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, 2003
[ ] 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.)
333 East 53rd Street, #7E, New York, NY 10022
(212) 207-6655
(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:
48,005,521 shares of Common Stock, $0.002 par value, as of May 16, 2003.
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, 2003
2
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(PREPARED BY MANAGEMENT) FOR THE
THREE MONTH PERIOD ENDED MARCH 31, 2003
TABLE OF CONTENTS
PAGE
Financial Statements:
Unaudited Consolidated Balance Sheet at Mach 31, 2003 and Audited 4
Consolidated Balance Sheet at year ended December 31, 2002
Unaudited Consolidated Statements of Operations for the three 5
months ended March 31, 2003 and 2002, and for the period from
February 10, 1997 (Date of Inception) to March 31, 2003
Unaudited Consolidated Statements of Cash Flows for the three 6
months ended March 31, 2003 and 2002, and for the period from
February 10, 1997 (Date of Inception) to March 31, 2003
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, 2003 DECEMBER 31, 2002
(UNAUDITED) (Audited)
----------------------------------------------------------
CURRENT ASSETS
Cash $ 300,000 $ 17,898
Prepaid expenses 24,427 48,439
----------------------------------------------------------
TOTAL CURRENT ASSETS 324,427 66,337
INVESTMENTS (Note 3)
SynGen Technologies - 303,312
CPJ Technologies - 454,968
----------------------------------------------------------
TOTAL INVESTMENTS - 758,280
Office equipment and computers - 44,325
----------------------------------------------------------
TOTAL ASSETS $ 324,427 $ 868,942
==========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable (Note 4) $ 227,546 $ 38,791
Accrued expenses (Note 4) 21,890 43,000
Notes payable - 257,960
Accrued interest on notes - 2,361
----------------------------------------------------------
TOTAL CURRENT LIABILITIES 249,436 342,112
LIABILITIES SUBJECT TO COMPROMISE (Note 5)
Accounts payable 2,032,608 2,032,608
Convertible debentures 1,259,100 1,259,100
Loans payable 130,000 130,000
Accrued interest to November 12, 2002 21,220 21,220
----------------------------------------------------------
TOTAL LIABILITIES SUBJECT TO COMPROMISE 3,442,928 3,442,928
TOTAL LIABILITIES 3,692,364 3,785,040
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.002 par value, 100,000,000 shares
authorized, 48,005,521 Shares issued and outstanding 96,992 96,992
Additional paid in capital 57,700,516 57,700,516
Deficit accumulated during development stage (61,165,445) (60,713,606)
----------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (3,367,937) (2,916,098)
==========================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 324,427 $ 868,942
==========================================================
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)
2003 2002 TO MARCH 31, 2003
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Interest income - 56 35,880
CPJ testing income 25,000 25,000
Consulting income - - 8,927
----------------------------------------------------------------------------------------------------------------------------
25,000 56 69,807
EXPENSES
General and administrative 233,098 822,195 8,432,528
Stock option compensation - 13,879 997,830
Compensation related to warrants - - 343,744
Technology development 105,627 83,889 3,845,361
Other technology costs - - 1,025,000
Dry well expenses - - 722,210
----------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 338,725 919,963 15,366,673
----------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (313,725) (919,907) (15,296,866)
OTHER EXPENSES
Amortization of debt discount and offering costs - - (2,250,000)
Conversion inducement - - (888,548)
Accrued interest on notes payable (9,240) (55,480) (546,527)
Share of expenses incurred by joint venture - (11,964) (342,161)
Write-down of technology - - (42,414,508)
Gain on disposition - - 802,208
----------------------------------------------------------------------------------------------------------------------------
(9,240) (67,444) (45,639,536)
----------------------------------------------------------------------------------------------------------------------------
NET LOSS BEFORE REORGANIZATION ITEMS AND TAXES (322,965) (987,351) (60,936,402)
----------------------------------------------------------------------------------------------------------------------------
REORGANIZATION ITEMS
Professional fees (128,874) - (229,043)
PROVISION FOR INCOME TAX - - -
----------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (451,839) $ (987,351) $ (61,165,445)
============================================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE
$ (0.01) $ (0.03) $ (2.75)
============================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN CALCULATION
48,005,521 36,019,141 22,209,646
============================================================================================================================
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
MARCH 31, 2003 MARCH 31, 2002 (DATE OF INCEPTION)
(UNAUDITED) (UNAUDITED) TO MARCH 31, 2003
(UNAUDITED)
-----------------------------------------------------------------
CASH FROM OPERATING ACTIVITIES
Net loss $ (451,839) $ (987,351) $ (61,165,445)
Adjustments to reconcile net loss to net cash from
operations
Dry well expense - - 722,210
Depreciation, amortization and write-downs 5,717 23,885 46,649,126
Accrued interest on notes payable 9,240 23,383 294,271
Issuance of shares for services - 378,077 2,538,251
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 50,209
Exchange rate loss - 5,482 75,805
Loss on disposition of assets - - (684,239)
Changes in assets and liabilities
Accounts receivable - (44,189) -
Prepaid expenses and deposits 19,475 (31,856) (59,005)
Accounts payable 59,941 (309,925) 2,449,207
Accounts payable - related parties - - 153,088
Accrued expenses (43,000) 159,885 -
-----------------------------------------------------------------
(400,466) (384,406) (8,130,249)
Operating cash flows from reorganization items:
Professional fees - Accounts payable 118,814 - 118,814
Professional fees - Accrued expenses 21,890 - 21,890
-----------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (259,762) (384,406) (7,989,545)
CASH FROM INVESTING ACTIVITIES
Acquisition of property and equipment - (14,021) (140,175)
Disposition of assets (Supplemental Information) 298,642 - 298,642
Other - - (788,188)
-----------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES 298,642 (14,021) (629,721)
CASH FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties - - 531,933
Proceeds from (payments to) notes payable 243,222 (135,223) 1.319,478
Net proceeds from convertible debt - - 2,137,500
Sales of common stock - 509,900 4,603,660
Other - - 402,500
-----------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 243,222 374,677 8,995,071
EFFECT OF EXCHANGE RATE CHANGES ON CASH - (5,482) (75,805)
NET CHANGE IN CASH 282,102 (29,232) 300,000
CASH AT BEGINNING OF PERIOD 17,898 38,746 -
-----------------------------------------------------------------
CASH AT END OF PERIOD $ 300,000 $ 9,514 $ 300,000
=================================================================
6
o SUPPLEMENTAL CASH FLOW INFORMATION
o On March 12, 2003, substantially all the Company's assets were sold to
a third party for $300,000 in cash plus the forgiveness of $527,783 in
debt and accrued interest incurred subsequent to the Petition Date, and
the Company ceased operations. The $527,783 consists of loan advances
during the fourth quarter of 2002 of $257,960, loan advances during the
first quarter of 2003 of $243,222, a third party payment to a vendor of
$15,000 and interest on the loan advances of $11,601.
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 - BANKRUPTCY PROCEEDING, SALE OF ASSETS AND DISCONTINUATION OF OPERATIONS
The Company is in the development stage and has not realized any revenues, has
incurred losses and had negative cash flows from operations for all 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 for relief 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"). 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.
After November 13, 2002, we and Carbon operated our respective businesses as
debtors-in-possession. At March 12, 2003 substantially all the Company's assets
were sold to a third party for $300,000 in cash plus the forgiveness of $527,783
in debt and accrued interest incurred subsequent to the Petition Date, and the
Company ceased operations. The asset sale was completed following an auction
conducted in accordance with the Bankruptcy Code and pursuant to an order of the
Bankruptcy Court. The Company expects to file 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. As of May 15, 2003, the plan for reorganization has yet to be
submitted.
NOTE 3 - INVESTMENTS, ACQUISITIONS AND TECHNOLOGY DEVELOPMENT
Investments reported on the Consolidated Balance Sheet of the Company include
the following:
MARCH 31, DECEMBER 31,
2003 2002
------------------------------------------
Investment in SynGen Technology and associated assets
(See Note 3(a) below) $ - $ 303,312
Investment in CPJ Technology and associated assets
(See Note 3(b) below) - 454,968
------------------------------------------
$ - $ 758,280
==========================================
(a) SynGen: As at March 31, 2003 the Company has no remaining assets due to the
sale of the Company's assets on March 12, 2003.
(b) CPJ: As at March 31, 2003 the Company has no remaining assets due to the
sale of the Company's assets on March 12, 2003.
8
NOTE 4 - CURRENT LIABILITIES
(a) Accounts payable includes $30,583 owed to certain members of
management who deferred payment of salaries from November 13 to
November 30, 2002. Also included are $122,019 for professional fees
to bankruptcy counsel and $74,944 for other professional fees.
(b) Accrued expenses includes $21,890 owed for professional fees to
bankruptcy counsel.
NOTE 5 - LIABILITIES SUBJECT TO COMPROMISE
No changes during the quarter.
NOTE 6 - COMMON STOCK
Warrants:
--------
The following table summarizes the warrants issued, exercised and expired
during the period ended March 31, 2003:
Balance at December 31, 2001 4,364,048
Warrants issued during 2002
At $0.02 per share 50,000
At $0.72 per share 612,306
At $0.90 per share 1,352,350
At $1.00 per share 470,000
At $3.00 per share 15,000
Warrants expired unexercised during the period, $1.00 per share (700,000)
------------------
Warrants to purchase common shares, balance at December 31, 2002 6,163,704
Warrants issued during 2003
Warrants expired unexercised during the period, $3.50 per share (1,139,314)
------------------
Warrants to purchase common shares, balance at March 31, 2003 5,024,390
==================
STOCK OPTIONS
-------------
The Company has five stock option plans as follows:
o 1998 Directors and Employees Stock Option Plan (Plan "A");
o 1999 Directors and Employees Stock Option Plan (Plan "B");
o 1999 Directors and Advisory Board Members Stock Option Plan (Plan "C");
o 2000 Employees Stock Option and Stock Award Plan (Plan "D");
o 2001 Employees Stock Option and Stock Award Plan (Plan "E"); and,
o 2002 Stock Option Plan (Plan "F")
9
The following table will summarize options and awards granted, and options and
awards available for grant for the quarter ended March 31, 2003:
PLAN A PLAN B PLAN C PLAN D PLAN E PLAN F
1998 1999 1999 2000 2001 2002
------------ ------------- ------------ ------------- ------------- ------------
Total shares authorized under plan: 900,000 1,000,000 1,100,000 1,500,000 1,000,000 10,000,000
Options/awards granted:
Employees 250,000 335,000 - 131,573 4,508,000
Directors 400,000 425,000 400,000 36,315 200,000
Non-employees, consultants 250,000 200,000 - 1,316,175 368,000
Advisory Board members - - 500,000 - -
------------ ------------- ------------ ------------- ------------- ------------
Total options granted 900,000 960,000 900,000 1,484,063 455,754 5,076,000
Expired or cancelled (a) - 40,000 200,000 15,937 544,246 -
------------ ------------- ------------ ------------- ------------- ------------
Available for grant at March 31,2003 - - - - - 4,924,000
============ ============= ============ ============= ============= ============
(a) Employees:
o There were no changes during the quarter
(b) Non-employees and consultants:
o There were no changes during the quarter.
The following table summarizes the status of the Company's stock options
(excluding stock awards) and changes thereto during the quarter ended March 31,
2003:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-----------------------------------------------------
Balance at December 31, 2001 2,779,500 $ 1.08
Granted during 2002 5,076,000 0.73
Canceled during 2002 (5,000) 1.56
Exercised during 2002 - -
-----------------------------------------------------
Outstanding at end of year, December 31, 2001 7,850,500 $ 0.85
-----------------------------------------------------
Granted during 2003 - -
Cancelled during 2003 - -
Exercised during 2003 - -
-----------------------------------------------------
Outstanding at end of year, December 31, 2002 7,850,500 $ 0.85
=====================================================
Options exercisable at end of quarter 5,059,310 0.92
Weighted remaining contractual life 5.24 years
Range of exercise prices $ 0.50 - 1.56
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In November 2002, Synergy Technologies Corporation ("we", "us" or the
"Company") filed for protection under Chapter 11 of the Bankruptcy Code and sold
substantially all of its assets in March 2003 under the auspices and with the
approval of the Bankruptcy Court hearing its petition (see NOTE 2 to the
Financial Statements for a more complete description of the bankruptcy). The
Company does not currently engage in any business operations and can not make
any statements regarding our future operations, management, capital requirements
or sources of capital.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Chief Executive Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting management to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company's periodic SEC filings.
The Company's management does not expect that its disclosure controls
and procedures or its internal controls will prevent all error and all fraud. A
control system, no matter how well conceived and operated, provides reasonable,
not absolute, assurance that the objectives of the control system are met.
Because there are inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been or will be detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and that breakdowns occur because of simple error or mistake. Controls
can be circumvented by the individual acts of some persons or by collusion of
two or more people. The design of any system of controls is based in part upon
certain assumptions about the likelihood of future events. There can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with the
policies or procedures. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected.
(b) Changes in internal controls.
There have been no significant changes in the Company's internal
controls or, to its knowledge, in other factors that could significantly affect
internal controls subsequent to the date the Company carried out its evaluation.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
N/A
ITEM 2. CHANGES IN SECURITIES
(a) N/A
11
(b) N/A
(c) Recent Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
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
99.1 Certification of Chief Executive Officer under Section 906 of
Sarbanes-Oxley Act of 2002
(b) The following Current Reports on Form 8-K during the first quarter of 2003.
1. April 22, 2003
12
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: May 19, 2002 By: /s/ Barry Coffey
------------------
Barry Coffey
Chief Executive Officer
13
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 are 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: May 19, 2003 By: /s/ Barry Coffey
-----------------
Barry Coffey
Chief Executive Officer
14