================================================
Warrants for stock -- debenture 1,000,000 2,000 998,000 - - 1,000,000
Warrants for stock - cash 264,000 528 263,472 - - 264,000
Options exercised -- cash 5,500 11 5,489 - - 5,500
Re-issue of founders shares 157,143 300 106,200 - - 106,500
Issuance of stock options - - 120,000 - - 120,000
Shares for services 893,154 1,786 858,443 - - 860,229
Issuance of shares for cash 2,315,382 4,631 1,495,369 - - 1,500,000
Unearned compensation - - - - 75,891 75,891
Net loss for the period - - - (38,412,491) - (38,412,491)
-------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 34,176,343 $ 69,333 $49,633,286 $(47,442,947) $ (13,879) $ 2,245,793
-------------------------------------------------------------------------------------------
Issuance of shares for cash 3,861,284 7,723 1,586,827 - - 1,594,550
Shares for services 1,362,115 2,724 709,329 - - 712,053
Shares for debt 2,504,966 5,010 1,514,415 - - 1,519,425
Shares for technology acquisition 4,291,334 8,583 3,081,177 - - 3,089,760
Re-issue of founders shares 50,000 100 38,400 - - 38,500
Shares for financing services 424,041 848 173,009 - - 173,857
Issuance of warrants - - 40,500 - - 40,500
Unearned compensation - - - - 13,879 13,879
Conversion inducement - - 888,548 888,548
Net loss for the period - - - (12,233,832) - (12,233,832)
-------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 46,670,083 $ 94,321 $57,665,491 $(59,676,779) $ - $(1,916,967)
===========================================================================================
The accompanying notes are an integral part of these financial statements.
7
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 Principles as
well as the terms outlined or explained in the year-end 10-KSB filing.
All significant transactions between the parent and consolidated affiliates 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 - BANKRUPTCY PROCEEDINGS AND UNCERTAINTY ABOUT THE COMPANY'S ABILITY TO
CONTINUE AS A GOING CONCERN
Synergy's business is the development and licensing of technologies related to
the oil and gas industry. Synergy's efforts are directed to the commercial
application of technologies in two areas:
1. technologies for the conversion of stranded natural gas into synthetic
naphtha and diesel (GTL), including Syngen, a cold plasma technology
to produce hydrogen rich streams from natural gas, gasoline and
diesel; and
2. technologies for the upgrading of heavy oil to lighter oils (CPJ).
The Company is in the development stage and has not realized any revenues, has
incurred losses and had negative cash flows from operations in the first nine
months of 2002 and each year since its inception. The Company's efforts have
been focused on the development of its technologies and raising capital
necessary to finance its development and administrative activities. To date, a
substantial portion of its activities have been paid for by the issuance of
common shares, options and warrants.
On November 13, 2002 (the "Petition Date"), the Company and it's wholly-owned
subsidiary, Carbon Resources Limited ("Carbon"), each voluntarily filed a
petition of creditor protection under Chapter 11 of the United States Bankruptcy
Code ("Chapter 11") in the United States Bankruptcy Court, Southern District of
New York (the "Bankruptcy Court"). The Company and Carbon (the "Debtors") are
presently operating their businesses as debtors-in-possession, and their Chapter
11 proceedings are being jointly administered for procedural purposes. SynGen
Technologies Limited, a wholly-owned subsidiary of the Company, and Lanisco
Holdings Limited, a wholly-owned subsidiary of Carbon, were not included in the
Chapter 11 filing.
The Company is reorganizing its affairs under the protection of Chapter 11 and
will propose a plan of reorganization for itself and other filing subsidiaries
to be submitted to the Bankruptcy Court for confirmation after submission to any
vote and approval required by affected parties. During the pendency of these
proceedings, the Company will continue to operate its business, including
seeking to commercialize its technologies, while working to restructure its
liabilities. On November 20, 2002, the Bankruptcy Court approved an interim loan
to the Company of approximately $76,000 by an unaffiliated party. The loan
matures in one year and bears interest at 12% per annum. However, the Company's
ability to operate while in Chapter 11 and complete the Chapter 11 process is
dependent on obtaining additional financing, which is subject to Bankruptcy
Court approval. There can be no assurance the Company will be able to reach
agreement on the terms of a financing or that the Bankruptcy Court will approve
a financing.
8
The conditions described above raise substantial doubt about the ability of the
Company to continue as a going concern. These financial statements have been
prepared on the going concern basis, which assumes that the Company will be able
to realize its assets and discharge its liabilities in the normal course, which
would require the raising of additional capital sufficient to finance its
development activities and administrative costs during the Chapter 11 process
and beyond. However, there can be no assurance that the Company will be able to
raise the necessary additional capital or successfully complete the development
of its technologies. If these assumptions were determined to no longer be
appropriate, the going concern basis would no longer be appropriate and the
assets and liabilities would be adjusted to their liquidation values. In
addition, even if the Company continues as a "going concern", the amounts
reported in our financial statements could change materially as a result of a
plan of reorganization.
NOTE 3 - INVESTMENTS, ACQUISITIONS AND TECHNOLOGY DEVELOPMENT
Investments reported on the Consolidated Balance Sheet of the Company include
the following:
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------------------------------------
Investment in SynGen Technology (See Note 3(a) below) $ 400,000 $ 3,500,000
Investment in CPJ Technology (See Note 3(b) below) 600,000 1,432,500
Investment in private U.S. corporation - 1,000,000
----------------------------------------
$ 1,000,000 $ 5,932,500
========================================
(a) SynGen: As at September 30, 2002 the Company has reduced its
expectation of the cash flows to be received through the construction
of a plant, licensing or other arrangements. Accordingly, the net book
value of the Syngen technology and other associated assets has been
written down to $400,000 representing management's estimate of the
value of the intellectual property, equipment and other assets
associated with the SynGen technology. The Company continues to
actively pursue commercial opportunities related to the SynGen
technology.
(b) CPJ: During the quarter ended March 31, 2002, Synergy entered into an
agreement with Texas T Petroleum Ltd. ("Texas T"), Capital Reserve
Corporation, Carbon Resources Limited ("Carbon") and Pierre Jorgensen
to purchase the remaining 50% of Carbon from Texas T. The details of
this agreement are as follows:
1) Texas T transferred to Synergy all of its right, title and
interest in and to the Carbon stock.
2) Synergy issued to Texas T 400,000 shares common stock of
Synergy.
3) Synergy also issued in the name of Texas T 1,900,000 common
shares of Synergy and delivered the stock to an escrow agent to be
held pursuant to an escrow agreement.
Under the terms of an agreement entered into September 2000 to
renegotiate the terms of the royalty agreement, the Company and Texas T
had each issued shares to Mr. Jorgenson together with a commitment to
make up the difference between the proceeds received on the sale of
shares and $1 million. As at December 31, 2001 the Company had accrued
$370,000 for its share of the shortfall between the value of the shares
and $500,000. In connection with the acquisition of the additional
shares of Carbon, the Company assumed the remaining 50% of this
obligation to Mr. Jorgenson, agreed to an increase in the minimum value
to $1,100,000, and issued an additional 1,491,334 shares to Mr.
Jorgenson for settlement of this obligation. Shares issued to Mr.
Jorgenson in excess of those required to achieve the committed resale
proceeds of $1,100,000 will be returned to the Company. A value of
$1,073,760 was attributed to this transaction based on the five-day
average share price of $0.72 per share. An additional 500,000 shares
were issued in order to replace the 500,000 Capital Reserve Corporation
shares that were returned to Texas T pursuant to the purchase
agreement. A value of $360,000 was attributed to this transaction based
on a five-day average share price of $0.72 per share.
This transaction closed on March 5, 2002. Up to that date the
investment in Carbon was recorded using the equity method. From the
closing date forward Carbon has been recorded using the consolidation
method. The investment in private US Corporation at December 31, 2001
was eliminated upon the closing of this agreement.
9
As at September 30, 2002 the Company has reduced its expectation of the
cash flows to be received through the construction of a plant,
licensing or other arrangements. Accordingly, the net book value of the
CPJ technology and other associated assets has been written down to
$600,000 representing management's estimate of the value of the
intellectual property, equipment and other assets associated with the
CPJ technology. The Company continues to actively pursue commercial
opportunities related to the CPJ technology.
(c) Investment in Drake Synergy Petroleum as at September 30, 2002:
--------------------------------------------------------------------------------------------
|X| Shares of Drake Synergy Petroleum Ltd.
2,500,000 shares valued at Naira 1.00 per share 22,104
|X| Advances to Drake Synergy Petroleum 121,813
|X| 50% of net liabilities of Drake Synergy Petroleum (93,497)
-------------------
$ 50,420
--------------------------------------------------------------------------------------------
NOTE 4 - RELATED PARTY TRANSACTIONS
During the quarter ended September 30, 2002, the Company renegotiated
the Consulting Agreement with Huntingtown Associates, LLC (a
Connecticut corporation) of which Mr. Baumert is the sole proprietor
and a member of the Company's Board of Directors. Huntingtown
Associates charges consulting services provided by Mr. Baumert at a
rate per day of $350 in cash and 3,000 options to purchase the
Company's common stock at a price of $0.72 per share. At September 30,
2002 an amount of $14,481 remained due and payable to Huntingtown
Associates.
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 in Canadian Dollars upon filing of a GST
return. Total receivables include a GST refund due to the Company of
$3,140.
NOTE 6 - CURRENT LIABILITIES
(a) Accrued expenses: In connection with the acquisition by the Company in
the first quarter of 2002 of the remaining 50% of the shares of Carbon
it did not own, the Company agreed to issue 1,491,334 common shares to
Mr. Jorgensen for resale by him. In the event that Mr. Jorgensen
realizes proceeds of $1,100,000 from the sale of these shares as well
as the sale of certain other shares previously issued by the Company
to Mr. Jorgensen, he is required to return any unsold shares to the
Company. In the event the sale of these shares and the shares
previously issued results in proceeds of less than $1,100,000, the
Company will be required to issue additional shares sufficient for Mr.
Jorgensen to realize total proceeds of $1,100,000. At September 30,
2002, the Company recorded a liability of $895,900 to Mr. Jorgensen
because, based on the closing stock price on that date of $0.08 per
share, the value of the shares held by Mr. Jorgensen on that date was
$895,900 less than our remaining obligation to Mr. Jorgensen.
(b) Notes payable: Notes payable includes $210,000 of convertible
promissory notes whose holders have requested repayment under the
terms of the notes
(c) Accrued interest on notes: Interest in the amount of $51,247, related
to the convertible promissory notes, plus $1,411 related to a Company
employee loan, has been accrued to September 30, 2002.
NOTE 7 - LONG TERM LIABILITIES
(a) Notes payable includes $1,005,000 of convertible promissory notes.
These notes accrue interest at the rate of 10% per annum, payable
quarterly, and mature in 2005.
(b) Notes payable also includes a loan from a Company employee for
$80,000. This loan bears interest at the rate of Prime plus one
percent per annum and is due by December 9, 2003.
10
NOTE 8 - COMMON STOCK
(a) Cash proceeds of $500,000 were received during the quarter ended
September 30 for the purchase of 1,246,884 shares at a price of $0.401
per share. These shares were issued pursuant to a private placement
with one of the company's institutional shareholders.
(b) Cash proceeds of $315,000 were received during the quarter ended
September 30 for the purchase of 1,575,000 shares at a price of $0.20
per share. These shares were issued pursuant to a private placement
with one of the company's institutional shareholders as well as a
third party individual.
(c) 130,110 shares were issued to certain firms for services provided to
the Company. The shares are recorded in the Consolidated Statement of
Operations as a General and administrative expense at the five-day
average trading value of the stock on the date of execution of the
settlement agreements. A value of $64,675 is recorded in the
statements relating to these transactions.
(d) On September 2, 2002 the Company extended the consulting agreement
with William R. Engles, Jr. to serve an additional 17 weeks as our
Acting Chief Financial Officer. The agreement includes the grant of
130,000 options to purchase shares of common stock of the Company at a
strike price of $0.72. The options shall vest at a pro rata rate over
17 weeks from September 2, 2002 and shall have a term of 10 years. We
have agreed to register all shares issued to Mr. Engles pursuant to
this agreement and all shares underlying his option for public resale
under the Securities Act of 1933. All other terms and conditions shall
be as described in the original Agreement.
(e) As of June 30, 2002, holders of notes in the amount of $1,252,350,
inclusive of accrued interest agreed to exchange their notes into
securities of the Company. For every $3 of principal and interest
accrued thereon the Company issued a new unit comprised of the
following:
o 5 shares of our common stock.
o 3 warrants, each entitling the holder to purchase 1 share of
common stock at an exercise price of $0.90 per share for a period
of 5 years after the date of issue.
In exchange for the notes mentioned above, the Company issued
2,087,250 shares and 1,252,350 warrants during the quarter ended June
30, 2002. The total amount of principal and interest has been removed
from the liabilities and recorded in the equity section of the Balance
Sheet. In addition, a value of $888,548 has been recorded as an
expense in the Consolidated Statement of Operations relating to the
fair value of additional securities issued to induce conversion of
debt.
11
WARRANTS
--------
The following table summarizes the warrants issued, exercised and expired during
the nine months ended September 30, 2002 and the fiscal year ended December 31,
2001 and those warrants which remain outstanding as at September 30, 2002:
Balance at December 31, 2000 914,666
Warrants issued during 2001
At $1.30 per share 2,315,382
At $3.00 per Unit 1,264,000
At $3.50 per share -
Warrants expired unexercised during the period, $1.00 per share (130,000)
--------------------
Warrants to purchase common shares, balance at December 31, 2001 4,364,048
Warrants issued during the nine months ended September 30, 2002
At $1.00 per share 470,000
At $0.02 per share 50,000
At $0.72 per share 612,306
At $0.90 per share 1,352,350
At $3.00 per share 15,000
--------------------
Outstanding at September 30, 2002 6,863,704
====================
STOCK OPTIONS
-------------
The Company has six stock option plans outstanding. The 2002 Stock Option Plan
was approved by shareholders on February 18, 2002 authorizing a maximum of
10,000,000 options.
On September 2, 2002 the Company granted Mr. Bill Engles 130,000 options at an
exercise price of $0.72 per share. The options vest at a pro-rata rate over 17
weeks from the grant date and shall have a term of 10 years. We have agreed to
register all shares underlying this option for public resale under the
Securities Act of 1933.
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.
The following table summarizes the status of the Company's stock options as at
September 30, 2002:
WEIGHTED
SHARES AVERAGE
EXERCISE PRICE
---------------------------------------------
Outstanding at end of year, December 31, 2000 2,795,000 $ 1.05
Granted during 2001 325,000 1.31
Cancelled during 2001 (335,000) 1.10
Exercised during 2001 (5,500) 1.00
---------------------------------------------
Outstanding at end of year, December 31, 2001 2,779,500 $
1.08
Granted during the nine months ended September 30, 2002 4,938,000 0.73
---------------------------------------------
Outstanding at September 30, 2002 7,717,500 $ 0.86
=============================================
12
NOTE 9 - SUBSEQUENT EVENTS
Bankruptcy proceedings
----------------------
On November 13, 2002 (the "Petition Date"), the Company and it's wholly-owned
subsidiary, Carbon Resources Limited ("Carbon"), each voluntarily filed a
petition of creditor protection under Chapter 11 of the United States Bankruptcy
Code ("Chapter 11") in the United States Bankruptcy Court, Southern District of
New York (the "Bankruptcy Court"). The Company and Carbon (the "Debtors") are
presently operating their businesses as debtors-in-possession, and their Chapter
11 proceedings are being jointly administered for procedural purposes. SynGen
Technologies Limited, a wholly-owned subsidiary of the Company, and Lanisco
Holdings Limited, a wholly-owned subsidiary of Carbon, were not included in the
Chapter 11 filing.
The Company is reorganizing its affairs under the protection of Chapter 11 and
will propose a plan of reorganization for itself and other filing subsidiaries
to be submitted to the Bankruptcy Court for confirmation after submission to any
vote and approval required by affected parties. During the pendency of these
proceedings, the Company will continue to operate its business, including
seeking to commercialize its technologies, while working to restructure its
liabilities. In the Chapter 11 proceeding, substantially all unsecured and
undersecured liabilities of the Debtors as of the Petition Date are subject to
compromise or other treatment under a plan of reorganization to be confirmed by
the Bankruptcy Court after submission to any required vote and approval by
affected parties. Generally, all actions to enforce or otherwise effect
repayment of pre-Petition Date liabilities as well as all pending litigation
against the Debtors are stayed while the Debtors continue their business
operations as debtors-in-possession. The Company will notify all known claimants
subject to the bar date of their need to file a proof of claim with the
Bankruptcy Court. A bar date is the date by which claims against the Company
must be filed if the claimants wish to receive any distribution in the Chapter
11 proceeding. Differences between amounts shown by the Debtors and eventual
claims filed by creditors will be investigated and either amicably resolved or
adjudicated before the Bankruptcy Court. The ultimate amount of and settlement
terms for such liabilities are subject to an approved plan of reorganization
and, accordingly, are not presently determinable.
All of the Company's liabilities are unsecured liabilities. However, on
September 10, 2002, Texas T Petroleum Ltd. ("Texas T") filed UCC statements in
Colorado and Texas claiming a secured interest in the Company's CPJ heavy oil
technology. Texas T has filed a claim against Synergy seeking the conveyance of
the CPJ technology. As part of that claim, Texas T contends it has a security
interest in the CPJ technology by virtue of the agreement pursuant to which
Synergy acquired Texas T's interest in Carbon. Synergy believes Texas T's claim
is without merit and has asked the Bankruptcy Court to declare Texas T's alleged
security interest invalid.
Under the United States Bankruptcy Code, the Debtors may elect to assume or
reject leases, employment contracts, service contracts and other pre-Petition
Date executory contracts, subject to Bankruptcy Court approval. Claims for
damages resulting from the rejection of executory contracts will be subject to
separate bar dates. The Debtors are reviewing all executory contracts for
assumption or rejection. The Debtors have applied to the Bankruptcy Court to
reject the lease of its facility in Calgary and may make additional applications
to reject executory contracts.
As a result of the Chapter 11 filings, no principal or interest payments will be
made on pre-Petition Date debt obligations without Bankruptcy Court approval or
until a plan of reorganization providing for the repayment terms has been
submitted to any required vote and approval of affected parties, has been
confirmed by the Bankruptcy Court, and has become effective.
Form S-8
--------
On October 11, 2002, Synergy completed the registration of Form S-8 for an
aggregate of 1,638,952 shares to various parties for services provided to the
Company. These shares were issued at the five-day average trading value, $0.05
per share, of the stock on the date of execution of the agreement.
Private Investment
------------------
On November 12, 2002, James Nielson, a current member of the Board of Directors,
advanced $50,000 to the Company.
13
NOTE 10 - COMMITMENTS AND CONTINGENCIES
(a) Operating Lease - Effective September 1, 2000 the Company entered into a
five-year non-cancelable lease which provided for monthly lease payments,
including operating costs, of $19,171. Minimum future rental payments under this
lease with remaining terms in excess of one year are as follows:
2002 57,513
2003 230,052
2004 230,052
2005 153,368
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Bankruptcy Proceedings
----------------------
On November 13, 2002 (the "Petition Date"), the Company and it's wholly-owned
subsidiary, Carbon Resources Limited ("Carbon"), voluntarily filed a petition of
creditor protection under Chapter 11 of the United States Bankruptcy Code
("Chapter 11") in the United States Bankruptcy Court, Southern District of New
York (the "Bankruptcy Court"). The Company and Carbon (the "Debtors") are
presently operating their businesses as debtors-in-possession, and their Chapter
11 proceedings are being jointly administered for procedural purposes. SynGen
Technologies Limited, a wholly-owned subsidiary of the Company, and Lanisco
Holdings Limited, a wholly-owned subsidiary of Carbon, were not included in the
Chapter 11 filing.
The Company is reorganizing its affairs under the protection of Chapter 11 and
will propose a plan of reorganization for itself and other filing subsidiaries
to be submitted to the Bankruptcy Court for confirmation after submission to any
vote and approval required by affected parties. During the pendency of these
proceedings, the Company will continue to operate its business, including
seeking to commercialize its technologies, while working to restructure its
liabilities. As a result of the Chapter 11 process, the Company's plans and
objectives, as described under "Overview and Plan of Operation" are subject to
change.
Overview and Plan of Operation
------------------------------
We are addressing problems that historically have affected the petroleum and
petrochemical industries. We offer these industries advanced technologies and
processes by which oil and gas producers can economically enter markets which
heretofore have been unattractive for reasons of production costs, end price,
logistics or environmental issues.
Over the past several years, we have developed our technologies to the point
where we believe they are ready for commercial application. In order to
accelerate the commercialization of our technologies, we hired Barry Coffey in
January 2002 as our Chief Executive Officer. Mr. Coffey has a wide range of
management experience with a variety of companies, from large multinational
corporations to start-up companies. Mr. Coffey has served as a member of our
board of directors since January 2001. We intend to selectively hire additional
seasoned managers who we believe can assist in bringing our technologies to
market.
To date in 2002, our efforts to commercialize our technologies have yielded the
memorandums of understandings described below:
o In April 2002, we agreed with H-Power, a well-known manufacturer of
fuel cells to explore the establishment of a joint-venture company to
manufacture a fuel cell system using Synergy's fuel reforming process
(SynGen) and H-Power's fuel cell. We have completed a joint research
and development plan to develop the fuel cell system and are currently
seeking financing to begin the development activities. If the
development work is successful, then the companies could begin
manufacturing and marketing products in 2003.
o In July 2002, we agreed with Nielson & Associates, Inc., an oil and
gas exploration and production company of which James Nielson, one of
our directors is the principal shareholder, to establish a joint
venture company to finance (or cause to be financed), build and
operate an approximately 1,000 or greater barrel per day heavy oil
upgrading facility or facilities in Wyoming and/or Montana. The
Company agreed to license the CPJ technology to the joint venture
company, and Nielson & Associates agreed to provide the oil well or
wells and necessary land or lands for the facility or facilities to
the joint venture company.
We are currently in discussions with various potential partners with respect to
our CPJ technology, SynGen/GTL process, and hydrogen reforming technology.
However, there can be no assurance that any of these discussions will lead to
meaningful business opportunities for us.
15
Near-Term Goals (2002)
Our immediate goal is to raise sufficient capital to further develop our
technologies and commercial opportunities. Specifically, we intend to enhance
our new Conroe, Texas laboratory facilities, complete development of a
multi-cluster reactor to demonstrate the commercial viability and scalability of
our SynGen and SulfArc technologies, complete work on our hydrogen reforming
systems for the petroleum, petrochemical and fuel cell industries, and continue
to improve our patent position.
Our specific goals are summarized below. Our ability to achieve these goals is
contingent upon our continued ability to raise capital to fund our operations:
o Expand and secure existing patents and file patents to cover new
developments;
o Continue to develop and refine all of our technologies;
o Form additional research and development partnerships with fuel cell
manufacturers to develop a fuel cells based on SynGen technology;
o Identify a refinery partner to begin on-site testing of our SulfArc
technology;
o Demonstrate the viability of a scaled-up SynGen multi-cluster reactor
for transforming stranded gas to syngas and begin to build or license
commercial-scale facilities; and
o Secure a long-term gas supply contract to enable us to construct a GTL
facility.
Intermediate-Term (2003 - 2004)
Building on our near-term initiatives, our intermediate-term goals include:
o Complete arrangements with an industry partner for the siting, design,
engineering and construction of a commercial CPJ plant capable of producing
1,000 bpd to 5,000 bpd of light synthetic crude. We believe our best chance
for success in this area is with a co-development and marketing arrangement
with a North, Central or South American heavy oil producer or pipeline
operator.
o Attract development and pre-production funds in partnership with additional
established fuel cell systems designers and manufacturers from government
or industry sources that require inexpensive, reliable, relatively sulfur
free, hydrogen or carbon monoxide as fuel.
o Complete negotiations with a large gas producer to develop a gas-to-liquids
plant using our proprietary process for converting gas to liquids.
Liquidity and Capital Resources
-------------------------------
Summary of Working Capital and Stockholders' Equity
At September 30, 2002, we had negative working capital of $1,932,899 and
negative stockholders' equity of $1,916,967 compared with negative working
capital of $3,594,542 and positive stockholders' equity of $2,245,793 as of
December 31, 2001. For the three-month period ended September 30, 2002, our
stockholders' equity decreased $7,917,241 for the following reasons: First, the
write-down of technology assets as a result of the stringent conditions placed
on technology companies to quantify their asset values, and second, we were
unable to obtain infusions of additional capital in amounts sufficient to fund
our operating losses. For the three-months ended September 30, 2002, cash flows
from operating activities were negative $787,286, compared with negative
$766,331 for the three months ended September 30, 2001, cash flows from
investing activities were Nil compared with negative $12,137, and cash flows
provided by financing activities were $815,000 compared with $970,170 over the
same periods.
16
Convertible Debentures
During the quarter ended September 30, 2002, the Company paid $225,138 in cash
for interest earned to holders of convertible promissory notes in the principal
amount of $1,005,000.
Certain holders of convertible promissory notes issued by the Company in 2000
elected in June and July, as provided in the notes, to receive repayment of
their principal plus accrued interest. The terms of the notes provide that these
payments are due 90 days following the repayment election and that the Company
has an additional 30 days in which to cure any default with respect to these
payments. The total amount of principal and interest owed to these note holders
is $254,100. Of the total amount owed, $108,900 became due in September, and the
cure periods for these payments have expired. The Company has not made these
payments and has received written notice from the holders of these Notes
demanding payment of the amounts due them. The cure periods for an additional
$145,200 in payments owed to holders expired in November. The Company has
received written notice from one of these holders demanding payment of the
$36,300 due them.
Settlement Payment
As part of the settlement of a lawsuit earlier this year, Synergy agreed to pay
certain parties $50,000. That payment was due on October 11 but has not been
made.
Financing Activities
During the three months ended September 30, 2002, our primary financing
activities included:
o On July 9, 2002 we completed an offering of 1,246,884 shares of our
common stock at a price of $0.401 per share. We received total gross
proceeds from the offering of $500,000. We used the proceeds from this
offering for working capital and general corporate purposes.
o On September 4, 2002, we completed an offering of 1,575,000 shares of
our common stock at a price of $0.20 per share. We received total
gross proceeds from the offering of $315,000. We used the proceeds
from this offering for working capital and general corporate purposes.
On November 13, 2002, the Company filed for protection from creditors under
Chapter 11. During the pendency of these proceedings, the Company will continue
to operate its business, including seeking to commercialize its technologies,
while working to restructure its liabilities. On November 20, 2002, the
Bankruptcy Court approved an interim loan to the Company of approximately
$76,000 by an unaffiliated party. The loan matures in one year and bears
interest at 12% per annum. However, the Company's ability to operate while in
Chapter 11 and complete the Chapter 11 process is dependent on obtaining
additional financing, which is subject to Bankruptcy Court approval. There can
be no assurance the Company will be able to reach agreement on the terms of a
financing or that the Bankruptcy Court will approve a financing.
On June 20, 2002, the Company entered into a common stock purchase agreement
with Fusion Capital Fund II, LLC ("Fusion") pursuant to which Fusion agreed to
purchase certain predefined amounts of our common stock over time. The terms of
our agreement with Fusion provide that, if the Company files for protection
under Chapter 11, the agreement automatically terminates.
Even assuming the Company is successful in obtaining financing for its
operations during the Chapter 11 process, the Company's ability to execute its
plan significantly depends on its ability to raise additional funds from sources
other than operations. The Company's future liquidity and capital requirements
will depend on a number of factors, including its ability to raise additional
capital in a timely manner through additional investment and its ability to
generate market interest in its technologies.
We expect that we will require up to $20 million over the next three years to
fully implement our business plan, which includes significant marketing efforts,
the continued development of the technologies, expansion of management
resources, support of day-to-day operations and the pursuit of commercialization
efforts. In the past, we have been successful raising money to fund our
operations through the sale of debt and equity securities. However, we cannot be
sure that the additional capital we may need to finance our future operations
will be available on acceptable terms, if at all. If we are unable to
17
secure financing on acceptable terms, we may be forced to modify our business
plan. In addition, we cannot be sure that we will be able to realize revenues
from our technologies or that we will achieve profitability.
ITEM 3. CONTROLS AND PROCEDURES
The chief executive officer and the acting chief financial officer, with the
assistance of key employees throughout the company, including its subsidiaries,
have evaluated the company's disclosure controls and procedures within 90 days
prior to the filing of this report. Based upon the results of such evaluation,
the chief executive officer and acting chief financial officer have concluded
that such disclosure controls and procedures are adequate. There have not been
any significant changes in the Company's internal controls or in other factors
that could significantly affect these controls subsequent to the date of the
foregoing evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Disclosure controls and procedures are the company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
the Company in the reports that it files under the Securities Exchange Act of
1934 is accumulated and communicated to management, including the principal
executive and financial officer, as appropriate to allow timely decisions
regarding required disclosure.
FORWARD-LOOKING STATEMENTS
Our company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this report and
other Company filings with the Securities and Exchange Commission and in our
reports to shareholders. Statements that relate to other than strictly
historical facts, such as statements about our plans and strategies,
expectations for future financial performance, new and existing products and
technologies, and markets for our products are forward-looking statements.
Generally, the words "believe," "expect," "intend," "estimate," "anticipate,"
"will" and other similar expressions identify forward-looking statements. The
forward-looking statements are and will be based on our management's
then-current views and assumptions regarding future events and operating
performance, and speak only as of their dates. Investors are cautioned that such
statements involve risks and uncertainties that could cause actual results to
differ materially from historical or anticipated results due to many factors
including, but not limited to, our company's limited revenues, accumulated
deficit, future capital needs, uncertainty of capital funding, dependence on
limited product line, uncertainty of market acceptance, competition, limited
marketing and manufacturing experience, and other risks detailed in our
company's most recent Annual Report on Form 10-KSB and other Securities and
Exchange Commission filings. We undertake no obligation to publicly update or
revise any forward-looking statements.
18
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 17, 2002, Texas T Petroleum, Ltd. ("Texas T") filed a Statement of
Claim in the Court of Queen's Bench of Alberta (Canada), Judicial District of
Calgary seeking to cause Synergy to convey its CPJ heavy oil technology to Texas
T. Texas T based its claim on the March 2002 agreement (the "Agreement")
pursuant to which Synergy purchased Texas T's 50% interest in Carbon Resources
Limited ("Carbon"), the company which owned the CPJ technology. Specifically,
Texas T is relying on a provision of the Agreement which states that if "Synergy
should become bankrupt, insolvent or otherwise become financially incapable of
commercially exploiting the CPJ Technology, then in that event, it shall
transfer the CPJ Technology to Texas T." Texas T claimed in its filing that
Synergy had become bankrupt, insolvent or otherwise financially incapable of
commercially exploiting the CPJ Technology. Texas T further alleged that its
damages were impossible to calculate, and it sought an order requiring Synergy
to convey the technology to Texas T. Synergy responded to Texas T's claim on
November 13, 2002.
Texas T names as defendants in its suit the Company, Carbon, which is a
wholly-owned subsidiary of Synergy, and Lanisco Holdings Limited ("Lanisco"),
which is a wholly-owned subsidiary of Carbon. Lanisco has no assets or
operations. On November 13, 2002, the Company and Carbon voluntarily filed a
petition of creditor protection under Chapter 11 of the United States Bankruptcy
Court, Southern District of New York. Generally, all pending litigation against
the Debtors is stayed while the Debtors operate their business as
debtors-in-possession and prepare a plan of reorganization. The Company has
filed an application in the Alberta court requesting that the Alberta court
recognize the stay provisions of U.S. bankruptcy law with respect to Texas T's
claims against the Company and Carbon.
ITEM 2. CHANGES IN SECURITIES
(a) N/A
(b) N/A
(c) Recent Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
On July 9, 2002, Synergy completed a private placement of 1,246,884 shares of
common stock pursuant to Rule 506 of Regulation D promulgated by the SEC under
the Securities Act of 1933. The offering was made and sold to accredited
investors (as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act) to 15 persons. The Company raised an aggregate of $500,000.
Synergy paid no commissions in connection with the placement of these
securities. The Company used the proceeds derived from this offering for working
capital and general corporate purposes.
On August 1, 2002, the Company issued 67,110 shares of common stock pursuant to
Form S-8 to one consultant. These shares were issued for services provided to
the Company during the year 2002.
On August 31, 2002, the Company issued 63,650 shares of common stock to
Pendleton, Friedberg, Wilson & Hennessey, P.C. pursuant to terms of a settlement
agreement between the parties dated January 11, 2002, as reported in the
Company's annual report on Form 10-KSB for the year ended December 31, 2001. The
Company issued the shares pursuant to Rule 4(2) of the Securities Act of 1933.
On September 4, 2002, Synergy completed a private placement of 1,575,000 shares
of common stock pursuant to Rule 506 of Regulation D promulgated by the SEC
under the Securities Act of 1933. The offering was made and sold to accredited
investors (as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act) to 15 persons. The Company raised an aggregate of $315,000.
Synergy paid no commissions in connection with the placement of these
securities. The Company used the proceeds derived from this offering for working
capital and general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As noted above, certain holders of convertible promissory notes issued by the
Company in 2000 elected in June and July, as provided in the notes, to receive
repayment of their principal plus accrued interest. The terms of the notes
provide that these payments are due 90 days following the repayment election and
that the Company has an additional 30 days in which to cure any default with
respect to these payments. The total amount of principal and interest owed to
these note holders is $254,100. Of the total amount owed, $108,900 became due in
September, and the cure periods for these payments have expired. The Company has
not made these payments and has received written notice from the holders of
these Notes demanding payment of the amounts due them. The cure periods for an
additional $145,200 in payments owed to holders expired in November. The Company
has received written notice from one of these holders demanding payment of the
$36,300 due them.
19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
99. Additional Exhibits
Exhibit 99.1 Certification Under Section 906 of Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
We filed one Current Report on Form 8-K during the third quarter of 2002
dated October 23, 2002 (filed with the SEC on October 24, 2002). This
report reported events under Item 5 on Form 8-K.
SIGNATURES AND CERTIFICATIONS OF THE CHIEF EXECUTIVE OFFICER OF THE COMPANY
The following pages include the Signatures page for this Form 10-QSB, and the
Certification of the Chief Executive Officer (CEO) of the company.
The first form of Certification is required by Rule 13a-14 under the Securities
Exchange Act of 1934 (the Exchange Act) in accord with Section 302 of the
Sarbanes-Oxley Act of 2002 (the Section 302 Certification). The Section 302
Certification includes references to an evaluation of the effectiveness of the
design and operation of the company's "disclosure controls and procedures" and
its "internal controls and procedures for financial reporting. Item 3 of Part I
of this Quarterly Report presents the conclusions of the CEO about the
effectiveness of such controls based on and as of the date of such evaluation
(relating to Item 4 of the Section 302 Certification), and contains additional
information concerning disclosures to the company's Audit Committee and
independent auditors with regard to deficiencies in internal controls and fraud
(Item 5 of the Section 302 Certification) and related matters (Item 6 of the
Section 302 Certification).
The second form of Certification is required by section 1350 of chapter 63 of
title 18 of the United States Code.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNERGY TECHNOLOGIES CORPORATION
Date: November 19, 2002 By: /s/ Barry Coffey
-----------------
Barry Coffey
Chief Executive Officer
20
CERTIFICATION
I, Barry Coffey, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Synergy Technologies
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002 By: /s/ Barry Coffey
-----------------
Barry Coffey
Chief Executive Officer
21