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: MARCH 31, 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:
39,799,262 shares of Common Stock, $0.002 par value, as of May 10, 2002.
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
MARCH 31, 2002
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(PREPARED BY MANAGEMENT) FOR THE
THREE MONTH PERIOD ENDED MARCH 31, 2002
TABLE OF CONTENTS
PAGE
Financial Statements:
Unaudited Consolidated Balance Sheets - As at Mach 31, 2002 and 4
year ended December 31, 2001
Unaudited Consolidated Statements of Operations for the three 5
months ended March 31, 2002 and 2001, and for the period from
February 10, 1997 (Date of Inception) to March 31, 2002
Unaudited Consolidated Statement of Cash Flows for the three months 6
ended March 31, 2002 and 2001, and for the period from February 10,
1997 (Date of Inception) to March 31, 2002
Unaudited Consolidated Statement of Changes in Stockholders' Equity 7
for the three months ended March 31, 2002 and the years ended
December 31, 2001 and 2000
Notes to Unaudited Consolidated Financial Statements 8
3
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
AS AT AS AT
MARCH 31, 2002 DECEMBER 31, 2001
(UNAUDITED)
------------ ------------
CURRENT ASSETS
Cash $ 9,514 $ 38,746
Receivables (Note 5) 82,750 38,560
Receivables - related parties -- --
Prepaid expenses 71,583 39,727
------------ ------------
TOTAL CURRENT ASSETS 163,847 117,033
INVESTMENTS (Note 3)
SynGen Technologies 3,500,000 3,500,000
CPJ Technologies 5,064,099 1,432,500
Investment in Private US corporation -- 1,000,000
------------ ------------
8,564,099 5,932,500
Investment in joint venture (Note 3(c)) 81,736 80,768
------------ ------------
TOTAL INVESTMENTS 8,645,835 6,013,268
Office equipment and computers, net of accumulated
depreciation $53,492 63,794 59,780
------------ ------------
TOTAL ASSETS $ 8,873,476 $ 6,190,081
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 708,724 $ 1,018,649
Accrued expenses 234,628 74,744
Notes payable (Note 6) 2,250,000 2,250,000
Accrued interest on notes (Note 6) 391,566 368,182
------------ ------------
TOTAL CURRENT LIABILITIES 3,584,918 3,711,575
LONG TERM LIABILITIES (Note 7)
Notes payable -- 135,223
Notes payable - related parties -- --
Accrued interest on notes -- --
Investment in joint venture (Note 3(b)) -- 97,490
------------ ------------
TOTAL LIABILITIES 3,584,918 3,944,288
STOCKHOLDERS' EQUITY
Common stock, $0.002 par value, 100,000,000 shares
authorized, 39,799,262 Shares issued and outstanding 80,579 69,333
Additional paid in capital 53,638,277 49,633,286
Deferred compensation -- (13,879)
Deficit accumulated during development stage (48,430,298) (47,442,947)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,288,558 2,245,793
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,873,476 $ 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
FOR THE THREE MONTHS ENDED FROM FEBRUARY 10, 1997
MARCH 31 (DATE OF INCEPTION)
2002 2001 TO MARCH 31, 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Interest income 56 563 35,864
Consulting income - - 8,927
----------------------------------------------------------------------------------------------------------------------------
56 563 44,791
EXPENSES
General and administrative 822,195 395,583 6,654,216
Stock option compensation 13,879 21,607 997,830
Compensation related to warrants - - 343,744
Technology development 83,889 230,993 3,046,546
Dry well expenses - - 722,210
----------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 919,963 648,183 11,764,546
----------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (919,907) (647,620) (11,719,755)
OTHER EXPENSES
Amortization of debt discount and offering costs - - (2,250,000)
Accrued interest on notes payable (55,480) (67,699) (423,662)
Share of expenses incurred by joint venture (11,964) (37,315) (310,845)
Write-down of technology - - (34,528,244)
Gain on disposition - 24,380 802,208
----------------------------------------------------------------------------------------------------------------------------
(67,444) (80,634) (36,710,543)
----------------------------------------------------------------------------------------------------------------------------
NET LOSS BEFORE TAXES (987,351) (728,254) (48,430,298)
----------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAX - - -
----------------------------------------------------------------------------------------------------------------------------
NET LOSS $(987,351) $(728,254) $(48,430,298)
============================================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE
$ (0.03) $ (0.02) $ (2.74)
============================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN CALCULATION 36,019,141 30,179,736 17,675,237
============================================================================================================================
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 THREE MONTH PERIODS ENDED CUMULATIVE PERIOD
FROM
FEBRUARY 10, 1997
(DATE OF
INCEPTION)
MARCH 31, 2002 MARCH 31, 2001 TO MARCH 31, 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED)
-----------------------------------------------------------------
CASH FROM OPERATING ACTIVITIES
Net loss $(987,351) $(728,254) $(48,430,298)
Adjustments to reconcile net loss to net cash from
operations
Dry well expense - - 722,210
Depreciation, amortization and write-downs 23,885 31,660 37,842,379
Accrued interest on notes payable 23,383 67,699 391,565
Issuance of shares for services 378,077 - 1,685,035
Issuance of warrants for services - - 343,744
Settlement of debt and acquisition of CPJ 357,529 - 357,529
Re-issue of founders shares 38,500 - 145,000
Investment in joint ventures 2,174 - 18,893
Exchange rate loss 5,482 12,442 67,812
Loss on disposition of assets - - (684,239)
Changes in assets and liabilities
Accounts receivable (44,189) 25,642 (82,750)
Prepaid expenses and deposits (31,856) 27,335 (71,599)
Accounts receivable - related parties - (53,199) -
Accounts payable (309,925) 42,304 1,026,706
Accounts payable - related parties - - 153,088
Accrued expenses 159,885 5,501 234,627
-----------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (384,406) (568,850) (6,280,298)
CASH FROM INVESTING ACTIVITIES
Acquisition of property and equipment (14,021) (1,636) (133,427)
Other - - (788,188)
-----------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (14,021) (1,636) (921,615)
CASH FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties - 276,983 531,933
Proceeds from (payments to) notes payable (135,223) - 688,296
Net proceeds from convertible debt - - 2,137,500
Sales of common stock 509,900 230,500 3,519,010
Other - - 402,500
-----------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 374,677 507,483 7,279,239
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,482) (12,442) (67,812)
NET CHANGE IN CASH (29,232) (75,445) 9,514
CASH AT BEGINNING OF PERIOD 38,746 76,059 -
-----------------------------------------------------------------
CASH AT END OF PERIOD $ 9,514 $ 614 $ 9,514
=================================================================
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 STOCK-HOLDERS'
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 - - 343,744 - - 343,744
September 29, 2000
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 431,000 862 430,138 - - 431,000
December 2000
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 679,867 1,360 508,540 - - 509,900
Shares for services 184,002 368 110,633 - - 111,001
Shares for debt 417,716 835 266,240 - - 267,076
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
Unearned compensation - - - - 13,879 13,879
Net loss for the period - - - (987,351) - (987,351)
---------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2002 $39,799,262 $ 80,579 $53,638,277 $(48,430,298) $ - $5,288,558
=============================================================================================
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 Principals 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 - UNCERTAINTY ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN
The Company is in the development stage and has not realized any revenues, has
incurred losses and had negative cash flows from operations in 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.
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, PLG, gasoline and
diesel; and
2. technologies for the upgrading of heavy oil to lighter oils (CPJ).
Uncertainty Regarding Future Operations
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. 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 and the going concern
basis would no longer be appropriate and the assets and liabilities would be
adjusted to their liquidation values.
NOTE 3 - INVESTMENTS, ACQUISITIONS AND TECHNOLOGY DEVELOPMENT
Investments reported on the Consolidated Balance Sheet of the Company include
the following:
MARCH 31, DECEMBER 31,
2002 2001
----------- -----------
Investment in SynGen Technology (See Note 3(a) below) $ 3,500,000 $ 3,500,000
Investment in CPJ Technology (See Note 3(b) below) 5,064,099 1,432,500
Investment in private U.S. corporation (See Note 3(b) below) - 1,000,000
----------- -----------
$ 8,564,099 $ 5,932,500
=========== ===========
8
(a) SynGen: There were no changes during the current quarter.
(b) 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 Corporation 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 Corporation 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 Corporation 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 Corporation. 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.
(c) Investment in Drake Synergy Petroleum as at March 31, 2002:
---------------------------------------------------------------------
o Shares of Drake Synergy Petroleum Ltd.
o 2,500,000 shares valued at Naira 1.00 per share
$ 22,104
o Advances to Drake Synergy Petroleum 121,813
o 50% of net liabilities of Drake Synergy Petroleum (62,181)
---------
$ 81,736
---------------------------------------------------------------------
NOTE 4 - RELATED PARTY TRANSACTIONS
(a) At March 31, 2002 an amount of $28,750 relating to services provided by
Glidarc Technologies remained due and payable.
(b) At March 31, 2002 an amount of $25,631 remained due and payable to
Huntingtown Associates.
(c) During the quarter ended March 31, 2002, various officers and directors
subscribed to a private placement offering as described in Note 9(a) in
the amount of $150,000 for 200,000 units.
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
$8,855, as well as certain other receivables
9
totaling $73,895 of which $50,000 is due from Mr. Barry Coffey, as he
agreed to receive one half salary until August 2002, in exchange for an
investment in a private placement offering of the Company.
NOTE 6 - CURRENT LIABILITIES
(a) Notes payable include $2,250,000 resulting from the private placement
of convertible promissory notes commenced on May 25, 2000. The notes
carry a term of five (5) years, bearing interest at a rate of 10% per
annum, and are convertible into units of Synergy at $3.00 per Unit,
each promissory note unit consisting of one share of common stock, a
warrant to purchase one share of common stock at $4.00 per share and
another warrant to purchase an additional share of common stock at
$8.00 per share. During the first two years from the date of issuance
interest on the Notes compounds annually on the principal amount of the
loan and continues for each year thereafter. During the initial
two-year period the interest on the Notes accrues but is not payable
until the fifteenth day following each two-year period. After the
initial two year period, interest shall accrue on a quarterly basis and
be payable on the fifteenth day following the end of each calendar
quarter. Terms of the notes further state that any and all interest
accrued on any notes converted within two years from the date of
issuance will be forgiven.
(b) Convertible promissory note's interest in the amount of $391,566 has
been accrued to March 31, 2002 and is included on the Consolidated
Balance Sheet as Accrued interest on notes.
NOTE 7 - LONG TERM LIABILITIES
(a) During the quarter ended March 31, 2002, Synergy issued 251,495 shares
to Stone Canyon Resources Limited in settlement of outstanding advances
at December 31, 2001 of $135,223. The value associated with this
transaction equates to $164,019. The remaining balance receivable of
$28,796 was written off, for accounting purposes only, based on the
probability of recovering the amount.
NOTE 8 - COMMON STOCK
(a) Cash proceeds of $509,900 were received for the purchase of 679,867
units at $ 0.75 per unit pursuant to an offering commenced during the
quarter. Each unit consists of a share of common stock and one-half
warrant to purchase an additional share for $2.50, exercisable at any
time three years from the time of subscription.
(b) 184,002 shares were issued to certain firms for services provided to
the corporation. The shares are recorded in the Consolidated Statement
of Operations under General and Administrative category at the five-day
average trading value of the stock on the date of execution of the
agreements. A value of $111,001 is recorded in the statements relating
to these transactions.
(c) 251,495 shares were issued to Stone Canyon Resources Limited for
settlement of advances made during 2001. An additional 166,221 shares
were issued for settlement of payments made related to the operations
of the GTL Bantry facility during 2001. The aggregate amount of
$267,076 was offset from the balance owing of $135,223 and the
remaining amount was written off as expense, for accounting purposes
only, due to the probability of recovering the receivable.
(d) 50,000 shares were re-issued related to the cancellation of founder's
shares in September, 2000. These shares were valued at the average
trading value of the stock from the date of issuance. A value of
$38,500 is recorded in the Statement of Operations related to this
transaction at $0.77 per share.
(e) On March 5, 2002, Synergy completed the transaction with Texas T,
Carbon, Capital Reserve Corporation and Pierre Jorgensen for the
purchase of the additional 50% of Carbon from Texas T. The agreement
required the issuance of 400,000 shares of Synergy directly to Texas T
and an additional 1,900,000 shares held in trust in the name of Texas T
pursuant to an escrow agreement. A value of $1,656,000 was attributed
to the transaction based on a five-day average share price of $0.72 per
share.
10
(f) Pursuant to the agreement mentioned in 8(e) above, an additional
1,491,334 shares were issued to Pierre Jorgensen in consideration of
the original agreement dated September 25, 2000. The issuance of these
shares calls for a cash payment of $1,000,000 to be paid to Mr.
Jorgensen as per the original agreement plus an additional $100,000 as
recognition of the late payment of the above mentioned amount. Should
the number of shares to be sold in order to pay Mr. Jorgensen the
$1,100,000 be superior to the number of shares of Synergy issued to
Pierre, the remaining shares will be returned to Synergy. A value of
$1,073,760 was attributed to this transaction based on a 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.
(g) During the quarter, 250,000 warrants were issued to a certain
investment firm for financial advisory services. These warrants have an
exercise price of $1.00 and are exercisable for two years from the
original agreement date of April 16, 2001.
The following table summarizes the warrants issued, exercised and expired during
quarter ended March 31, 2002 and the fiscal year ended December 31, 2001 and
those warrants which remain outstanding as at March 31, 2002:
Balance at December 31, 2000 914,666
Warrants issued during the period
At $1.30 per share 2,315,382
At $3.00 per Unit 1,264,000
At $3.50 per share (Note 7(a)) -
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
Warrant issued during the period
At $1.00 per share (Note 8(g)) 250,000
---------
Balance at March 31, 2002 4,614,048
=========
STOCK OPTIONS
The Company has six stock option plans outstanding. The 2002 Stock Option Plan
was approved at the special meeting on February 18, 2002 authorizing a maximum
of 10,000,000 options.
During the quarter, the Company hired Mr. Barry Coffey as CEO. Mr. Coffey was
granted 4,500,000 options at an exercise price of $0.72 per share (i). There
were no other changes to stock options during the quarter.
(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.
The following table summarizes the status of the Company's stock options as at
March 31, 2002:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------------------------------------
Outstanding at end of year, December 31, 2000 2,795,000 $ 1.05
Granted during period 325,000 1.31
Cancelled during period (335,000) 1.10
Exercised during period (5,500) 1.00
------------------------------------
Outstanding at end of year, December 31, 2001 2,789,500 $ 1.08
Granted during period 4,500,000 0.72
Cancelled during period - -
Exercised during period - -
------------------------------------
Outstanding at end of quarter, March 31, 2002 7,279,500 $ 0.86
====================================
11
NOTE 9 - OTHER EVENTS
Subsequent to March 31, 2002 the Company received cash proceeds of $156,881 for
the purchase of 209,175 units at $0.75 per unit pursuant to an offering
commenced in the first quarter of 2002. Each unit consists of one common stock
an one-half warrant to purchase an additional share at $2.50, exercisable at any
time three years from the date of subscription.
On May 2, 2002, 200,000 options were granted to Mr. Graham H. Batcheler under
the 2002 Stock Option Plan upon his acceptance of a position on the Company's
Board of Directors.
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. A portion of the lease payments are
invoiced monthly to Carbon Limited, a 50% owned subsidiary of the Company, for
use of laboratory and office space. Minimum future rental payments under this
lease with remaining terms in excess of one year are as follows:
2002 172,536
2003 230,052
2004 230,052
2005 153,368
PLAN OF OPERATION
The following is a discussion of our financial condition, our plan of operation
and liquidity. This discussion should be read together with our financial
statements and notes included in this report, as well as those included in our
Annual Report on Form 10-K for the year ended December 31, 2001.
Certain information in this report, including the following discussion, may
include forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. The Company intends the
disclosure in these sections and throughout the Quarterly Report on Form 10-Q to
be covered by the safe harbor provisions for forward-looking statements. All
statements regarding the Company's expected financial position and operating
results, its business strategy, its financing plans, and the outcome of any
contingencies are forward-looking statements. These statements can sometimes be
identified by the Company's use of forward-looking words such as "may,"
"believe," "plan," "will," "anticipate," "estimate," "expect," "intend" and
other phrases of similar meaning. Known and unknown risks, uncertainties, and
other factors could cause the actual results to differ materially from those
contemplated by the statements. The forward-looking information is based on
various factors and was derived using numerous assumptions.
During the first quarter of 2002, Synergy Technologies signed a memorandum of
understanding (MOU) for a joint venture with H Power Corp., a leading
manufacturer of fuel cell products. This MOU covers the companies' joint
development of fuel cell systems utilizing H Power's proton exchange membrane
(PEM) fuel cell technology and Synergy's patented SynGen cold plasma reforming
process for producing hydrogen from heavy fossil fuels.
Whereas currently marketed reforming systems are capable of deriving a suitably
clean hydrogen exclusively from lighter fossil fuels such as natural gas and
propane, SynGen cleanly and economically reforms hydrogen from heavier fossil
fuels such as gasoline, high sulfur diesel and marine fuel oils. Synergy
anticipates that this advantage will permit the companies to produce a fuel
processing system which, potentially, will command a significant share of the
fuel cell market.
Synergy also continued protecting its intellectual properties and increasing
their strength for all the company's technologies. In addition, together with
our joint venture partner in Nigeria, important steps have been taken towards
the signing of a gas supply contract in that country. This is a necessary first
step in the development of a Gas-to-Liquids (GTL) plant that is expected to have
major revenue potential for Synergy.
Synergy is discussing the construction of commercial size demonstration plants
at several potential sites in USA, Canada, the Caribbean and Central America.
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During the months of June and July 2002, the holders of promissory notes in the
principal amounts of $2,250,000 bearing interest at the rate of 10% per annum
(aggregating $391,566 at March 31, 2002) are entitled to seek repayment of the
entire amount due thereunder. Given our cash position as of March 31, 2002,
should the holders of any these promissory notes demand repayment, it is
possible that we would not be able to make payment would be in default
thereunder. We are seeking to negotiate the conversion of all outstanding
amounts due under these notes into our securities. If holders do not accept the
terms of the conversion we offer and demand payment on the notes and we default
thereon, said holders would have the right to sue us for the entire amount due,
plus attorneys' fees. If a judgment is awarded to such persons, and we were
unable to pay same, they may have a claim against our assets. This would have a
material adverse affect on our business.
Synergy expects to generate revenues within this fiscal year, primarily from
licensing, royalty arrangements, government grants and joint development
programs. We believe that commercial plants, owned wholly or in part by Synergy
will generate substantial cash flows, once Synergy negotiates definitive
commercial agreements with producers of heavy oil, natural gas and
petrochemicals.
We will require up to $20 million over the next three years to implement our
business plan which includes significant marketing efforts, the continued
development of the technologies, expand management resources, support day-to-day
operations and pursue commercialization efforts. In the past, we have been
successful raising money to fund our operations through the sale of equity. We
cannot be certain that we will be able to raise any additional capital to fund
our operations.
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