Attached files
As filed with the Securities and Exchange Commission on ______, 2009
Commission File No. 333-161895
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1/A
Amendment No. 1
Registration Statement Under
THE SECURITIES ACT OF 1933
SYNERGY RESOURCES CORPORATION
(Exact name of registrant as specified in charter)
Colorado 1311 20-2835920
----------------------- ------------------------- -------------------
(State or other jurisdiction (Primary Standard Classi- (IRS Employer
of incorporation) fication Code Number) I.D. Number)
20203 Highway 60
Platteville, CO 80651
(970) 737-1073
------------------------------------------
(Address and telephone number of principal executive offices)
20203 Highway 60
Platteville, CO 80651
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(Address of principal place of business or intended principal place of business)
William E. Scaff, Jr.
20203 Highway 60
Platteville, CO 80651
(970) 737-1073
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(Name, address and telephone number of agent for service)
Copies of all communications, including all communications sent
to the agent for service, should be sent to:
William T. Hart, Esq.
Hart & Trinen, LLP
1624 Washington Street
Denver, Colorado 80203
303-839-0061
As soon as practicable after the effective date of this Registration Statement
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Share (1) Price Fee
---------- ---------- ---------- --------- ------------
Common Stock (2) 18,246,932 $1.14 $20,801,502
Series A Warrants (3) 3,091,733 $0.01 30,917
Series A Warrants (4) 1,038,000 $0.01 10,380
Common Stock (5) 1,038,000 $1.14 1,183,320 $1,229
------------
(1) Offering price computed in accordance with Rule 457.
(2) Shares of common stock offered by selling shareholders, including shares
issuable upon exercise of Series A warrants, Series B warrants, and options.
(3) Series A warrants held by the selling shareholders on the date this
registration statement was first filed with the Securities and Exchange
Commission.
(4) Series A Warrants to be issued to shareholders owning registrant's shares of
common stock on September 9, 2008.
(5) Shares of common stock to be issued upon the exercise of Series A warrants
to be issued to shareholders owning registrant's shares of common stock on
September 9, 2008.
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of l933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
SYNERGY RESOURCES CORPORATION
Common Stock
and
Series A Warrants
By means of this prospectus:
o we are issuing 1,038,000 Series A warrants to those shareholders who
were owners of our common stock on September 9, 2008;
o we are registering for public sale 3,091,733 Series A warrants
previously issued to our shareholders and a securities broker.
o a number of our shareholders are offering to sell up to 19,284,932
shares of our common stock which they acquired, or may acquire,
- as a result of the acquisition of another corporation
- in a private offering
- upon the exercise of our Series A warrants, Series B warrants or
options.
- upon the exercise of warrants issued to a securities broker which
acted as a sales agent in a private offering of our securities.
Although we will receive proceeds if any of the Series A or Series B
Warrants are exercised, we will not receive any proceeds from the sale of the
common stock or Series A Warrants by the selling stockholders. We will pay for
the expenses of this offering which are estimated to be $45,000.
Our common stock is traded on the OTC Bulletin Board under the symbol
SYRG. On October 7, 2009 the closing price for our common stock was $1.20.
As of the date of this prospectus there was no public market for our
Series A or Series B Warrants. Although we plan to have our Series A Warrants
quoted on the OTC Bulletin Board, we may not be successful in establishing any
public market for the Series A Warrants.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. FOR A
DESCRIPTION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE __ OF THIS
PROSPECTUS.
The date of this prospectus is October__, 2009.
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PROSPECTUS SUMMARY
We were incorporated in Colorado in May 2005 and are involved in oil and
gas exploration and development.
As of September 30, 2009 we:
o had an interest in ten wells. Two wells began producing in February
and April 2009, seven wells are being completed and one gas well is
shut in;
o owned oil and gas leases covering approximately 6,700 acres in
Colorado and Nebraska.
Our website is: www.synergyresourcescorporation.com.
Our offices are located at 20203 Highway 60, Platteville, CO 80651. The
Platteville office telephone number is (970) 737-1073 and its fax number is
(970) 737-1045. We also maintain an office at 1200 17th Street, Suite 570,
Denver, CO 80202. Our telephone number at our Denver office is (303) 623-3966
and our fax number in Denver is (303) 534-0151.
See the "Glossary" section of this prospectus for the definition of terms
pertaining to the oil and gas industry which are used in this prospectus.
The Offering
Prior to September 10, 2008 our corporate name was Brishlin Resources Inc.
On September 10, 2008 we acquired approximately 89% of the outstanding shares of
Synergy Resources Corporation in exchange for 8,882,500 shares of our common
stock and 1,042,500 Series A warrants. On December 19, 2008 we acquired the
remaining shares of Synergy for 1,077,500 shares of our common stock and
1,017,500 Series A warrants.
On September 10, 2008 we also changed our corporate name to Synergy
Resources Corporation.
In contemplation of the acquisition of Synergy, our shareholders approved
a 1-for-10 reverse split of our common stock and our directors declared a
dividend of Series A warrants. The dividend provided that each person owning our
shares at the close of business on September 9, 2008 will receive one Series A
warrant for each post-split share which they owned on that date. However, the
directors' resolution approving the distribution provided that the warrants
would not be issued until a registration statement covering the warrants, as
well as the shares issuable upon the exercise of the warrants, had been declared
effective by the Securities and Exchange Commission.
Between December 1, 2008 and June 30, 2009 we sold 1,000,000 units to
investors in a private offering at a price of $3.00 per unit. Each unit
consisted of two shares of our common stock, one Series A warrant and one Series
B warrant. We paid Scottsdale Capital Advisors, the sales agent for the private
offering, a commission of $47,600 (equal to 10% of the amount raised by
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Scottsdale Capital). We also agreed to issue to Scottsdale Capital 31,733 sales
agent warrants (or one sales agent warrant for each five Units sold by
Scottsdale Capital).
By means of this prospectus:
o we are issuing:
- 1,038,000 Series A warrants to those shareholders who were owners
of our common stock on September 9, 2008, and
- up to 1,038,000 shares of our common stock to the holders of
these warrants if and when the warrants are exercised.
o a number of our shareholders are offering to sell:
- up to 8,060,000 shares of our common stock which they acquired in
connection with our acquisition of Synergy,
- up to 2,060,000 Series A warrants acquired in the acquisition,
and
- up to 2,060,000 shares of common stock which may issuable upon
the exercise of the Series A warrants.
- up to 4,000,000 shares of common stock issuable upon the exercise
of options.
o a number of investors are offering to sell:
- up to 2,000,000 shares of our common stock which they acquired in
the private offering;
- up to 1,000,000 Series A warrants which they acquired in a
private offering; and
- up to 2,000,000 shares of our common stock which are issuable
upon the exercise of the Series A and Series B Warrants.
o Scottsdale Capital, the sales agent for our private offering, is
offering to sell:
- up to 63,466 shares of common stock which are issuable upon the
exercise of the sales agent warrants;
- up to 63,466 shares of our common stock which are issuable upon
the exercise of the Series A and Series B warrants included as
part of the sales agent's warrants.
- up to 31,733 Series A warrants issuable upon the exercise of the
sales agent's warrants.
The holders of the 1,038,000 Series A warrants issued to shareholders of
record on September 9, 2008 may sell these warrants in the public market without
the use of this prospectus.
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Each Series A warrant entitles the holder to purchase one share of our
common stock at a price of $6.00 per share. The Series A warrants expire on the
earlier of December 31, 2012 or twenty days following written notification from
us that our common stock had a closing bid price at or above $7.00 for any ten
of twenty consecutive trading days.
Each Series B warrant entitles the holder to purchase one share of our
common stock at a price of $10.00 per share. The Series B warrants expire on the
earlier of December 31, 2012 or twenty days following written notification from
us that our common stock had a closing bid price at or above $12.00 for any ten
of twenty consecutive trading days.
Each Sales Agent warrant entitles the holder to purchase two shares of our
common stock, one Series A warrant and one Series B warrant. The terms of the
Series A and Series B warrants are the same as those disclosed in the two
preceding paragraphs. The Sales Agent warrants are exercisable at a price of
$3.60 per warrant and will expire on the earlier of December 31, 2012 or twenty
days following written notification from us that its common stock had a closing
bid price at or above $7.00 per share for any ten of twenty consecutive trading
days.
See the sections of this prospectus entitled "Selling Shareholders" and
"Plan of Distribution" for more information.
As of September 30, 2009 we had 11,998,000 outstanding shares of common
stock. The number of our outstanding shares does not include 4,100,000 shares
issuable upon the exercise of options granted to our officers, directors and an
employee. See the section of this prospectus captioned "Management - Stock
Option and Bonus Plan" for more information concerning these options.
The purchase of the securities offered by this prospectus involves a high
degree of risk. Risk factors include the lack of any relevant operating history,
losses since we were incorporated, and the possible need us to sell shares of
our common stock to raise capital. See "Risk Factors" section of this prospectus
below for additional Risk Factors.
Forward-Looking Statements
This prospectus contains or incorporates by reference "forward-looking
statements," as that term is used in federal securities laws, concerning our
financial condition, results of operations and business. These statements
include, among others:
o statements concerning the benefits that we expect will result from our
business activities and results of exploration that we contemplate or
have completed, such as increased revenues; and
o statements of our expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical
facts.
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You can find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates" or similar expressions used in
this prospectus.
These forward-looking statements are subject to numerous assumptions,
risks and uncertainties that may cause our actual results to be materially
different from any future results expressed or implied in those statements.
Because the statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied. We caution you not to put
undue reliance on these statements, which speak only as of the date of this
prospectus. Further, the information contained in this prospectus, or
incorporated herein by reference, is a statement of our present intention and is
based on present facts and assumptions, and may change at any time.
RISK FACTORS
Investors should be aware that this offering involves certain risks,
including those described below, which could adversely affect the value of our
common stock. We do not make, nor have we authorized any other person to make,
any representation about the future market value of our common stock. In
addition to the other information contained in this prospectus, the following
factors should be considered carefully in evaluating an investment in our
securities.
WE ARE IN THE DEVELOPMENT STAGE AND MAY NEVER BE PROFITABLE. As of the date of
this prospectus we were not generating only limited revenue and we expect to
incur losses during the foreseeable future. Unless and until we are profitable,
we will need to raise enough capital to be able to fund the costs of our
operations and our planned oil and gas exploration and development activities.
OUR FAILURE TO OBTAIN CAPITAL MAY SIGNIFICANTLY RESTRICT OUR PROPOSED
OPERATIONS. We need additional capital to fund our operating losses and to
expand our business. We do not know what the terms of any future capital raising
may be but any future sale of our equity securities would dilute the ownership
of existing stockholders and could be at prices substantially below the price
investors paid for the shares of common stock sold in this offering. Our failure
to obtain the capital which we require will result in the slower implementation
of our business plan or our inability to implement our business plan. There can
be no assurance that we will be able to obtain the capital which we will need.
We will need to earn a profit or obtain additional financing until we are
able to earn a profit. As a result of our short operating history it is
difficult for potential investors to evaluate our business. There can be no
assurance that we can implement our business plan, that we will be profitable,
or that the securities which may be sold in this offering will have any value.
OIL AND GAS EXPLORATION IS NOT AN EXACT SCIENCE, AND INVOLVES A HIGH DEGREE OF
RISK. The primary risk lies in the drilling of dry holes or drilling and
completing wells which, though productive, do not produce gas and/or oil in
sufficient amounts to return the amounts expended and produce a profit. Hazards,
such as unusual or unexpected formation pressures, downhole fires, blowouts,
loss of circulation of drilling fluids and other conditions are involved in
drilling and completing oil and gas wells and, if such hazards are encountered,
completion of any well may be substantially delayed or prevented. In addition,
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adverse weather conditions can hinder or delay operations, as can shortages of
equipment and materials or unavailability of drilling, completion, and/or
work-over rigs. Even though a well is completed and is found to be productive,
water and/or other substances may be encountered in the well, which may impair
or prevent production or marketing of oil or gas from the well.
Exploratory drilling involves substantially greater economic risks than
development drilling because the percentage of wells completed as producing
wells is usually less than in development drilling. Exploratory drilling itself
can be of varying degrees of risk and can generally be divided into higher risk
attempts to discover a reservoir in a completely unproven area or relatively
lower risk efforts in areas not too distant from existing reservoirs. While
exploration adjacent to or near existing reservoirs may be more likely to result
in the discovery of oil and gas than in completely unproven areas, exploratory
efforts are nevertheless high risk activities.
Although the completion of oil and gas wells is, to a certain extent, less
risky than drilling for oil and gas, the process of completing an oil or gas
well is nevertheless associated with considerable risk. In addition, even if a
well is completed as a producer, the well for a variety of reasons may not
produce sufficient oil or gas in order to repay our investment in the well.
THE ACQUISITION, EXPLORATION AND DEVELOPMENT OF OIL AND GAS PROPERTIES, AND THE
PRODUCTION AND SALE OF OIL AND GAS ARE SUBJECT TO MANY FACTORS WHICH ARE OUTSIDE
OUR CONTROL. These factors include, among others, general economic conditions,
proximity to pipelines, oil import quotas, supply, demand, and price of other
fuels and the regulation of production, refining, transportation, pricing,
marketing and taxation by Federal, state, and local governmental authorities.
BUYERS OF OUR GAS, IF ANY, MAY REFUSE TO PURCHASE GAS FROM US IN THE EVENT OF
OVERSUPPLY. If wells which we drill are productive of natural gas, the
quantities of gas that we may be able to sell may be too small to pay for the
expenses of operating the wells. In such a case, the wells would be "shut-in"
until such time, if ever, that economic conditions permit the sale of gas in
quantities which would be profitable.
INTERESTS THAT WE MAY ACQUIRE IN OIL AND GAS PROPERTIES MAY BE SUBJECT TO
ROYALTY AND OVERRIDING ROYALTY INTERESTS, LIENS INCIDENT TO OPERATING
AGREEMENTS, LIENS FOR CURRENT TAXES AND OTHER BURDENS AND ENCUMBRANCES,
EASEMENTS AND OTHER RESTRICTIONS, ANY OF WHICH MAY SUBJECT US TO FUTURE
UNDETERMINED EXPENSES. We do not intend to purchase title insurance, title
memos, or title certificates for any leasehold interests we will acquire. It is
possible that at some point we will have to undertake title work involving
substantial costs. In addition, it is possible that we may suffer title failures
resulting in significant losses.
THE DRILLING OF OIL AND GAS WELLS INVOLVES HAZARDS SUCH AS BLOWOUTS, UNUSUAL OR
UNEXPECTED FORMATIONS, PRESSURES OR OTHER CONDITIONS WHICH COULD RESULT IN
SUBSTANTIAL LOSSES OR LIABILITIES TO THIRD PARTIES. Although we intend to
acquire adequate insurance, or to be named as an insured under coverage acquired
by others (e.g., the driller or operator), we may not be insured against all
such losses because insurance may not be available, premium costs may be deemed
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unduly high, or for other reasons. Accordingly, uninsured liabilities to third
parties could result in the loss of our funds or property.
OUR OPERATIONS ARE DEPENDENT UPON THE CONTINUED SERVICES OF OUR OFFICERS. THE
LOSS OF ANY OF THESE OFFICERS, WHETHER AS A RESULT OF DEATH, DISABILITY OR
OTHERWISE, MAY HAVE A MATERIAL ADVERSE EFFECT UPON OUR BUSINESS.
OUR OPERATIONS WILL BE AFFECTED FROM TIME TO TIME AND IN VARYING DEGREES BY
POLITICAL DEVELOPMENTS AND FEDERAL AND STATE LAWS AND REGULATIONS REGARDING THE
DEVELOPMENT, PRODUCTION AND SALE OF CRUDE OIL AND NATURAL GAS. These regulations
require permits for drilling of wells and also cover the spacing of wells, the
prevention of waste, and other matters. Rates of production of oil and gas have
for many years been subject to Federal and state conservation laws and
regulations and the petroleum industry is subject to Federal tax laws. In
addition, the production of oil or gas may be interrupted or terminated by
governmental authorities due to ecological and other considerations. Compliance
with these regulations may require a significant capital commitment by and
expense to us and may delay or otherwise adversely affect our proposed
operations.
From time to time legislation has been proposed relating to various
conservation and other measures designed to decrease dependence on foreign oil.
No prediction can be made as to what additional legislation may be proposed or
enacted. Oil and gas producers may face increasingly stringent regulation in the
years ahead and a general hostility towards the oil and gas industry on the part
of a portion of the public and of some public officials. Future regulation will
probably be determined by a number of economic and political factors beyond our
control or the oil and gas industry.
OUR ACTIVITIES WILL BE SUBJECT TO EXISTING FEDERAL AND STATE LAWS AND
REGULATIONS GOVERNING ENVIRONMENTAL QUALITY AND POLLUTION CONTROL. Compliance
with environmental requirements and reclamation laws imposed by Federal, state,
and local governmental authorities may necessitate significant capital outlays
and may materially affect our earnings. It is impossible to predict the impact
of environmental legislation and regulations (including regulations restricting
access and surface use) on our operations in the future although compliance may
necessitate significant capital outlays, materially affect our earning power or
cause material changes in our intended business. In addition, we may be exposed
to potential liability for pollution and other damages.
SINCE OUR OFFICERS PLAN TO DEVOTE ONLY A PORTION OF THEIR TIME TO OUR BUSINESS,
OUR CHANCES OF BEING PROFITABLE WILL BE LESS THAN IF WE HAD FULL TIME
MANAGEMENT. As of the date of this prospectus we had two officers. These two
officers are employed at other companies and their other responsibilities could
take precedence over their duties to us.
Risk Factors Related to this Offering
AS OF THE DATE OF THIS PROSPECTUS THERE WAS ONLY A LIMITED PUBLIC MARKET FOR OUR
COMMON STOCK AND THERE WAS NOT PUBLIC MARKET FOR OUR SERIES A WARRANTS. AS A
RESULT, PURCHASERS OF THE SECURITIES OFFERED BY THIS PROSPECTUS MAY BE UNABLE TO
SELL THEIR SECURITIES OR RECOVER ANY AMOUNTS WHICH THEY PAID FOR THEIR
SECURITIES.
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DISCLOSURE REQUIREMENTS PERTAINING TO PENNY STOCKS MAY REDUCE THE LEVEL OF
TRADING ACTIVITY IN OUR SECURITIES AND INVESTORS MAY FIND IT DIFFICULT TO SELL
THEIR SHARES OR WARRANTS. Trades of our securities will be subject to Rule 15g-9
of the Securities and Exchange Commission, which rule imposes certain
requirements on broker/dealers who sell securities subject to the rule to
persons other than established customers and accredited investors. For
transactions covered by the rule, brokers/dealers must make a special
suitability determination for purchasers of the securities and receive the
purchaser's written agreement to the transaction prior to sale. The Securities
and Exchange Commission also has rules that regulate broker/dealer practices in
connection with transactions in "penny stocks". Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to
transactions in that security is provided by the exchange or system). The penny
stock rules require a broker/ dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the Commission that provides information about penny stocks
and the nature and level of risks in the penny stock market. The broker/dealer
also must provide the customer with current bid and offer quotations for the
penny stock, the compensation of the broker/dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. The bid and offer quotations, and
the broker/dealer and salesperson compensation information, must be given to the
customer orally or in writing prior to effecting the transaction and must be
given to the customer in writing before or with the customer's confirmation.
MARKET FOR OUR COMMON STOCK.
On February 27, 2008 our common stock began trading on the OTC Bulletin
Board under the symbol "BRSH." Prior to that date there was no established
trading market for our common stock.
On September 22, 2008 a 10-for-1 reverse stock split, approved by our
shareholders on September 8, 2008, became effective on the OTC Bulletin Board
and our trading symbol was changed to "SYRG."
Shown below are the range of high and low closing prices for our common
stock for the periods indicated as reported by the FINRA. The market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions
and may not necessarily represent actual transactions. The market quotations for
the quarters ended May 31, 2008 and August 31, 2008 have been adjusted to
reflect the 10-for-1 reverse stock split referred to above.
Quarter Ended High Low
------------- ---- ---
May 31, 2008 $5.00 $1.50
August 31, 2008 $3.40 $2.50
November 30, 2008 $4.75 $3.10
February 28, 2009 $3.45 $1.25
May 31, 2009 $1.80 $1.45
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August 31, 2009 $1.80 $1.10
As of September 30, 2009, we had 11,998,000 outstanding shares of common
stock and 130 shareholders.
Holders of our common stock are entitled to receive dividends as may be
declared by the Board of Directors. Our Board of Directors is not restricted
from paying any dividends but is not obligated to declare a dividend. No cash
dividends have ever been declared and it is not anticipated that cash dividends
will ever be paid.
Our Articles of Incorporation authorize our Board of Directors to issue
up to 10,000,000 shares of preferred stock. The provisions in the Articles of
Incorporation relating to the preferred stock allow our directors to issue
preferred stock with multiple votes per share and dividend rights which would
have priority over any dividends paid with respect to the holders of our common
stock. The issuance of preferred stock with these rights may make the removal of
management difficult even if the removal would be considered beneficial to
shareholders generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers if these
transactions are not favored by our management.
During the eight months ended August 31, 2008 we did not purchase any of
our securities. During this same period no person affiliated with us purchased
any of our securities on our behalf. On December 1, 2008 we purchased 1,000,000
shares of our common stock from the Synergy Energy Trust for $1,000, which was
the same amount which we received when the shares were sold to the Trust.
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION
We were incorporated in Colorado on May 11, 2005. Since our formation we
have been relatively inactive. We have never generated any revenue and prior to
the acquisition of Synergy Resources Corporation our only material asset was one
shut-in oil well.
On September 10, 2008 we acquired approximately 89% of the outstanding
shares of Synergy Resources Corporation in exchange for 8,882,500 shares of our
common stock and 1,042,500 Series A warrants.
On December 19, 2008 we acquired the remaining shares of Synergy for
1,077,500 shares of our common stock and 1,017,500 Series A warrants.
See the "Prospectus Summary" section of this prospectus for information
concerning the terms of these warrants.
Synergy was incorporated in Colorado in December 2007. As of the date of
our acquisition of Synergy, Synergy's only material asset was approximately $2.2
million in cash that it raised from private investors.
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Contingent upon the amount of capital available, we plan to explore for
oil and gas. We expect that most of our wells will be drilled in the Denver -
Julesburg ("D-J") Basin in northeast Colorado.
Our plan of operation is disclosed in the "Business" section of this
prospectus. Our future plans will be dependent upon the amount of capital we are
able to raise.
Although from a legal standpoint we acquired a controlling interest in
Synergy on September 10, 2008, for financial reporting purposes the acquisition
of Synergy constituted a recapitalization, and the acquisition was accounted for
as a reverse merger whereby Synergy was deemed to have acquired the Company. As
a result, all financial statements for periods after August 31, 2008 will
reflect the historical operations of Synergy for the period of Synergy's
inception (December 28, 2007) through September 10, 2008, and our operations
combined with those of Synergy after that date.
Subsequent to the Synergy acquisition, we changed our fiscal year end from
December 31 to August 31. Since the acquisition of Synergy took place after
August 31, 2008, financial statements for the eight months ended August 31,
2008, the year ended December 31, 2007 and the period from our inception (May
11, 2005) to August 31, 2008 are included as part of this prospectus to reflect
our operating results prior to the September 10, 2008 acquisition of Synergy.
Also included as part of this prospectus are the audited financial
statements of Synergy as of August 31, 2008, and for the period from inception
(December 28, 2007) to August 31, 2008 as well as pro forma financial statements
giving effect to the September 10, 2008 acquisition of Synergy.
As a result of the reverse merger and the change in our fiscal year end,
our most current statement of operations in this prospectus is for the
nine-month period ended May 31, 2009. Accordingly, any comparison of our
operations for the nine months ended May 31, 2009 with our operations for any
previous periods are not meaningful.
The following discussion analyzes our financial condition at May 31, 2009
and summarizes the results of our operations for the nine months ended May 31,
2009, and for the period from inception (December 28, 2007) to August 31, 2008.
This discussion and analysis should be read in conjunction with our audited
financial statements for the period ended August 31, 2008, including the notes
to the financial statements.
RESULTS OF OPERATIONS
We are in the early stages of implementing our business plan. For
financial reporting purposes, our inception date was December 28, 2007, the day
that Predecessor Synergy was incorporated in the State of Colorado. Although we
incorporated in 2007, we did not commence business activities until June 2008.
We have been in the exploration stage since inception.
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NINE MONTHS ENDED MAY 31, 2009
Operating expenses for the nine months ended May 31, 2009 were
$11,147,496, most of which was share based compensation ($10,282,000). Excluding
share based compensation, operating expenses for the nine months were $865,496,
consisting primarily of salaries and benefits, amounts paid under the
administrative services arrangement with PM, consulting and professional fees.
These costs may increase in future periods as we implement our business plan and
expand our business activities.
Operating expenses for the nine months ended May 31, 2009 include
$10,282,000 of share based compensation related to the issuance of stock
options. When stock options are issued, we estimate their fair value using the
Black-Scholes-Merton option-pricing model. The estimated fair value is recorded
as an expense on a pro-rata basis over the vesting period. In connection with
the merger, we agreed to issue options covering 4,000,000 shares to replace
similar options that had previously been issued. We estimate that the fair value
of the replacement options exceeded the fair value of the surrendered options by
$10,185,345 and the relevant vesting period is nine months. The pro-rata expense
amount allocated to this nine-month period was the entire amount of $10,185,345
and there is no remaining amount to recognized in future periods. Other options
have been issued which increased total expenses for the period to $10,282,000.
The factors that will most significantly affect our results of operations
will be (i) the sale prices of crude oil and natural gas, (ii) the amount of
production from oil or gas wells in which we have an interest, and (iii) and
lease operating expenses. Our revenues will also be significantly impacted by
our ability to maintain or increase oil or gas production through exploration
and development activities.
Other than the foregoing, we do not know of any trends, events or
uncertainties that will have had or are reasonably expected to have a material
impact on our sales, revenues or expenses.
PERIOD FROM INCEPTION (DECEMBER 28, 2007) TO AUGUST 31, 2008
For the period from inception (December 28, 2007) to August 31, 2008, we
recorded a net loss of $(193,378), or $(0.07) per share. As discussed below, we
recorded no revenues for the period and operating expenses were incurred to
develop our business plan.
Although we incorporated on December 28, 2007, we were dormant until June,
2008, when we commenced development of our business plan including activities
which resulted in the transaction on September 10, 2008. Operating expenses for
the period ended August 31, 2008 were $196,271, consisting primarily of salaries
and benefits, amounts paid under an administrative services arrangement with an
affiliate, Petroleum Management, LLC, professional fees and share-based
compensation.
14
On June 11, 2008, we entered into two-year employment agreements with our
two executive officers. Pursuant to the terms of those agreements, the salaries
of William E. Scaff, Jr. and Ed Holloway are each $12,500 per month.
Petroleum Management, LLC ("PM") provides us with various administrative
services. For the period ended August 31, 2008, we paid $53,333 under the
administrative services agreement.
Operating expenses include $28,200 of share based compensation related to
the issuance of stock options. When stock options are issued, we estimate their
fair value using the Black-Scholes-Merton option-pricing model. The estimated
fair value is recorded as an expense on a pro-rata basis over the vesting
period.
During the period ended August 31, 2008, stock options were granted to
purchase 4,000,000 shares of common stock. Effective June 11, 2008, options
covering 2,000,000 shares were issued to our executive officers at an exercise
price of $10.00 and a term of five years. These options became fully vested in
June, 2009. The fair value of these options was determined to be nil. Effective
June 30, 2008, options covering an additional 2,000,000 shares were granted to
our executive officers at an exercise price of $1.00 and a term of five years.
These options became fully vested in June, 2009. Based upon a fair value
calculation, these options were determined to have a value of $127,000. Stock
option compensation expense of $28,200 was recorded for the period ended August
31, 2008, based on an allocation of the fair value over the vesting period.
LIQUIDITY AND CAPITAL RESOURCES
Our sources and (uses) of funds for the nine months ended May 31, 2009,
the period from inception (December 28, 2007) to August 31, 2008, and the period
from inception (December 28, 2007) to May 31, 2009 are shown below:
Inception Inception
Nine Months (December 28, (December 28,
Ended 2007) to 2007) to
May 31, August 31, May 31,
2009 2008 2009
------------ ------------ ------------
Cash used in operations $(621,623) $(139,264) $(760,887)
Acquisition of oil and gas properties
and equipment (2,279,426) -- (2,279,426)
Option on oil and gas properties (100,000) -- (100,000)
Deposit (85,000) -- (85,000)
Bank loan 1,161,811 -- 1,161,811
Proceeds from sale of common stock, net of
offering costs 681,895 2,431,605 3,113,500
15
Other 2,987 -- 2,987
Funds provided by cash on hand at
beginning of period 1,239,356 -0- -0-
Between December 1, 2008 and June 30, 2009 we sold 1,000,000 units to
investors in a private offering at a price of $3.00 per unit. Each unit
consisted of two shares of our common stock, one Series A warrant and one Series
B warrant.
See the "Prospectus Summary" section of this prospectus for information
concerning the terms of the Series A and Series B warrants.
We recently entered into a loan agreement with a commercial bank which
allows us to borrow up to $1,161,811. The loan is collateralized primarily by
pipe used to drill and complete oil and gas wells. The maximum amount we are
allowed to borrow is reduced by the use or sale of the pipe acquired with the
borrowed funds. The loan bears interest at the prime rate plus 1/2%, payable
quarterly. The loan maturity date is May 8, 2010.
Pursuant to a option agreement with Petroleum Management, LLC and
Petroleum Exploration and Management, LLC in November and December, 2008 we
participated in two wells drilled by Kerr-McGee Oil & Gas Onshore LP (KM). Both
the Gray #25-16 well and the Zabka State #33-15 well hit productive formations
at a depth of approximately 7,500 feet. We have a 37.5% working interest
(28.125% net revenue interest) in each well and expect that our costs of
drilling and completing these wells will be approximately $570,000. During the
three months ended August 31, 2009 these wells produced 1,111barrels of oil and
2,531 mcf of gas net to our interest.
In September 2009 we began a seven well drilling program. The drilling
program was completed in October 2009 with production casing set on all seven
wells. The wells will be stimulated and placed in production in November and
December 2009. We are the operator for the wells and have a working interest
varying from 62.5% to 31.25% (47% to 23% net revenue interest) in the wells.
As of September 30, 2009 our operating expenses were approximately $95,000
per month which amount includes salaries and other corporate overhead. Our
capital requirements for the next twelve months include participation in 23
gross wells (in which our interest will approximate 14 net wells) and various
other projects for total costs of $8,000,000 to $9,000,000. As our capital
expenditure plans exceed our capital resources, we plan to seek additional
funding. Our capital expenditure plans are subject to periodic revision based
upon the availability of funds and expected return on investment.
It is expected that our principal source of cash flow will be from the
production and sale of crude oil and natural gas reserves which are depleting
assets. Cash flow from the sale of oil and gas production depends upon the
quantity of production and the price obtained for the production. An increase in
prices will permit us to finance our operations to a greater extent with
internally generated funds, may allow us to obtain equity financing more easily
or on better terms, and lessens the difficulty of obtaining financing. However,
16
price increases heighten the competition for oil and gas prospects, increase the
costs of exploration and development, and, because of potential price declines,
increase the risks associated with the purchase of producing properties during
times that prices are at higher levels.
A decline in oil and gas prices (i) will reduce our cash flow which in
turn will reduce the funds available for exploring for and replacing oil and gas
reserves, (ii) will increase the difficulty of obtaining equity and debt
financing and worsen the terms on which such financing may be obtained, (iii)
will reduce the number of oil and gas prospects which have reasonable economic
terms, (iv) may cause us to permit leases to expire based upon the value of
potential oil and gas reserves in relation to the costs of exploration, (v) may
result in marginally productive oil and gas wells being abandoned as
non-commercial, and (vi) may increase the difficulty of obtaining financing.
However, price declines reduce the competition for oil and gas properties and
correspondingly reduce the prices paid for leases and prospects.
We plan to generate profits by drilling productive oil or gas wells.
However, we will need to raise the funds required to drill new wells through the
sale of its securities, from loans from third parties or from third parties
willing to pay our share of drilling and completing the wells. We do not have
any commitments or arrangements from any person to provide us with any
additional capital. If additional financing is not available when needed, we may
need to cease operations. We may not be successful in raising the capital needed
to drill oil or gas wells. Any wells which may be drilled by us may not be
productive of oil or gas.
BUSINESS
We were incorporated in Colorado in May 2005 under the name Blue Star
Energy, Inc. In December 2007 we changed our name to Brishlin Resources, Inc.
Since our formation we have been relatively inactive. We have never generated
any revenue and prior to the acquisition of Synergy Resources Corporation our
only material asset was one shut-in oil well.
On September 10, 2008 we acquired approximately 89% of the outstanding
shares of Synergy Resources Corporation in exchange for 8,882,500 shares of our
common stock and 1,042,500 Series A warrants.
In contemplation of the acquisition, our shareholders, at a special
meeting held on September 8, 2008, approved a 10-for-1 reverse split of our
common stock and approved a resolution to change our name to Synergy Resources
Corporation. As a result of the reverse stock split, we had 1,038,000
outstanding shares of common stock at the time of the acquisition of Synergy.
The reverse stock split and name change became effective on the OTC
Bulletin Board on September 22, 2008.
Each of our shareholders at the close of business on September 9, 2008
will receive one Series A warrant for each post-split share which they owned in
the Company on that date. However, the warrants will not be issued until a
registration statement covering the warrants, as well as the shares issuable
17
upon the exercise of the warrants, had been declared effective by the Securities
and Exchange Commission.
Effective December 1, 2008 we purchased 1,000,000 shares of our common
stock from one of the original Synergy shareholders for $1,000, which was the
price at which the shares were sold to the shareholder.
On December 19, 2008 we acquired the remaining shares of Synergy for
1,077,500 shares of our common stock and 1,017,500 Series A warrants.
Between December 1, 2008 and June 30, 2009 we sold 1,000,000 units to
investors in a private offering at a price of $3.00 per unit. Each unit
consisted of two shares of our common stock, one Series A warrant and one Series
B warrant.
See the "Prospectus Summary" section of this prospectus for information
concerning the terms of the Series A and Series B warrants.
Synergy Resources was incorporated in Colorado in December 2007. On the
date we acquired Synergy, its only asset was approximately $2.2 million in cash
that was raised from private investors.
Unless otherwise indicated all references to us include the operations of
Synergy.
We plan to evaluate undeveloped oil and gas prospects and participate in
drilling activities on those prospects which, in the opinion of management, are
favorable for the production of oil or gas. If, through our review, a
geographical area indicates geological and economic potential, we will attempt
to acquire leases or other interests in the area. We may then attempt to sell
portions of our leasehold interests in a prospect to third parties, thus sharing
the risks and rewards of the exploration and development of the prospect with
the other owners. One or more wells may be drilled on a prospect, and if the
results indicate the presence of sufficient oil and gas reserves, additional
wells may be drilled on the prospect.
We may also:
o acquire a working interest in one or more prospects from others and
participate with the other working interest owners in drilling, and if
warranted, completing oil or gas wells on a prospect, or
o purchase producing oil or gas properties.
Our activities will primarily be dependent upon available financing.
Title to properties which may be acquired by us will be subject to
royalty, overriding royalty, carried, net profits, working and other similar
interests and contractual arrangements customary in the oil and gas industry, to
liens for current taxes not yet due and to other encumbrances. As is customary
in the industry, in the case of undeveloped properties little investigation of
record title will be made at the time of acquisition (other than a preliminary
18
review of local records). However, drilling title opinions may be obtained
before commencement of drilling operations.
Our two officers, Ed Holloway and William Scaff, Jr., are currently
involved in oil and gas exploration and development. Mr. Holloway and Mr. Scaff,
or their affiliates, may present us with opportunities to acquire leases or to
participate in drilling oil or gas wells.
Any transaction between us and Ed Holloway and William E. Scaff, Jr., or
any of their affiliates (collectively the "Holloway/Scaff parties") must be
approved by a majority of our disinterested directors. In the event the
Holloway/Scaff parties are presented with or become aware of any potential
transaction which they believe would be of interest to us, they are required to
provide us with the right to participate in the transaction. The Holloway/Scaff
parties are required to disclose any interest they have in the potential
transaction as well as any interest they have in any property which could
benefit from our participation in the transaction, such as by our drilling an
exploratory well on a lease which is in proximity to leases in which the
Holloway/Scaff parties have an interest. Without our consent, the Holloway/Scaff
parties may participate up to 25% in a potential transaction on terms which are
no different than those offered to us.
During the year ended December 31, 2007, and the eight-month transition
period ended August 31, 2008, we did not drill or participate in the drilling of
any oil or gas wells.
We have a letter agreement with Petroleum Management, LLC, and Petroleum
Exploration and Management, LLC, firms controlled by Ed Holloway and William E.
Scaff, Jr., which provides us with the option to acquire working interests in
oil and gas leases owned by these firms and covering lands on the
Denver-Julesburg ("D-J") basin in northeast Colorado. The oil and gas leases
cover 640 acres in Weld County, Colorado and, subject to certain conditions,
will be transferred to us for payment of $1,000 per net mineral acre. The
working interests in the leases we may acquire will vary, but the net revenue
interest in the leases, if acquired, will not be less than 75%. The option
requires an initial deposit of $100,000, which will be applied against any
leases we acquire pursuant to the Letter Agreement. The $100,000 was paid in
February 2009. As of September 30, 2009, the $100,000 deposit had been applied
to leases acquired from Petroleum Management and Petroleum Exploration and
Management.
In November 2008, we participated in an auction of oil and gas leases
conducted by the State of Colorado. We were awarded leases to 1,600 acres for
total consideration of $113,600. The leases have a term of five years. In
February, 2009, we participated in an auction of leases conducted by the Bureau
of Land Management. We were awarded leases to 2,000 acres for total
consideration of $45,000. The leases have a term of ten years. In addition, we
acquired several leases in private transactions for approximately $136,000. The
leases cover approximately 3,000 acres and have terms ranging from two to five
years. As of September 30, 2009, we had interests in oil and gas leases covering
7,020 net acres.
Pursuant to a option agreement with Petroleum Management, LLC and
Petroleum Exploration and Management, LLC in November and December, 2008 we
participated in two wells drilled by Kerr-McGee Oil & Gas Onshore LP (KM). Both
19
the Gray #25-16 well and the Zabka State #33-15 well hit productive formations
at a depth of approximately 7,500 feet. We have a 37.5% working interest
(28.125% net revenue interest) in each well and expect that our costs of
drilling and completing these wells will be approximately $570,000. During the
three months ended August 31, 2009 these wells produced 1,111 barrels of oil and
2,531 mcf of gas net to our interest.
In September 2009 we began a seven well drilling program with its first well
the Meyer #8 well being drilled to a total depth of 7,580'. The well exhibited
four strong pay zones with the Codell and Niobrara formations the primary
target. We continued to drill the next six wells with similar success. Three of
the seven wells also showed a fifth pay zone in the J formation at approximately
8,100'. The seven well drilling program was completed in October 2009 with
production casing set on all seven wells. These wells will be stimulated and
placed in production in November and December 2009. We are the operator for the
wells and have a working interest varying from 62.5% to 31.25% (47% to 23% net
revenue interest) in the wells.
The following table shows, as of September 30, 2009, by state, our
producing wells, Developed Acreage, and Undeveloped Acreage, excluding service
(injection and disposal) wells:
State Productive Wells Developed Acreage Undeveloped Acreage (1)
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Colorado 2 0.75 320 (2) 120 4,149 3,861
Nebraska -- -- -- -- 2,560 2,560
(1) "Undeveloped Acreage" includes leasehold interests on which wells have not
been drilled or completed to the point that would permit the production of
commercial quantities of natural gas and oil regardless of whether the
leasehold interest is classified as containing proved undeveloped reserves.
(2) Includes 160 acres associated with a shut-in gas well.
The following table shows, as of September 30, 2009 the status of our
gross acreage.
State Held by Production Not Held by Production
----- ------------------ ----------------------
Colorado 320 4,149
Nebraska -- 2,560
Acres Held By Production remain in force so long as oil or gas is produced
from the well on the particular lease. Leased acres which are not Held By
Production require annual rental payments to maintain the lease until the first
to occur of the following: the expiration of the lease or the time oil or gas is
produced from one or more wells drilled on the lease acreage. At the time oil or
gas is produced from wells drilled on the leased acreage the lease is considered
to be Held By Production.
20
We do not own any Overriding Royalty Interests.
We are an oil and gas operator in Colorado.
GOVERNMENT REGULATION
Various state and federal agencies regulate the production and sale of oil
and natural gas. All states in which we plan to operate impose restrictions on
the drilling, production, transportation and sale of oil and natural gas.
The Federal Energy Regulatory Commission (the "FERC") regulates the
interstate transportation and the sale in interstate commerce for resale of
natural gas. The FERC's jurisdiction over interstate natural gas sales has been
substantially modified by the Natural Gas Policy Act under which the FERC
continued to regulate the maximum selling prices of certain categories of gas
sold in "first sales" in interstate and intrastate commerce.
FERC has pursued policy initiatives that have affected natural gas
marketing. Most notable are (1) the large-scale divestiture of interstate
pipeline-owned gas gathering facilities to affiliated or non-affiliated
companies; (2) further development of rules governing the relationship of the
pipelines with their marketing affiliates; (3) the publication of standards
relating to the use of electronic bulletin boards and electronic data exchange
by the pipelines to make available transportation information on a timely basis
and to enable transactions to occur on a purely electronic basis; (4) further
review of the role of the secondary market for released pipeline capacity and
its relationship to open access service in the primary market; and (5)
development of policy and promulgation of orders pertaining to its authorization
of market-based rates (rather than traditional cost-of-service based rates) for
transportation or transportation-related services upon the pipeline's
demonstration of lack of market control in the relevant service market. We do
not know what effect the FERC's other activities will have on the access to
markets, the fostering of competition and the cost of doing business.
Our sales of oil and natural gas liquids will not be regulated and will be
at market prices. The price received from the sale of these products will be
affected by the cost of transporting the products to market. Much of that
transportation is through interstate common carrier pipelines.
Federal, state, and local agencies have promulgated extensive rules and
regulations applicable to our oil and natural gas exploration, production and
related operations. Most states require permits for drilling operations,
drilling bonds and the filing of reports concerning operations and impose other
requirements relating to the exploration of oil and natural gas. Many states
also have statutes or regulations addressing conservation matters including
provisions for the unitization or pooling of oil and natural gas properties, the
establishment of maximum rates of production from oil and natural gas wells and
the regulation of spacing, plugging and abandonment of such wells. The statutes
and regulations of some states limit the rate at which oil and natural gas is
produced from our properties. The federal and state regulatory burden on the oil
and natural gas industry increases our cost of doing business and affects its
profitability. Because these rules and regulations are amended or reinterpreted
frequently, we are unable to predict the future cost or impact of complying with
those laws.
21
COMPETITION AND MARKETING
We will be faced with strong competition from many other companies and
individuals engaged in the oil and gas business, many are very large, well
established energy companies with substantial capabilities and established
earnings records. We may be at a competitive disadvantage in acquiring oil and
gas prospects since we must compete with these individuals and companies, many
of which have greater financial resources and larger technical staffs. It is
nearly impossible to estimate the number of competitors; however, it is known
that there are a large number of companies and individuals in the oil and gas
business.
Exploration for and production of oil and gas are affected by the
availability of pipe, casing and other tubular goods and certain other oil field
equipment including drilling rigs and tools. We will depend upon independent
drilling contractors to furnish rigs, equipment and tools to drill its wells.
Higher prices for oil and gas may result in competition among operators for
drilling equipment, tubular goods and drilling crews which may affect our
ability expeditiously to drill, complete, recomplete and work-over wells.
The market for oil and gas is dependent upon a number of factors beyond
our control, which at times cannot be accurately predicted. These factors
include the proximity of wells to, and the capacity of, natural gas pipelines,
the extent of competitive domestic production and imports of oil and gas, the
availability of other sources of energy, fluctuations in seasonal supply and
demand, and governmental regulation. In addition, there is always the
possibility that new legislation may be enacted which would impose price
controls or additional excise taxes upon crude oil or natural gas, or both.
Oversupplies of natural gas can be expected to recur from time to time and may
result in the gas producing wells being shut-in. Imports of natural gas may
adversely affect the market for domestic natural gas.
The market price for crude oil is significantly affected by policies
adopted by the member nations of Organization of Petroleum Exporting Countries
("OPEC"). Members of OPEC establish prices and production quotas among
themselves for petroleum products from time to time with the intent of
controlling the current global supply and consequently price levels. We are
unable to predict the effect, if any, that OPEC or other countries will have on
the amount of, or the prices received for, crude oil and natural gas.
Gas prices, which were once effectively determined by government
regulations, are now largely influenced by competition. Competitors in this
market include producers, gas pipelines and their affiliated marketing
companies, independent marketers, and providers of alternate energy supplies,
such as residual fuel oil. Changes in government regulations relating to the
production, transportation and marketing of natural gas have also resulted in
significant changes in the historical marketing patterns of the industry.
Generally, these changes have resulted in the abandonment by many pipelines of
long-term contracts for the purchase of natural gas, the development by gas
producers of their own marketing programs to take advantage of new regulations
requiring pipelines to transport gas for regulated fees, and an increasing
tendency to rely on short-term contracts priced at spot market prices.
22
General
-------
Our offices are located at 20203 Highway 60, Platteville, CO 80651. We
also maintain an office at 1200 17th Street, Suite 570, Denver, CO 80202.
The Platteville office and equipment yard is provided to us pursuant to an
Administrative Services Agreement with Petroleum Management, LLC, a firm
controlled by our two officers.
For more information concerning these rental arrangements see the section
of the prospectus captioned "Management - Transactions with Related Parties and
Recent Sales of Unregistered Securities".
As of September 30, 2009 our only employees were our two officers and a
landman.
MANAGEMENT
Our officers and directors are listed below. Our directors are generally
elected at our annual shareholders' meeting and hold office until the next
annual shareholders' meeting or until their successors are elected and
qualified. Our executive officers are elected by our directors and serve at
their discretion.
Name Age Position
---- --- --------
Edward Holloway 57 President, Chief Executive Officer and a Director
William E. Scaff, Jr. 52 Vice President, Secretary, Treasurer and a Director
Frank L. Jennings 57 Principal Financial and Accounting Officer
Benjamin J. Barton 44 Director
Rick A. Wilber 61 Director
Raymond E. McElhaney 53 Director
Bill M. Conrad 53 Director
R.W. Noffsinger, III 35 Director
The principal occupations of our officers and directors during the past
several years are as follows:
Edward Holloway - Mr. Holloway has been an officer and director since September
2008. Mr. Holloway has been an officer and director of Synergy since June 2008.
Mr. Holloway co-founded Cache Exploration Inc., an oil and gas exploration and
development company that drilled over 350 wells. In 1987 Mr. Holloway sold the
assets of Cache Exploraton to LYCO Energy Corporation. He rebuilt Cache
Exploration and sold the entire company to Southwest Energy a decade later. In
1997 Mr. Holloway co-founded, and since that date has co-managed, Petroleum
Management, LLC, a company engaged in the exploration, operations, production
and distribution of oil and natural gas. In 2001 Mr. Holloway co-founded, and
since that date has co-managed, Petroleum Exploration and Management, LLC, a
company engaged in the acquisition of oil and gas leases and the production and
sale of oil and natural gas. Mr. Holloway holds a degree in Business Finance
23
from the University of Northern Colorado and is a past president of the Colorado
Oil & Gas Association.
William E. Scaff, Jr. - Mr. Scaff has been an officer and director since
September 2008. Mr. Scaff has been an officer and director of Synergy since June
2008. Between 1980 and 1990 Mr. Scaff oversaw financial and credit transactions
for Dresser Industries, a Fortune 50 oilfield equipment company. Immediately
after serving as a regional manager with TOTAL Petroleum between 1990 and 1997,
Mr. Scaff co-founded, and since that date co-managed, Petroleum Management, LLC,
a company engaged in the exploration, operations, production and distribution of
oil and natural gas. In 2001 Mr. Scaff co-founded, and since that date has
co-managed, Petroleum Exploration and Management, LLC, a company engaged in the
acquisition of oil and gas leases and the production and sale of oil and natural
gas. Mr. Scaff holds a degree in Finance from the University of Colorado.
Frank L. Jennings - Mr. Jennings has been our Principal Financial and Accounting
Officer since June 2007. Since 2001 Mr. Jennings has been an independent
consultant providing managing and financial services, primarily to smaller
public companies. From 2000 to 2005, he served as the Chief Financial Officer
and a director of Global Casinos, Inc., a publicly traded corporation, and from
2001 to 2005, he served as Chief Financial Officer and a director of OnSource
Corporation, now known as Ceragenix Pharmaceuticals, Inc., also a publicly
traded corporation.
Benjamin J. Barton - Mr. Barton has been one of our directors since September
2008. Mr. Barton has been a director of Synergy since June 2008. Between 2003
and 2005 Mr. Barton was a private wealth manager with Merrill Lynch. Since 1986
Mr. Barton has been active in all aspects of venture capital and public stock
offerings. Since 2005 Mr. Barton has been the Managing Director of Strategic
Capital Partners, LLC, a private investment company specializing in energy
companies. Prior to earning an MBA in Finance from UCLA, Mr. Barton received his
Bachelor of Science degree in Political Science from Arizona State University.
Rick A. Wilber - Mr. Wilber has been one of our directors since September 2008.
Since 1984 Mr. Wilber has been a private investor in, and a consultant to,
numerous development state companies. In 1974 Mr. Wilber was co-founder of
Champs Sporting Goods, a retail sporting goods chain, and served as its
President from 1974-1984. He has been a Director of Ultimate Software Group Inc.
since October 2002 and serves as a member of its audit and compensation
committees. Mr. Wilber was a director of Ultimate Software Group between October
1997 and May 2000. He served as a director of Royce Laboratories, Inc., a
pharmaceutical concern, from 1990 until it was sold to Watson Pharmaceuticals,
Inc. in April 1997 and was a member of its compensation committee.
Raymond E. McElhaney - Mr. McElhaney has been one of our directors since May
2005, and prior to the acquisition of Synergy was our President and Chief
Executive Officer. Mr. McElhaney began his career in the oil and gas industry in
1983 as founder and President of Spartan Petroleum and Exploration, Inc. Mr.
McElhaney also served as a chairman and secretary of Wyoming Oil & Minerals,
Inc., a publicly traded corporation, from February 2002 until 2005. From 2000 to
2003 he served as vice president and secretary of New Frontier Energy, Inc., a
24
publicly traded corporation. McElhaney is a co-founder of MCM Capital Management
Inc., a privately held financial management and consulting company formed in
1990, and has served as its president of that company since inception.
Bill M. Conrad - Mr. Conrad has been one of our directors since May 2005, and
prior to the acquisition of Synergy was our Vice President and Secretary. Mr.
Conrad has been involved in several aspects of the oil & gas industry over the
past 20 years. From February 2002 until June 2005, Mr. Conrad served as
president and a director of Wyoming Oil & Minerals, Inc., and from 2000 until
April 2003, he served as vice president and a director of New Frontier Energy,
Inc. Since June 2006, Mr. Conrad has served as a director of Gold Resource
Corporation, a publicly traded corporation engaged in the mining industry. In
1990, Mr. Conrad co-founded MCM Capital Management Inc. and has served as its
vice president since that time.
R.W. "Bud" Noffsinfer, III - Mr. Noffsinger was appointed as one of our
directors in September 2009. Mr. Noffsinger has been the President/ CEO of RWN3
LLC, a company involved with investment securities, since February 2009.
Previously, Mr. Noffsinger was the President (2005 to 2009) and Chief Credit
Officer (2008 to 2009) of First Western Trust Bank in Fort Collins, Colorado.
Prior to his association with First Western, Mr. Noffsinger was a manager with
Centennial Bank of the West (now Guaranty Bank and Trust). Mr. Noffsinger's
focus at Centennial was client development and lending in the areas of
commercial real estate, agriculture and natural resources. Mr. Noffsinger is a
graduate of the University of Wyoming and holds a Bachelor of Science degree in
Economics with an emphasis on natural resources and environmental economics.
We do not have a compensation committee. Our Board of Directors serves as
our Audit Committee. With the exception of Mr. Noffsinger none of our directors
are independent as that term is defined Section 803.A of the NYSE Amex. William
E. Scaff, Jr. acts as the financial expert for the Board of Directors.
We have adopted a Code of Ethics applicable to our senior executive and
financial officers.
Executive Compensation.
----------------------
The following table shows the compensation paid or accrued to our
Principal Executive and Financial officers during the year ended August 31, 2009
and the years ended December 31, 2007 and 2006. During the periods shown none of
our officers received compensation in excess of $100,000.
Stock Option All Other
Name and Principal Salary Bonus Awards Awards Compensation
Position Period (1) (2) (3) (4) (5) Total
------------------ ------ ------ ----- ------ --------- ------------ -----
Ed Holloway, 2009 $150,000 -- -- $5,092,672 -- $5,242,672
Principal Executive
Officer (6)
25
William E. Scaff, Jr. 2009 $150,000 -- -- $5,092,672 -- $5,242,672
Vice President,
Secretary and
Treasurer
Frank L. Jennings, 2009 $ 63,716 -- -- -- -- $ 63,716
Principal Financial 2008 -- -- -- -- $ 6,778 $ 6,778
Officer 2007 -- -- -- -- $ 9,900 $ 9,900
(1) The dollar value of base salary (cash and non-cash) earned.
(2) The dollar value of bonus (cash and non-cash) earned.
(3) The fair value of stock issued for services computed in accordance with FAS
123R on the date of grant.
(4) The fair value of options granted computed in accordance with FAS 123R on
the date of grant.
(5) All other compensation received that we could not properly report in any
other column of the table.
(6) Mr. Holloway and Mr. Scaff became officers in September 2008. Mr. McElhaney
resigned as our Principal Executive Officer in September 2008. Mr.
McElhaney remains as one of our directors.
The compensation to be paid to our two executive officers is based upon
their employment agreements, which are described below. All material elements of
the compensation paid to these officers is discussed below.
We have employee agreements with Ed Holloway and William E. Scaff Jr. Each
employment agreement provides that the employee will be paid a monthly salary of
$12,500 and requires the employee to devote approximately 80% of his time to our
business. The employment agreements expire on June 11, 2010 but may be
terminated sooner by us as a result of the employee's disability or for cause.
For purposes of the employment agreements, "cause" is defined as:
(i) the conviction of the employee of any crime or offense involving, or
of fraud or moral turpitude, which significantly harms us;
(ii) the refusal of the employee to follow the lawful directions of our
Board of Directors;
(iii) the employee's negligence which shows a reckless or willful disregard
for reasonable business practices and significantly harms us; or
(iv) a breach of the employment agreement by the employee.
We have a consulting agreement with Ray McElhaney and Bill Conrad which
provides that Mr. McElhaney and Mr. Conrad will render, on a part-time basis,
consulting services pertaining to corporate acquisitions and development. For
these services, Mr. McElhaney and Mr. Conrad are paid a monthly consulting fee
of $5,000. The consulting agreement expires on September 15, 2009.
26
Long-Term Incentive Plans. We do not provide our officers or employees
with pension, stock appreciation rights, long-term incentive or other plans and
has no intention of implementing any of these plans for the foreseeable future.
Employee Pension, Profit Sharing or other Retirement Plans. We do not have
a defined benefit, pension plan, profit sharing or other retirement plan,
although we may adopt one or more of such plans in the future.
Compensation of Directors. We did not compensate any person for acting as
a director during the year ended August 31, 2009.
Stock Option and Bonus Plan
---------------------------
We have a stock option and stock bonus plan. A summary description of the
plan follows.
Non-Qualified Stock Option Plan. Our Non-Qualified Stock Option Plan
authorizes the issuance of shares of our common stock to persons that exercise
options granted pursuant to the Plan. Our employees, directors, officers,
consultants and advisors are eligible to be granted options pursuant to the
Plan, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with
promoting our stock or the sale of securities in a capital-raising transaction.
The option exercise price is determined by our directors.
Stock Bonus Plan. Our Stock Bonus Plan allows for the issuance of shares
of common stock to our employees, directors, officers, consultants and advisors.
However, bona fide services must be rendered by the consultants or advisors and
such services must not be in connection with promoting our stock or the sale of
securities in a capital-raising transaction.
Summary. The following is a summary of options granted or shares issued
pursuant to the Plans as of August 31, 2009. Each option represents the right to
purchase one share of our common stock.
Total
Shares Reserved for Shares Remaining
Reserved Outstanding Issued as Options/Shares
Name of Plan Under Plans Options Stock Bonus Under Plans
------------ ----------- ------------ ----------- --------------
Non-Qualified Stock
Option Plan 2,000,000 100,000 N/A 1,900,000
Stock Bonus Plan 500,000 N/A -- 500,000
Options
-------
In connection with the acquisition of Synergy, we issued options to the
persons shown below in exchange for options previously issued by Synergy. The
27
terms of the options we issued are identical to the terms of the Synergy
options. The options were not granted pursuant to our Non-Qualified Stock Option
Plan. As of September 30, 2009 none of these options have been exercised.
Grant Shares Issuable Upon Exercise Expiration
Name Date Exercise of Options Price Date
---- ------ -------------------- -------- ----------
Ed Holloway (1) 9-10-08 1,000,000 $ 1.00 6-11-13
William E. Scaff, Jr. (2) 9-10-08 1,000,000 $ 1.00 6-11-13
Ed Holloway (1) 9-10-08 1,000,000 $10.00 6-11-13
William E. Scaff, Jr. (2) 9-10-08 1,000,000 $10.00 6-11-13
(1) Options are held of record by a limited liability company controlled by Mr.
Holloway. (2) Options are held of record by a limited liability company
controlled by Mr. Scaff.
The following table shows information concerning our outstanding options
as of September 30, 2009. None of our officers or directors held any options as
of August 31, 2008.
Shares underlying unexercised
Option which are: Exercise Expiration
Name Exercisable Unexercisable Price Date
---- ----------- ------------- -------- ----------
Ed Holloway 1,000,000 -- $ 1.00 6-11-13
William E. Scaff, Jr. 1,000,000 -- $ 1.00 6-11-13
Ed Holloway 1,000,000 -- $10.00 6-11-13
William E. Scaff, Jr. 1,000,000 -- $10.00 6-11-13
Employee -- 100,000 (1) $ 3.00 12-31-18
(1) Options were issued pursuant to Non-Qualified Stock Option Plan in December
2008.
The following table shows the weighted average exercise price of the
outstanding options granted pursuant to our Non-Qualified Stock Option Plan as
of August 31, 2009. Our Non-Qualified Stock Option Plan has not been approved by
our shareholders.
Number of Securities
Number Remaining Available
of Securities For Future Issuance
to be Issued Weighted-Average Under Equity
Upon Exercise Exercise Price of Compensation Plans,
of Outstanding of Outstanding Excluding Securities
Plan category Options (a) Options Reflected in Column (a)
------------- -------------- ----------------- -----------------------
Non-Qualified Stock
Option Plan 100,000 $3.00 1,900,000
28
Transactions with Related Parties and Recent Sales of Unregistered Securities.
------------------------------------------------------------------------------
Prior to our acquisition of Synergy, Synergy made the following sales of
its securities:
Name Shares Series A Warrants Consideration
---- ------ ----------------- -------------
Ed Holloway (1) 2,070,000 $2,070
William E. Scaff, Jr. (1) 2,070,000 $2,070
Benjamin Barton (1) 600,000 $ 600
John Staiano (1) 600,000 $ 600
Synergy Energy Trust 1,900,000 (2) $1,900
Third Parties 660,000 $ 660
Private Investors 1,000,000 1,000,000 $1.00 per
Unit (3)
Private Investors 1,060,000 1,060,000 $1.50 per
Unit (3)
----------- -----------
9,960,000 2,060,000
=========== ===========
(1) Shares are held of record by entities controlled by this person.
(2) In December 2008 we repurchased 1,000,000 shares from the Synergy Energy
Trust.
(3) Shares and warrants were sold as units, with each unit consisting of one
share of our common stock and one Series A Warrant.
In connection with our acquisition of Synergy, the 9,960,000 shares of
Synergy, plus the 2,060,000 Series A warrants, were exchanged for 9,960,000
shares of our common stock, plus 2,060,000 Series A warrants.
In contemplation of the acquisition of Synergy, our directors declared a
dividend of Series A warrants. The dividend provided that each person owning our
shares at the close of business on September 9, 2008 will receive one Series A
warrant for each post-split share which they owned on that date. Mr. McElhaney
and Mr. Conrad, due to their ownership of our common stock on September 9, 2008,
will receive 271,000 and 247,000 Series A warrants, respectively.
Between December 1, 2008 and June 30, 2009 we sold 1,000,000 units at a
price of $3.00 per unit. Each unit consists of two shares of our common stock,
one Series A Warrant and one Series B Warrant.
See the "Prospectus Summary" section of this prospectus for information
concerning the terms of the Series A and Series B warrants.
PRINCIPAL SHAREHOLDERS
The following table shows, as of September 30, 2009, information with
respect to those persons owning beneficially 5% or more of our common stock and
the number and percentage of outstanding shares owned by each of our directors
and officers and by all officers and directors as a group. Unless otherwise
indicated, each owner has sole voting and investment powers over his shares of
common stock.
29
Number Percent
Name of Shares (1) of Class
---- ------------- ---------
Ed Holloway 4,070,000 (2) 33.4%
William E. Scaff, Jr. 4,070,000 (3) 33.4%
Frank L. Jennings 4,000 Nil
Benjamin Barton 600,000 (4) 5.9%
Rick A. Wilber 376,429 3.7%
Raymond E. McElhaney 271,000 2.7%
Bill M. Conrad 247,000 2.4%
R.W. Noffsinger, III 250,000 2.4%
John Staiano 600,000 (5) 5.9%
Steven Meyer 672,666 5.6%
All officers and directors as
a group (8 persons). 9,638,429 70.3%
(1) Share ownership includes shares issuable upon the exercise of options held
by the persons listed below.
Share Issuable Option
Upon Exercise Exercise Expiration
Name of Options Price Date
---- ----------------- ---------- ----------
Ed Holloway 1,000,000 $1.00 6-11-13
Ed Hollway 1,000,000 $10.00 6-11-13
William E. Scaff, Jr. 1,000,000 $1.00 6-11-13
William E. Scaff, Jr. 1,000,000 $10.00 6-11-13
(2) Shares are held of record by various trusts and limited liability companies
controlled by Mr. Holloway.
(3) Shares are held of record by various trusts and limited liability companies
controlled by Mr. Scaff.
(4) Shares are held of record by a partnership controlled by Mr. Barton.
(5) Shares are held of record by a trust and a limited liability company
controlled by Mr. Staiano.
PLAN OF DISTRIBUTION
By means of this prospectus we are issuing:
- 1,038,000 Series A warrants to those shareholder who were owners of
our common stock on September 9, 2008, and
- up to 1,038,000 shares of our common stock to the holders of these
warrants if and when the warrants are exercised.
By means of this prospectus a number of our shareholders are offering to
sell:
30
- shares of our common stock and Series A warrants which they acquired
in connection with our acquisition of Synergy,
- shares of our common stock and Series A warrants which they acquired
in a private offering,
- shares of our common stock which are issuable upon the exercise of the
Series A and Series B warrants, and
- shares of common stock issuable upon the exercise of outstanding
options.
- shares of common stock which are issuable upon the exercise of the
sales agent warrants.
- shares of our common stock which are issuable upon the exercise of the
Series A and Series B warrants included as part of the sale agent's
warrants.
The shares of common stock and Series A Warrants owned by the selling
shareholders may be offered and sold by means of this prospectus from time to
time as market conditions permit. Since as of the date of this prospectus no
market existed for our Series A Warrants, sales of the Series A Warrants by the
selling shareholders, until the warrants become quoted on the OTC Bulletin Board
or listed on a securities exchange, will be made at a price of $0.05 per
warrant. If and when the Series A Warrants are quoted on the OTC Bulletin Board
or listed on a securities exchange, the Series A Warrants owned by the selling
shareholders may be sold in the over-the-counter market, or otherwise, at prices
and terms then prevailing or at prices related to the then-current market price,
or in negotiated transactions.
The shares of common stock and Series A Warrants, if a public market
exists for the warrants, may be sold by one or more of the following methods,
without limitation:
o a block trade in which a broker or dealer so engaged will attempt to
sell the securities as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o face-to-face transactions between sellers and purchasers without a
broker/dealer.
In competing sales, brokers or dealers engaged by the selling shareholders
may arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from selling shareholders in amounts to be
negotiated. As to any particular broker-dealer, this compensation might be in
excess of customary commissions. Neither we nor the selling stockholders can
presently estimate the amount of such compensation. Notwithstanding the above,
no FINRA member will charge commissions that exceed 8% of the total proceeds
from the sale.
The selling shareholders and any broker/dealers who act in connection with
the sale of their securities may be deemed to be "underwriters" within the
meaning of ss.2(11) of the Securities Acts of 1933, and any commissions received
by them and any profit on any resale of the securities as principal might be
31
deemed to be underwriting discounts and commissions under the Securities Act.
If any selling shareholder enters into an agreement to sell his or her
securities to a broker-dealer as principal, and the broker-dealer is acting as
an underwriter, we will file a post-effective amendment to the registration
statement, of which this prospectus is a part, identifying the broker-dealer,
providing required information concerning the plan of distribution, and
otherwise revising the disclosures in this prospectus as needed. We will also
file the agreement between the selling shareholder and the broker-dealer as an
exhibit to the post-effective amendment to the registration statement.
The selling stockholders may also sell their shares pursuant to Rule 144
under the Securities Act of 1933.
We have advised the selling shareholders that they, and any securities
broker/dealers or others who sell the common stock or warrants on behalf of the
selling shareholders, may be deemed to be statutory underwriters and will be
subject to the prospectus delivery requirements under the Securities Act of
1933. We have also advised each selling shareholder that in the event of a
"distribution" of the securities owned by the selling shareholder, the selling
shareholder, any "affiliated purchasers", and any broker/dealer or other person
who participates in the distribution may be subject to Rule 102 of Regulation M
under the Securities Exchange Act of 1934 ("1934 Act") until their participation
in that distribution is completed. Rule 102 makes it unlawful for any person who
is participating in a distribution to bid for or purchase securities of the same
class as is the subject of the distribution. A "distribution" is defined in Rule
102 as an offering of securities "that is distinguished from ordinary trading
transactions by the magnitude of the offering and the presence of special
selling efforts and selling methods". We have also advised the selling
shareholders that Rule 101 of Regulation M under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of the common stock in connection with this offering.
SELLING SHAREHOLDERS
The persons listed in the following table plan to offer the shares and
warrants shown opposite their respective names by means of this prospectus. The
owners of the shares and warrants to be sold by means of this prospectus are
referred to as the "selling shareholders". The selling shareholders acquired
their shares in the transactions described below.
Acquisition of Synergy. In connection with our acquisition of Synergy
Resources we issued 9,960,000 shares of our common stock and 2,060,000 Series A
warrants to the former shareholders of Synergy. In December 2008 we repurchased
1,000,000 of these shares. The holders of 8,060,000 shares of common stock and
the 2,060,000 Series A warrants are offering the shares and warrants, as well as
any shares issuable upon the exercise of the Series A warrants, by means of this
prospectus.
Private Offering. Between December 1, 2008 and June 30, 2009 we sold
1,000,000 units to investors in a private offering at a price of $3.00 per unit.
Each unit consisted of two shares of our common stock, one Series A warrant and
32
one Series B warrant. We paid Scottsdale Capital Advisors, the sales agents
participating in the private offering, a 10% commission and agreed to issue to
Scottsdale Capital 31,733 sales agent warrants (one warrant for each five units
sold by Scottsdale Capital). The 2,000,000 shares of common stock and the
1,000,000 Series A warrants sold in the private offering, as well as any shares
issuable upon the exercise of the Series A warrants, the Series B warrants or
the Sales Agent warrants, are being offered by means of this prospectus.
Options. In connection with the acquisition of Synergy, we issued options
to purchase 4,000,000 shares of our common stock in exchange for options
previously issued by Synergy. The terms of the options we issued are identical
to the terms of the Synergy options. See the section of the prospectus captioned
"Management - Stock Option and Bonus Plan" for information concerning these
options.
We will not receive any proceeds from the sale of the securities by the
selling shareholders. We will pay all costs of registering the securities
offered by the selling shareholders. These costs, based upon the time related to
preparing this section of the prospectus, are estimated to be $2,000. The
selling shareholders will pay all sales commissions and other costs of the sale
of the securities offered by them.
The securities to be sold by the selling shareholders listed below do not
include the 1,038,000 Series A warrants to be issued to those shareholders who
were owners of our common stock on September 9, 2008, or the shares of common
stock issuable upon the exercise of these warrants, since these securities have
not been issued as of the date of this prospectus. We intend to issue these
1,038,000 Series A warrants within ten days of the date of this prospectus.
See the "Prospectus Summary" section for information concerning the terms
of the Series A, Series B and Sales Agent warrants.
Securities Issued in Connection with the Acquisition of Synergy Resources
-------------------------------------------------------------------------
Shares
Issuable
Upon Share Series A
Exercise Shares To Ownership Warrants To
Name of Shares of Series A Be Sold In After Be Sold In
Selling Shareholder Owned Warrants/Options This Offering Offering This Offering
------------------- ------ ---------------- ------------- --------- -------------
1990 H & H Family
Irrevocable Trust 600,000 600,000
Each of Nine, LLC 1,470,000 2,000,000 3,470,000
My Way LLC 1,520,000 2,000,000 3,520,000
Scaff Family 2008
Irrevocable Trust 450,000 450,000
Dell T. Beans Family Trust 100,000 100,000
Val Dunn 60,000 60,000
Staiano Family LLC 500,000 500,000
John Staiano 100,000 100,000
33
Shares
Issuable
Upon Share Series A
Exercise Shares To Ownership Warrants To
Name of Shares of Series A Be Sold In After Be Sold In
Selling Shareholder Owned Warrants/Options This Offering Offering This Offering
------------------- ------ ---------------- ------------- --------- -------------
Queenstown Investment Trust 300,000 300,000
Cambridge Energy Partners 300,000 300,000
Strategic Capital Partners 600,000 600,000
Ball, William 6,670 6,670 13,340 -- 6,670
Baller, Jon 6,667 6,667 13,334 -- 6,667
Bardmen, Craig 100,000 100,000 200,000 -- 100,000
Benson, Larry 70,000 70,000 140,000 -- 70,000
Boehner, Dale 20,000 20,000 40,000 -- 20,000
Bort, Peter and Ginger 5,000 5,000 10,000 -- 5,000
Bosseler, Richard 8,000 8,000 16,000 -- 8,000
Brown, Howard 10,000 10,000 20,000 -- 10,000
Caputo, Bernard 5,000 5,000 10,000 -- 5,000
Carlson, Erik 10,000 10,000 20,000 -- 10,000
Childers, Robert 20,000 20,000 40,000 -- 20,000
Cline, Jack 5,000 5,000 10,000 -- 5,000
Colangelo, Bill 4,400 4,400 8,800 -- 4,400
Collier, Verne 30,000 30,000 60,000 -- 30,000
Colman, William 75,000 75,000 150,000 -- 75,000
Crowley, John 50,000 50,000 100,000 -- 50,000
Davis, Paul 17,000 17,000 34,000 -- 17,000
Dickson, Charles 10,000 10,000 20,000 -- 10,000
Dollarhide, John 20,000 20,000 40,000 -- 20,000
Faria, Steve 21,250 21,250 42,500 -- 21,250
Faria, Lawrence 4,500 4,500 9,000 -- 4,500
Fay, Nina 8,500 8,500 17,000 -- 8,500
Francis, Nick 20,000 20,000 40,000 -- 20,000
Greenfield, Cynthia 5,000 5,000 10,000 -- 5,000
Greenfield, Rose 5,000 5,000 10,000 -- 5,000
Goldsworthy, Gretchen 19,750 19,750 39,500 -- 19,750
Hagan, Scott 45,000 45,000 90,000 -- 45,000
Hassman, Edward and Diane 25,000 25,000 50,000 -- 25,000
Heller, Lawrence 5,000 5,000 10,000 -- 5,000
Herrick, Robert 5,000 5,000 10,000 -- 5,000
Illanes, Mayra 10,000 10,000 20,000 -- 10,000
Jones, Rocky 12,500 12,500 25,000 -- 12,500
Karpa, Jaroslave 5,000 5,000 10,000 -- 5,000
Kammeier, John 20,000 20,000 40,000 -- 20,000
Kelsey, Don 7,000 7,000 14,000 -- 7,000
Kent, Andrea 12,500 12,500 25,000 -- 12,500
King, Mark 15,000 15,000 30,000 -- 15,000
Klimas, Douglas and Donna 12,500 12,500 25,000 -- 12,500
Lapping, Hal 70,000 70,000 140,000 -- 70,000
34
Shares
Issuable
Upon Share Series A
Exercise Shares To Ownership Warrants To
Name of Shares of Series A Be Sold In After Be Sold In
Selling Shareholder Owned Warrants/Options This Offering Offering This Offering
------------------- ------ ---------------- ------------- --------- -------------
Lavin, Robert 50,000 50,000 100,000 -- 50,000
Leon, Carlos 20,000 20,000 40,000 -- 20,000
Licata, Chris 30,000 30,000 60,000 -- 30,000
Lloyd, Jennifer 5,000 5,000 10,000 -- 5,000
Martin, Richard 50,000 50,000 100,000 -- 50,000
Marx, John 20,000 20,000 40,000 -- 20,000
McAllister, Patrick 13,500 13,500 27,000 -- 13,500
McDowell, Judy 5,000 5,000 10,000 -- 5,000
McGinnis, Ronald 20,000 20,000 40,000 -- 20,000
McKey, Candace and John 32,000 32,000 64,000 -- 32,000
Menscher, Layla 3,500 3,500 7,000 -- 3,500
Menscher, Steve 10,000 10,000 20,000 -- 10,000
Meserlian, Brian 100,000 100,000 200,000 -- 100,000
Montanarella, Paul and Betty 5,000 5,000 10,000 -- 5,000
Mowan, Christopher 30,000 30,000 60,000 -- 30,000
Murphy, Keri-Aine 10,000 10,000 20,000 -- 10,000
Nelson, Glenn 10,000 10,000 20,000 -- 10,000
Nielson, Brad 6,667 6,667 13,334 -- 6,667
O'Dell, Dan and Maria 7,500 7,500 15,000 -- 7,500
Paoletti, Steve 80,000 80,000 160,000 -- 80,000
Perello, Fred 10,000 10,000 20,000 -- 10,000
Pergament, Barbara 9,000 9,000 18,000 -- 9,000
Peterson, Britt 7,500 7,500 15,000 -- 7,500
Peterson, Steve 10,000 10,000 20,000 -- 10,000
Proch, Kenneth 10,000 10,000 20,000 -- 10,000
Raith, Joe 20,000 20,000 40,000 -- 20,000
Read, Alexander 10,000 10,000 20,000 -- 10,000
Renzelman, Brad 32,500 32,500 65,000 -- 32,500
Robbin, Judy 17,000 17,000 34,000 -- 17,000
Ross, Andrew 12,000 12,000 24,000 -- 12,000
Rowan, Wade 2,000 2,000 4,000 -- 2,000
Schaperjohn, Jeffrey 5,000 5,000 10,000 -- 5,000
Schaperjohn, Jerry 5,000 5,000 10,000 -- 5,000
Schreiber, Jack 20,000 20,000 40,000 -- 20,000
Schuman, Roy 30,000 30,000 60,000 -- 30,000
Schutt, Bradley 3,500 3,500 7,000 -- 3,500
Shea, Joanne 6,000 6,000 12,000 -- 6,000
Sims, George 10,000 10,000 20,000 -- 10,000
Speckman, Gary 5,000 5,000 10,000 -- 5,000
Tuozzo, Mike 15,000 15,000 30,000 -- 15,000
Vann, William 10,000 10,000 20,000 -- 10,000
Vasil, Robert 13,000 13,000 26,000 -- 13,000
Vigil, Tony 5,000 5,000 10,000 -- 5,000
35
Shares
Issuable
Upon Share Series A
Exercise Shares To Ownership Warrants To
Name of Shares of Series A Be Sold In After Be Sold In
Selling Shareholder Owned Warrants/Options This Offering Offering This Offering
------------------- ------ ---------------- ------------- --------- -------------
Walton, Bill 10,000 10,000 20,000 -- 10,000
Weller, John 6,667 6,667 13,334 -- 6,667
Wilber, Rick 376,429 376,429 752,858 -- 376,429
Wilber, Silvia 10,000 10,000 20,000 -- 10,000
Williams, Michael 60,000 60,000 120,000 -- 60,000
Williams, Patti 10,000 10,000 20,000 -- 10,000
Ward, Seth 10,000 10,000 20,000 -- 10,000
Securities Issued in Connection with Private Offering
Shares Shares
Issuable Issuable
Upon Upon Share Series A
Exercise Exercise Shares To Ownership Warrants To
Name of Shares of Series A of Series B Be Sold In After Be Sold In
Selling Shareholder Owned Warrants Warrants This Offering Offering This Offering
------------------- ----- ----------- ----------- ------------- ---------- -------------
Ace Royalties LLC 34,000 17,000 17,000 68,000 -- 17,000
Achziger, Mark 80,000 40,000 40,000 160,000 -- 40,000
Alan Cooperman IRA 10,000 5,000 5,000 20,000 -- 5,000
Bardman, Craig 12,000 6,000 6,000 24,000 -- 6,000
Barnard, Crandall 6,000 3,000 3,000 12,000 -- 3,000
Busha Investments 134,000 67,000 67,000 268,000 -- 67,000
Cooperman, Alan 14,000 7,000 7,000 28,000 -- 7,000
Czir, Gerald and Cathy 66,666 33,333 33,333 133,332 -- 33,333
Dollarhide, John 6,000 3,000 3,000 12,000 -- 3,000
Dollarhide IRA 66,000 33,000 33,000 132,000 -- 33,000
Eddy Oil Company 30,000 15,000 15,000 60,000 -- 15,000
Erhlich, Scott and Holly 68,000 34,000 34,000 136,000 -- 34,000
Gleason, Dan & Gleason 40,000 20,000 20,000 80,000 -- 20,000
Gleason, Richard 14,000 7,000 7,000 28,000 -- 7,000
John Zurbrigen IRA 32,000 16,000 16,000 64,000 -- 16,000
Knoph, Roger and
Jamie Lynn 66,000 33,000 33,000 132,000 -- 33,000
Kubs, John 30,000 15,000 15,000 60,000 -- 15,000
Marcus, Joyce 56,000 28,000 28,000 112,000 -- 28,000
Martinez, James 6,668 3,334 3,334 13,336 -- 3,334
Martinez, Richard 4,000 2,000 2,000 8,000 -- 2,000
Meyer, Steven 672,666 336,333 336,333 1,345,332 -- 336,333
Miesch, Joseph J. 24,000 12,000 12,000 48,000 -- 12,000
Miller, Robert and Diane 20,000 10,000 10,000 40,000 -- 10,000
Mishket, H. Steven 10,000 5,000 5,000 20,000 -- 5,000
36
Shares Shares
Issuable Issuable
Upon Upon Share Series A
Exercise Exercise Shares To Ownership Warrants To
Name of Shares of Series A of Series B Be Sold In After Be Sold In
Selling Shareholder Owned Warrants Warrants This Offering Offering This Offering
------------------- ----- ----------- ----------- ------------- ---------- -------------
Mishket, H. Steven 10,000 5,000 5,000 20,000 -- 5,000
Noffsinger, Robert 250,000 125,000 125,000 500,000 -- 125,000
Peterson, Timothy and
Katherine 34,000 17,000 17,000 68,000 -- 17,000
Pooling Effect LLC 68,000 34,000 34,000 136,000 -- 34,000
Schmidt, Michael and
Deborah 40,000 20,000 20,000 80,000 -- 20,000
Strickland, Stephen 4,000 2,000 2,000 8,000 -- 2,000
Wilber, Rick 68,000 34,000 34,000 136,000 -- 34,000
Wilson, Eric 34,000 17,000 17,000 68,000 -- 17,000
Securities Issuable Upon Exercise of Sales Agent Warrants
---------------------------------------------------------
Shares
Issuable Shares Shares
Upon Issuable Issuable
Exercise Upon Upon Share Series A
of Sales Exercise Exercise Shares To Ownership Warrants To
Name of Shares Agent of Series A of Series B Be Sold In After Be Sold In
Selling Shareholder Owned Warrants Warrants Warrants This Offering Offering This Offering
------------------- ------ -------- ----------- ----------- ------------- --------- -------------
Scottsdale Capital
Advisors -- 63,466 31,733 31,733 126,932 -- 31,733
--------- ---------
18,246,932 3,091,733
=========== ===========
The controlling persons of the non-individual selling shareholders are:
Name of Shareholder Controlling Person
------------------- ------------------
1990 H & H Family Irrevocable Trust Ed Holloway
Each of Nine, LLC Ed Holloway
My Way LLC William E. Scaff, Jr.
Scaff Family 2008 Irrevocable Trust William E. Scaff, Jr.
Dell T. Beans Family Trust William E. Scaff, Jr.
Staiano Family LLC John Staiano
Queenstown Investment Trust John Barton
Cambridge Energy Partners John Barton
Strategic Capital Partners Benjamin Barton
Ace Royalties LLC Adam Buna
Alan Cooperman IRA Alan Cooperman
Busha Investments Cole Busha
Dollarhide IRA CBT Custodian Jeff Dollarhide
Eddy Oil Company Eddie Morgigno
37
John Zurbrigen IRA John Zurbrigen
Pooling Effect LLC Paul Sacco
Scottsdale Capital Advisors John Hurry
With the exception of Ed Holloway, William E. Scaff, Jr. and Rick Wilber,
no selling shareholder has, or had, any material relationship with us, or our
officers or directors. Scottsdale Capital Advisors is a securities broker. With
the exception of Scottsdale Capital Advisors, no selling shareholder is to our
knowledge, affiliated with a securities broker.
DESCRIPTION OF SECURITIES
Common Stock
------------
We are authorized to issue 100,000,000 shares of common stock. Holders of
our common stock are each entitled to cast one vote for each share held of
record on all matters presented to the shareholders. Cumulative voting is not
allowed; hence, the holders of a majority of our outstanding common shares can
elect all directors.
Holders of our common stock are entitled to receive such dividends as may
be declared by our Board of Directors out of funds legally available and, in the
event of liquidation, to share pro rata in any distribution of our assets after
payment of liabilities. Our Board of Directors is not obligated to declare a
dividend. It is not anticipated that dividends will be paid in the foreseeable
future.
Holders of our common stock do not have preemptive rights to subscribe to
additional shares if issued. There are no conversion, redemption, sinking fund
or similar provisions regarding the common stock. All outstanding shares of
common stock are fully paid and nonassessable.
Preferred Stock
---------------
We are authorized to issue 10,000,000 shares of preferred stock. Shares of
preferred stock may be issued from time to time in one or more series as may be
determined by our Board of Directors. The voting powers and preferences, the
relative rights of each such series and the qualifications, limitations and
restrictions of each series will be established by the Board of Directors. Our
directors may issue preferred stock with multiple votes per share and dividend
rights which would have priority over any dividends paid with respect to the
holders of our common stock. The issuance of preferred stock with these rights
may make the removal of management difficult even if the removal would be
considered beneficial to shareholders generally, and will have the effect of
limiting shareholder participation in transactions such as mergers or tender
offers if these transactions are not favored by our management. As of the date
of this prospectus, we had not issued any shares of preferred stock.
38
Warrants
--------
See the "Prospectus Summary" section of this prospectus for information
concerning our outstanding warrants.
Transfer Agent
--------------
Corporate Stock Transfer
3200 Cherry Creek Drive South, Suite 430
Denver, Colorado 80209
Phone: 303-282-4800
Fax: 303-282-5800
LEGAL PROCEEDINGS
We are not involved in any legal proceedings and we do not know of any
legal proceedings which are threatened or contemplated.
INDEMNIFICATION
Our Bylaws authorize indemnification of a director, officer, employee or
agent against expenses incurred by him in connection with any action, suit, or
proceeding to which he is named a party by reason of his having acted or served
in such capacity, except for liabilities arising from his own misconduct or
negligence in performance of his duty. In addition, even a director, officer,
employee, or agent found liable for misconduct or negligence in the performance
of his duty may obtain such indemnification if, in view of all the circumstances
in the case, a court of competent jurisdiction determines such person is fairly
and reasonably entitled to indemnification. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to our
directors, officers, or controlling persons pursuant to these provisions, we
have been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (together with all amendments and exhibits) under the
Securities Act of 1933, as amended, with respect to the securities offered by
this prospectus. This prospectus does not contain all of the information in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Securities and Exchange Commission. For further
information, reference is made to the Registration Statement which may be read
and copied at the Commission's Public Reference Room at 100 F. Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the Commission at 1-800-SEC-0330. The
registration statement is also available at www.sec.gov, the website of the
Securities and Exchange Commission.
39
GLOSSARY
LANDOWNER'S ROYALTY. A percentage share of production, or the value
derived from production, which is granted to the lessor or landowner in the oil
and gas lease, and which is free of the costs of drilling, completing, and
operating an oil or gas well.
LEASE. Full or partial interests in an oil and gas lease, authorizing the
owner thereof to drill for, reduce to possession and produce oil and gas upon
payment of rentals, bonuses and/or royalties. Oil and gas leases are generally
acquired from private landowners and federal and state governments. The term of
an oil and gas lease typically ranges from three to ten years and requires
annual lease rental payments of $1.00 to $2.00 per acre. If a producing oil or
gas well is drilled on the lease prior to the expiration of the lease, the lease
will generally remain in effect until the oil or gas production from the well
ends. The owner of the lease is required to pay the owner of the leased property
a royalty which is usually between 12.5% and 16.6% of the gross amount received
from the sale of the oil or gas produced from the well.
NET ACRES OR WELLS. A net well or acre is deemed to exist when the sum of
fractional ownership working interests in gross wells or acres equals one. The
number of net wells or acres is the sum of the fractional working interests
owned in gross wells or acres expressed as whole numbers and fractions.
OPERATING COSTS. The expenses of producing oil or gas from a formation,
consisting of the costs incurred to operate and maintain wells and related
equipment and facilities, including labor costs, repair and maintenance,
supplies, insurance, production, severance and other production excise taxes.
OVERRIDING ROYALTY. A percentage share of production, or the value derived
from production, which is free of all costs of drilling, completing and
operating an oil or gas well, and is created by the lessee or working interest
owner and paid by the lessee or working interest owner to the owner of the
overriding royalty.
PRODUCING PROPERTY. A property (or interest therein) producing oil or gas
in commercial quantities or that is shut-in but capable of producing oil or gas
in commercial quantities. Interests in a property may include working interests,
production payments, royalty interests and other non-working interests.
PROSPECT. An area in which a party owns or intends to acquire one or more
oil and gas interests, which is geographically defined on the basis of
geological data and which is reasonably anticipated to contain at least one
reservoir of oil, gas or other hydrocarbons.
SHUT-IN WELL. A well which is capable of producing oil or gas but which is
temporarily not producing due to mechanical problems or a lack of market for the
well's oil or gas.
UNDEVELOPED ACREAGE. Lease acres on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
40
of oil and gas regardless of whether or not such acreage contains proved
reserves. Undeveloped acreage should not be confused with undrilled acreage
which is "Held by Production" under the terms of a lease.
WORKING INTEREST. A percentage of ownership in an oil and gas lease
granting its owner the right to explore, drill and produce oil and gas from a
tract of property. Working interest owners are obligated to pay a corresponding
percentage of the cost of leasing, drilling, producing and operating a well.
After royalties are paid, the working interest also entitles its owner to share
in production revenues with other working interest owners, based on the
percentage of the working interest owned.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Synergy Resources Corporation, formerly Brishlin Resources, Inc.
We have audited the accompanying balance sheets of Synergy Resources
Corporation, formerly Brishlin Resources, Inc. (an Exploration Stage Company) as
of August 31, 2008 and December 31, 2007, and the related statements of
operations, changes in shareholders' equity, and cash flows for the eight months
ended August 31, 2008, the year ended December 31, 2007, and the period from
inception (May 11, 2005) to August 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States.) Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Synergy Resources Corporation,
formerly Brishlin Resources, Inc. (an Exploration Stage Company) as of August
31, 2008 and December 31, 2007, and the results of its operations and cash flows
for the eight months ended August 31, 2008, the year ended December 31, 2007,
and the period from inception (May 11, 2005) to August 31, 2008, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has no revenue generating operations. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also discussed in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Stark Winter Schenkein & Co., LLP
Denver, Colorado
January 23, 2009
2
SYNERGY RESOURCES CORPORATION
(Formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
BALANCE SHEETS
August 31, December 31,
2008 2007
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,569 $ 20,440
Prepaid expenses 1,428 -
---------- ----------
Total current assets 8,997 20,440
---------- ----------
Oil and gas properties, at cost, using full
cost method
Oil and gas properties, net 39,125 39,125
Other assets 1,328 1,265
---------- ----------
Total assets $ 49,450 $ 60,830
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 44,906 $ 26,395
Accrued salaries, benefits, and taxes 3,604 33,855
---------- ----------
Total current liabilities 48,510 60,250
---------- ----------
Shareholders' equity:
Preferred stock - $0.01 par value, 10,000,000
shares authorized:
no shares issued and outstanding - -
Common stock - $0.001 par value, 100,000,000
shares authorized:
1,038,000 and 978,000 shares issued and
outstanding at August 31, 2008 and December
31, 2007, respectively 1,038 978
Additional paid-in capital 1,015,262 815,322
(Deficit) accumulated during the exploration stage (1,015,360) (815,720)
---------- ----------
Total shareholders' equity 940 580
---------- ----------
Total liabilities and shareholders' equity $ 49,450 $ 60,830
========== ==========
The accompanying notes are an integral part of these financial statements.
3
SYNERGY RESOURCES CORPORATION
(Formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
for the eight months ended August 31, 2008,
the year ended December 31, 2007,
and for the period from Inception (May 11, 2005) to August 31, 2008
Eight Months Inception
Ended Year Ended (May 11, 2005) to
August 31, 2008 December 31, 2007 August 31, 2008
--------------- ----------------- -----------------
Revenues $ - $ - $ -
------------- ------------- -------------
Expenses:
Oil and gas lease expense 5,000 - 13,325
Impairment of oil and gas
properties - - 223,738
General and administrative 194,730 282,641 785,240
------------- ------------- -------------
Total expenses 199,730 282,641 1,022,303
------------- ------------- -------------
Operating (loss) (199,730) (282,641) (1,022,303)
Other income (expense):
Interest income 90 1,280 6,943
------------- ------------- -------------
(Loss) before taxes (199,640) (281,361) (1,015,360)
Provision for income taxes - - -
------------- ------------- -------------
Net (loss) $ (199,640) $ (281,361) $ (1,015,360)
============= ============= =============
Net (loss) per common share:
Basic and Diluted $ (0.20) $ (0.29)
============= =============
Weighted average shares
outstanding:
Basic and Diluted 1,005,869 962,422
============= =============
The accompanying notes are an integral part of these financial statements.
4
SYNERGY RESOURCES CORPORATION
(Formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
for the period from Inception (May 11, 2005) to August 31, 2008
(Deficit)
Accumulated
Common Stock Additional During Total
------------------- Paid-in Exploration Shareholders'
Number Amount Capital Stage Equity
------ ------ ---------- ------------ -------------
Balance at Inception,
May 11, 2005 - $ - $ - $ - $ -
Shares issued for cash
at $0.01 630,000 630 5,670 - 6,300
Shares issued for cash
at $0.20 25,000 25 4,975 - 5,000
Shares issued in
exchange for oil
and gas properties 6,000 6 5,994 - 6,000
Shares issued for cash
at $2.00 117,500 118 234,882 - 235,000
Net (loss) - - - (111,759) (111,759)
---------- ---------- ---------- ---------- ----------
Balance, December 31,
2005 778,500 779 251,521 (111,759) 140,541
Shares issued for cash
at $2.00 94,500 94 188,906 - 189,000
Shares issued in
exchange for oil
and gas properties 60,000 60 149,940 - 150,000
Net (loss) - - - (422,600) (422,600)
---------- ---------- ---------- ---------- ----------
Balance, December 31,
2006 933,000 933 590,367 (534,359) 56,941
Shares issued for cash
at $5.00 45,000 45 224,955 - 225,000
Net (loss) - - - (281,361) (281,361)
---------- ---------- ---------- ---------- ----------
Balance, December 31,
2007 978,000 978 815,322 (815,720) 580
Shares issued for cash
at $5.00 30,000 30 149,970 - 150,000
Shares issued for
accrued Compensation
at $1.67 30,000 30 49,970 - 50,000
Net (loss) - - - (199,640) (199,640)
---------- ---------- ---------- ---------- ----------
Balance, August 31,
2008 1,038,000 $ 1,038 $1,015,262 $(1,015,360) $ 940
=========== ========== ========== ============ ==========
The accompanying notes are an integral part of these financial statements.
5
SYNERGY RESOURCES CORPORATION
(Formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
for the eight months ended August 31, 2008,
the year ended December 31, 2007,
and for the period from Inception (May 11, 2005) to August 31, 2008
Eight Months Inception
Ended Year Ended (May 11, 2005
August 31, December 31, August 31,
2008 2007 2008
------------ ------------ ------------
Cash flows from operating activities:
Net (loss) $(199,640) $ (281,361) $(1,015,360)
Adjustments to reconcile net (loss)
to net cash used by operating activities:
Impairment of oil and gas properties - - 223,738
Changes in operating assets and liabilities:
Prepaid expenses and other assets (1,491) - (2,756)
Accounts payable and accrued expenses 38,260 25,942 91,350
--------- ---------- -----------
Total adjustments 36,769 25,942 312,332
--------- ---------- -----------
Net cash (used in) operating
activities (162,871) (255,419) (703,028)
--------- ---------- -----------
Cash flows from investing activities:
Proceeds from sale of oil and gas
properties - 23,922 23,922
Investment in oil and gas properties - - (123,625)
--------- ---------- -----------
Net cash provided by (used in)
investing activities - 23,922 (99,703)
--------- ---------- -----------
Cash flows from financing activities:
Common stock subscription receivable - 10,000 -
Cash proceeds from sale of stock 150,000 225,000 810,300
--------- ---------- -----------
Net cash provided by financing
activities 150,000 235,000 810,300
--------- ---------- -----------
Net increase (decrease) in cash and
equivalents (12,871) 3,503 7,569
Cash and equivalents at beginning of
period 20,440 16,937 -
--------- ---------- -----------
Cash and equivalents at end of period $ 7,569 $ 20,440 $ 7,569
========= ========== ===========
Supplemental Cash Flow Information
Interest paid $ - $ - $ 370
========= ========== ===========
Income taxes paid $ - $ - $ -
========= ========== ===========
Non-cash investing and financing activities:
Shares issued in exchange for oil and
gas properties $ - $ - $ 156,000
========= ========== ===========
Liabilities assumed in exchange for
oil and gas properties $ - $ - $ 7,160
========= ========== ===========
Common stock issued for
accrued compensation $ 50,000 $ - $ 50,000
========= ========== ===========
The accompanying notes are an integral part of these financial statements.
6
SYNERGY RESOURCES CORPORATION
(formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
1. Summary of Significant Accounting Policies
Basis of Presentation: Synergy Resources Corporation (formerly Brishlin
Resources, Inc.) (the "Company") was organized under the laws of the State of
Colorado on May 11, 2005. The Company plans to engage in oil, gas and mineral
acquisitions, exploration, development and production service activities,
primarily in the western region of the United States. The Company is in its
exploration stage and has not yet generated any revenues from operations.
Reverse Stock Split: On September 8, 2008, Brishlin shareholders approved a
reverse stock split of the outstanding shares of common stock, pursuant to which
each ten shares of the Company's pre-split common stock issued and outstanding
was exchanged for one share of the Company's post-split common stock. After
giving effect to the reverse stock split, there were 1,038,000 shares of
Brishlin common stock issued and outstanding. All share and per share amounts
presented in this report have been retroactively adjusted to reflect the reverse
stock split.
Cash and Cash Equivalents: The Company considers cash in banks, deposits in
transit, and highly liquid debt instruments purchased with original maturities
of three months or less to be cash and cash equivalents.
Oil and Gas Properties: The Company uses the full cost method of accounting for
costs related to its oil and natural gas properties. All of the properties
acquired by the Company since inception are currently undergoing evaluation and
are not yet included in the depletion, depreciation, and amortization
calculation. After the properties are evaluated, the capitalized costs included
in the full cost pool will be depleted on an aggregate basis using the
units-of-production method. A change in proved reserves without a corresponding
change in capitalized costs will cause the depletion rate to increase or
decrease.
Both the volume of proved reserves and any estimated future expenditures to be
used for the depletion calculation will be based on estimates such as those
described under "Oil and Gas Reserves" below.
The capitalized costs in the full cost pool will be subject to a ceiling test
that limits such pooled costs to the aggregate of the present value of future
net revenues attributable to proved oil and natural gas reserves discounted at
10 percent plus the lower of cost or market value of unproved properties less
any associated tax effects. If such capitalized costs exceed the ceiling, the
Company will record a write-down to the extent of such excess as a non-cash
charge to earnings. Any such write-down will reduce earnings in the period of
occurrence and result in lower depreciation and depletion in future periods. A
write-down may not be reversed in future periods, even though higher oil and
natural gas prices or increased reserves may subsequently increase the ceiling.
7
SYNERGY RESOURCES CORPORATION
(formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
Changes in oil and natural gas prices are expected to have the most significant
impact on the Company's ceiling test. In general, the ceiling is lower when
prices are lower. Even though oil and natural gas prices can be highly volatile
over weeks and even days, the ceiling calculation dictates that prices in effect
as of the last day of the test period be used and held constant. The resulting
valuation is a snapshot as of that day and, thus, is not necessarily indicative
of a true fair value that would be placed on the Company's reserves by the
Company or by an independent third party. Therefore, the future net revenues
associated with the estimated proved reserves are not based on the Company's
assessment of future prices or costs, but rather are based on prices and costs
in effect as of the end the test period.
Oil and Gas Reserves: The determination of depreciation and depletion expense as
well as ceiling test write-downs related to the recorded value of the Company's
oil and natural gas properties will be highly dependent on the estimates of the
proved oil and natural gas reserves. Oil and natural gas reserves include proved
reserves that represent estimated quantities of crude oil and natural gas which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. There are numerous uncertainties inherent in estimating
oil and natural gas reserves and their values, including many factors beyond the
Company's control. Accordingly, reserve estimates are often different from the
quantities of oil and natural gas ultimately recovered and the corresponding
lifting costs associated with the recovery of these reserves
Property Retirement Obligation: The Company follows the guidelines of Statement
of Financial Accounting Standards No. 143 (SFAS 143), "Accounting for Asset
Retirement Obligations." SFAS 143 requires the fair value of a liability for an
asset retirement obligation to be recognized in the period that it is incurred
if a reasonable estimate of fair value can be made.
The associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. The Company has determined that it has no
material property retirement obligations as of August 31, 2008.
Stock Based Compensation: The Company's 2005 Non-Qualified Stock Option and
Stock Grant Plan (the "Plan") authorizes the granting of nonqualified options to
purchase shares of the Company's common stock. The Plan is administered by the
Board of Directors which determines the terms pursuant to which any option is
granted.
The Company accounts for this Plan in accordance with SFAS 123(R), "Share-Based
Payment," requiring the Company to record compensation costs for the Company's
stock option plans determined in accordance with the fair value based method
prescribed in SFAS 123(R). The Company estimates the fair value of stock option
at their grant date by using the Black-Scholes-Merton option pricing model and
provides for expense recognition over the service period, if any, of the stock
option. Since inception, the Company has not granted any options under the Plan,
and, accordingly, has not recognized any stock based compensation expense.
8
SYNERGY RESOURCES CORPORATION
(formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
The Company accounts for common stock issued to employees for services based on
the fair value of the equity instruments issued, and accounts for common stock
issued to other than employees based on the fair value of the consideration
received or the fair value of the equity instruments, whichever is more reliably
measurable.
Per Share Amounts: SFAS 128, "Earnings Per Share," provides for the calculation
of "Basic" and "Diluted" earnings per share. Basic earnings per share includes
no dilution and is computed by dividing net income (or loss) by the
weighted-average number of shares outstanding during the period. Diluted
earnings per share reflect the potential dilution of securities that could share
in the earnings of the Company, assuming the issuance of an equivalent number of
common shares pursuant to options, warrants, or convertible debt arrangements.
Diluted earnings per share does not include dilutive common stock equivalents
for periods in which the Company incurs a loss because they would be
anti-dilutive.
Income Taxes: Deferred income taxes are reported for timing differences between
items of income or expense reported in the financial statements and those
reported for income tax purposes in accordance with SFAS 109, "Accounting for
Income Taxes", which requires the use of the asset/liability method of
accounting for income taxes. Deferred income taxes and tax benefits are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and for tax loss and credit carry-forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The Company provides for deferred taxes for
the estimated future tax effects attributable to temporary differences and
carry-forwards when realization is more likely than not.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States (US GAAP) requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management routinely makes judgments and
estimates about the effects of matters that are inherently uncertain. Estimates
that are critical to the accompanying financial statements include the
identification and valuation of proved and probable reserves, treatment of
exploration and development costs as either an asset or an expense, valuation of
deferred tax assets, and the likelihood of loss contingencies Management bases
its estimates and judgements on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
could differ from these estimates. Estimates and assumptions are revised
periodically and the effects of revisions are reflected in the financial
statements in the period it is determined to be necessary.
9
SYNERGY RESOURCES CORPORATION
(formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
Business Risks: The Company continually reviews the exploration and political
risks it encounters in its operations. It mitigates the likelihood and potential
severity of these risks through the application of high operating standards. The
Company's operations have been and in the future may be, affected to various
degrees by changes in environmental regulations, including those for future site
restoration and reclamation costs. The Company's business is subject to
extensive licensing, permitting, governmental legislation, control and
regulations. The Company endeavors to be in compliance with these regulations at
all times.
Fair Value of Financial Instruments: SFAS 107, "Disclosures About Fair Value of
Financial Instruments," requires disclosure of fair value information about
financial instruments. Fair value estimates discussed herein are based upon
certain market assumptions and pertinent information available to management as
of August 31, 2008.
The respective carrying value of certain on-balance-sheet financial instruments
approximate their fair values. These financial instruments include cash, cash
equivalents, accounts payable and accrued expenses. Fair values were assumed to
approximate carrying values for these financial instruments since they are short
term in nature and their carrying amounts approximate fair value, or they are
receivable or payable on demand.
Concentration of Credit Risk: The Company's operating cash balances are
maintained in one primary financial institution and periodically exceed
federally insured limits. The Company believes that the financial strength of
these institutions mitigates the underlying risk of loss. To date, these
concentrations of credit risk have not had a significant impact on the Company's
financial position or results of operations.
Environmental Matters: Environmental costs are expensed or capitalized depending
on their future economic benefit. Costs that relate to an existing condition
caused by past operations with no future economic benefit are expensed.
Liabilities for future expenditures of a non-capital nature are recorded when
future environmental expenditures and/or remediation is deemed probable and the
costs can be reasonably estimated. Costs of future expenditures for
environmental remediation obligations are not discounted to their present value.
Recent Accounting Pronouncements: In March 2008, the Financial Accounting
Standards Board ("FASB") issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement No. 133
(SFAS 161), which becomes effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. This standard
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under SFAS 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flows.
Management is currently evaluating the impact of adopting this statement.
10
SYNERGY RESOURCES CORPORATION
(formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162), which becomes effective upon approval by the
SEC. This standard sets forth the sources of accounting principles and provides
entities with a framework for selecting the principles used in the preparation
of financial statements that are presented in conformity with GAAP. It is not
expected to change any of our current accounting principles or practices and
therefore, is not expected to have a material impact on our financial
statements.
There were various other accounting standards and interpretations issued during
2008, none of which are expected to a have a material impact on the Company's
financial position, operations or cash flows.
2. Going Concern
The Company's financial statements are prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of obligations in the
normal course of business. The Company has no source of operating revenue and
has financed operations through the sale and exchange of equity. The Company has
incurred losses since its inception aggregating $1,015,360. These conditions
raise substantial doubt about the ability of the Company to continue as a going
concern.
The Company has raised total cash proceeds of $810,300 in sales of common stock
from inception through August 31, 2008. Management believes that these proceeds
will not be sufficient to fund its operating activity and other capital resource
demands during the next twelve months.
The Company's ability to continue as a going concern is contingent upon its
ability to raise funds through the sale of equity, joint venture or sale of its
assets, and attaining profitable operations. The financial statements do not
include any adjustments to the amount and classification of assets and
liabilities that may be necessary should the Company not continue as a going
concern.
3. Oil and Gas Properties
In June, 2005, the Company purchased a 2% interest in a shut-in well in Morgan
County, Colorado in exchange for 6,000 shares of the Company's restricted common
stock, valued at $6,000. In January, 2006, the Company purchased from a related
party an additional 7.875% interest in the same property for the sum of $23,625.
The well's primary producing zones are the D-Sand, J-Sand and a variety of
shallower sands, such as the Niobrara and the Greenhorn. The Morgan County well
holds 160 acres of surrounding leasehold interest and is shut-in awaiting a
pipeline for delivery.
11
SYNERGY RESOURCES CORPORATION
(formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
In May, 2006, the Company purchased an additional 11.875% working interest in
the Morgan County well outlined above. As part of the same transaction, the
Company purchased an 11.875% working interest in 2 wells and 1,160 leased acres
located in Logan County, Colorado in exchange for $250,000, of which $100,000
was paid in cash at closing, and the balance of $150,000 was paid in the form of
60,000 shares of the Company's restricted common stock.
None of the wells were in production and no depletion, depreciation or
amortization was recorded. As of December 31, 2006, the Company determined that
these properties may have been impaired. Accordingly, a valuation allowance of
$223,738 to reduce the carrying value of the properties to their estimated net
realizable value was recorded as of December 31, 2006.
Effective August 31, 2007, the Company sold its interests in certain oil and gas
properties located on Logan County, Colorado for net cash proceeds of $23,922.
The value of these properties had previously been adjusted to reflect estimated
fair market value and no additional loss was recognized in connection with the
sale transaction
The Company is evaluating its remaining property to determine the appropriate
future actions that should be taken. The Company may decide to commence
production or dispose of the property. Since the interest in this property is a
minority interest, the final decision with respect to the property will be
jointly decided with the other ownership interests.
4. Income Taxes
A reconciliation of the tax provision for 2008 and 2007 at statutory rates is
comprised of the following components:
2008 2007
---- ----
Tax expense (benefit) at statutory rates $(74,000) $ (95,000)
Increase in estimated tax rates (23,000) --
Valuation allowance 97,000 95,000
-------- ---------
Reported tax provision $ -- $ --
======== =========
12
SYNERGY RESOURCES CORPORATION
(formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
Deferred tax assets and liabilities represent the future impact of temporary
differences between the financial statement and tax bases of assets and
liabilities. Those items consist of the following as of August 31, 2008 and
December 31, 2007:
2008 2007
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 374,000 $ 277,000
Less valuation allowance (374,000) (277,000)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
Total deferred tax assets and the valuation allowance increased by approximately
$97,000 during 2008.
At August 31, 2008, the Company has tax loss carryforwards approximating
$1,012,000 that expire at various dates through 2028. At this time, the Company
is unable to determine if it will be able to benefit from its deferred tax
asset. There are limitations on the utilization of net operating loss
carryforwards, including a requirement that losses be offset against future
taxable income, if any. In addition, there are limitations imposed by certain
transactions which are deemed to be ownership changes. Accordingly, a valuation
allowance has been established for the entire deferred tax asset.
5. Shareholders' Equity
Preferred Stock: The Company has authorized 10,000,000 shares of preferred stock
with a par value of $0.01. These shares may be issued in series with such rights
and preferences as may be determined by the Board of Directors. Since inception,
the Company has not issued any preferred shares.
Common Stock: The Company has authorized 100,000,000 shares of $0.001 par value
common stock.
Reverse Stock Split: On September 8, 2008, Brishlin shareholders approved a
reverse stock split of the outstanding shares of common stock, pursuant to which
each ten shares of Brishlin's pre-split common stock issued and outstanding was
exchanged for one share of the Company's post-split common stock. After giving
effect to the reverse stock split, there were 1,038,000 shares of Brishlin
common stock issued and outstanding. All share and per share amounts presented
in this report have been retroactively adjusted to reflect the reverse stock
split.
At inception, the Company issued 630,000 common shares to its founders for cash
proceeds of $6,300.
13
SYNERGY RESOURCES CORPORATION
(formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
On June 6, 2005, the Company issued 25,000 common shares to a private investor
for cash proceeds of $5,000.
During 2005, the Company issued 6,000 shares of common stock in exchange for a
2% working interest in the Stroh #1 lease. The shares were valued at $6,000. In
private transactions, the Company sold 117,500 shares of common stock at $2.00
per share for cash proceeds of $235,000.
During 2006, the Company issued 94,500 shares of common stock at $2.00 per share
for cash proceeds of $189,000. In addition, the Company issued 60,000 shares of
common stock in exchange for oil and gas properties including the Stroh #1,
Marostica #1, and Lutin #1. The shares were valued at $150,000, or $2.50 per
share, based upon the negotiated value between the seller and the buyer.
During the year ended December 31, 2007, the Company issued 45,000 shares of
common stock at $5.00 per share for cash proceeds of $225,000.
During the eight months ended August 31, 2008, the Company issued 30,000 shares
of common stock at $5.00 per share for cash proceeds of $150,000.
Effective June 16, 2008 the Company exchanged 30,000 restricted shares of common
stock, valued at $1.67 per share, based upon quoted market prices, for accrued
and unpaid compensation of $50,000 payable to officers.
6. Commitments and Contingencies
Effective October 1, 2007, the Company entered into a twelve month lease on
office space in Colorado Springs, Colorado. Rental payments approximate $1,328
per month. As of August 31, 2008, future minimum lease obligations consisted of
one month's rent, approximating $1,328. Rent expense approximated $10,624 for
the eight months ended August 31, 2008, and $15,400 for the year ended December
31, 2007.
Pursuant to employment agreements with its executive officers which were
effective from June 1, 2005 through June 30, 2008, the officers each earned
$5,000 per month. Effective June 16, 2008, the officers agreed to exchange
accrued and unpaid compensation of $50,000 for 30,000 restricted shares of the
Company's common stock, valued at a price of $1.67 per share, based on quoted
market prices. In anticipation of the business combination with Synergy
Resources Corporation (see Note 7), the employment agreements were terminated
effective June 30, 2008. Total compensation expense recorded under the
agreements was $60,000 for the eight months ended August 31, 2008, and $120,000
for the year ended December 31, 2007.
14
SYNERGY RESOURCES CORPORATION
(formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
7. Subsequent Events
On September 10, 2008, the Company acquired approximately 89% of the outstanding
shares of Synergy Resources Corporation ("Synergy") pursuant to an Agreement to
Exchange Common Stock ("Share Exchange Agreement"). The Company acquired all the
remaining outstanding shares of Synergy in separate transactions. In total,
9,960,000 shares of common stock were issued in exchange for 9,960,000
outstanding shares of Synergy.
The Share Exchange Agreement further provides that the Company agree to issue
substitute Series A warrants to replace similar warrants held by certain
shareholders of Predecessor Synergy to purchase 2,060,000 shares of common stock
at $6.00 per share. Furthermore, the Company agreed to issue substitute options
to replace similar options outstanding prior to the merger transaction, which
options provide for the purchase of 2,000,000 shares of common stock at $1.00
per share and 2,000,000 shares of common stock at $10.00 per share. Using the
Black-Scholes-Merton option-pricing model, the Company estimated that the fair
value of the replacement options exceeded the fair value of the options
surrendered by $10,185,345. The assumptions used in the model were: expected
life of 2.5 years, stock price of $3.50 at date of grant, volatility of 166%,
dividend yield of 0%, and interest rate of 2.63%. The additional expense of
$10,185,345 will be pro-rated over the remaining vesting period.
.
In conjunction with the acquisition of Synergy, the majority of the shareholders
of the Company also voted to change its name to Synergy Resources Corporation.
On September 8, 2008, the Company's Board of Directors declared a dividend in
the form of one Series A Warrant to purchase one share of post-split common
stock for $6.00, exercisable upon issuance until the earlier of December 31,
2012, or twenty days following written notification from the Company that its
common stock had a closing price at or above $7.00 for any of twenty consecutive
trading days. Shareholders of record as of September 9, 2008, are entitled to
receive the dividend, which is payable only after receipt by the Company of an
effective date for a registration statement covering the warrants and underlying
common stock.
In connection with the merger, the Company entered into an agreement with two
directors to provide consulting services. The initial term of the agreement is
one year. Compensation under the agreement is $10,000 per month.
In October 2008, certain directors and former officers paid accrued legal fees
on behalf of the Company in the amount of $17,000, which was recorded as
contributed capital.
In December 2008, the Company commenced a private offering to sell shares of its
common stock and warrants. As of January 23, 2009, the Company had received cash
proceeds of $278,001 for the sale of 185,334 common shares and warrants.
15
SYNERGY RESOURCES CORPORATION
(formerly Brishlin Resources, Inc.)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
Effective December 1, 2008, the Company purchased 1,000,000 shares of its common
stock from one of the original Predecessor Synergy shareholders for $1,000,
which was the price at which the shares were sold to the shareholder.
Effective December 31, 2008, the Company granted stock options to an employee to
purchase 100,000 shares of common stock at an exercise price of $3.00 and a term
of ten years. Using the Black-Scholes-Merton option-pricing model, the Company
estimates the fair value of the options to be approximately $186,000. The
assumptions used in the model were: expected life of 5 years, stock price of
$2.00 at date of grant, volatility of 166%, dividend yield of 0%, and interest
rate of 3.13%.
16
SYNERGY RESOURCES CORPORATION
Interim Financial Statements
May 31, 2009
(Unaudited)
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
BALANCE SHEETS
May 31, August 31,
2009 2008
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,052,985 $ 2,292,341
Accounts receivable 25,928 -
Other current assets 32,825 27,412
------------ ------------
Total current assets 1,111,738 2,319,753
------------ ------------
Property and equipment, at cost:
Oil and gas properties, full cost method, net 2,665,479 -
Other property and equipment, net 1,152 -
------------ ------------
Property and equipment, net 2,666,631 -
------------ ------------
Other assets:
Option to acquire mineral interests - related
party 60,000 -
Performance assurance deposit 85,000 -
Deferred offering costs 5,000 -
------------ ------------
Total other assets 150,000 -
------------ ------------
Total assets $ 3,928,369 $ 2,319,753
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 577,087 $ 12,473
Accrued taxes and expenses 45,378 40,853
Bank loan payable 1,161,811 -
Accrued interestb 3,195 -
------------ ------------
Total current liabilities 1,787,471 53,326
------------ ------------
Shareholders' equity:
Preferred stock - $0.01 par value, 10,000,000
shares authorized:
no shares issued and outstanding - -
Common stock - $0.001 par value, 100,000,000
shares authorized:
10,601,334 and 9,943,571shares issued and
outstanding at May 31, 2009 and August 31,
2008, respectively 10,601 9,944
Additional paid-in capital 13,428,773 2,477,511
Stock subscriptions receivable - (27,650)
(Deficit) accumulated during the exploration
stage (11,298,476) (193,378)
------------ ------------
Total shareholders' equity 2,140,898 2,266,427
------------ ------------
Total liabilities and shareholders' equity $ 3,928,369 $ 2,319,753
============ ============
The accompanying notes are an integral part of these financial statements.
3
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
for the three months ended May 31, 2009 and 2008
(Unaudited)
Three Months Three Months
Ended Ended
May 31, 2009 May 31, 2008
--------------- ---------------
Oil and gas revenues $ 28,832 $ -
--------------- ---------------
Expenses:
Lease operating expenses 1,138 -
Depreciation, depletion, and amortization 21,973 -
Administrative services contract -
related party 60,000 -
Salaries and payroll taxes 110,610 -
Consulting fees - related party 30,000 -
Professional fees 33,430 -
Insurance 12,306 -
Share based compensation - stock
options granted 3,429,396 -
All other general and administrative 4,033 -
--------------- ---------------
Total expenses 3,702,886 -
--------------- ---------------
Operating (loss) (3,674,054) -
Interest income 1,924 -
--------------- ---------------
(Loss) before taxes (3,672,130) -
Provision for income taxes - -
--------------- ---------------
Net (loss) $ (3,672,130) $ -
=============== ===============
Net (loss) per common share:
Basic and Diluted $ (0.35) $ -
=============== ===============
Weighted average shares outstanding:
Basic and Diluted 10,531,051 -
=============== ===============
The accompanying notes are an integral part of these financial statements.
4
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
for the nine months ended May 31, 2009,
for the period from Inception (December 28, 2007) to May 31, 2008,
and for the period from Inception (December 28, 2007) to May 31, 2009
(Unaudited)
Inception Inception
Nine Months (December 28, (December 28,
Ended 2007) to 2007) to
May 31, 2009 May 31, 2008 May 31, 2009
-------------- -------------- --------------
Oil and gas revenues $ 28,832 $ - $ 28,832
-------------- -------------- --------------
Expenses:
Lease operating expenses 3,712 - 3,712
Depreciation, depletion, and
amortization 21,973 - 21,973
Administrative services contract -
related party 180,000 - 233,333
Salaries and payroll taxes 326,056 - 398,438
Consulting fees - related party 90,000 - 90,000
Professional fees 174,486 - 215,584
Insurance 32,317 - 32,317
Share based compensation - stock
options granted 10,282,000 - 10,310,200
All other general and
administrative 36,952 - 38,210
-------------- -------------- --------------
Total expenses 11,147,496 - 11,343,767
-------------- -------------- --------------
Operating (loss) (11,118,664) - (11,314,935)
Interest income 13,566 - 16,459
-------------- -------------- --------------
(Loss) before taxes (11,105,098) - (11,298,476)
Provision for income taxes - - -
-------------- -------------- --------------
Net (loss) $ (11,105,098) $ - $ (11,298,476)
============== ============== ==============
Net (loss) per common share:
Basic and Diluted $ (1.05) $ -
============== ==============
Weighted average shares outstanding:
Basic and Diluted 10,545,652 -
============== ==============
The accompanying notes are an integral part of these financial statements.
5
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
for the nine months ended May 31, 2009,
for the period from Inception (December 28, 2007) to May 31, 2008,
and for the period from Inception (December 28, 2007) to May 31, 2009
(Unaudited)
Inception Inception
Nine Months (December 28, (December 28,
Ended 2007) to 2007) to
May 31, 2009 May 31, 2008 May 31, 2009
-------------- -------------- --------------
Cash flows from operating
activities:
Net (loss) $ (11,105,098) $ - $ (11,298,476)
-------------- -------------- --------------
Adjustments to reconcile
net (loss) to net cash
(used in) operating activities:
Share based compensation 10,282,000 - 10,310,200
Depreciation, depletion and
amortization 21,973 - 21,973
Changes in operating assets and
liabilities
(Increase) in accounts receivable (25,928) - (25,928)
(Increase) in other current assets (5,413) - (32,825)
Increase in accounts payable 234,561 - 247,034
Increase in accrued taxes and
expenses 4,525 - 45,378
Increase in accrued interest 3,195 - 3,195
Effect of merger on operating
assets (liabilities) (31,438) - (31,438)
-------------- -------------- --------------
Total adjustments 10,483,475 - 10,537,589
-------------- -------------- --------------
Net cash (used in) operating
activities (621,623) - (760,887)
-------------- -------------- --------------
Cash flows from investing
activities:
Acquisition of property and
equipment (2,279,426) - (2,279,426)
Option to acquire mineral
interests - related party (100,000) - (100,000)
Performance assurance deposit (85,000) - (85,000)
Cash acquired in merger 3,987 - 3,987
-------------- -------------- --------------
Net cash (used in) investing
activities (2,460,439) - (2,460,439)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from bank loan payable 1,161,811 - 1,161,811
Cash proceeds from sale of stock 957,295 - 3,502,900
Offering costs (270,400) - (384,400)
Payment of deferred offering costs (5,000) - (5,000)
Repurchase of shares (1,000) - (1,000)
-------------- -------------- --------------
Net cash provided by financing
activities 1,842,706 - 4,274,311
-------------- -------------- --------------
Net increase (decrease) in cash
and equivalents (1,239,356) - 1,052,985
Cash and equivalents at beginning
of period 2,292,341 - -
-------------- -------------- --------------
Cash and equivalents at end
of period $ 1,052,985 $ - $ 1,052,985
============== ============== ==============
Supplemental Cash Flow Information:
Interest paid $ - $ - $ -
============== ============== ==============
Income taxes paid $ - $ - $ -
============== ============== ==============
Non-cash investing and financing
activities:
Net assets acquired in merger $ 11,675 $ - $ 11,675
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
6
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Basis of Presentation: Synergy Resources Corporation (the "Company")
represents the result of a merger transaction on September 10, 2008 between
Brishlin Resources, Inc. ("Predecessor Brishlin"), a public company, and Synergy
Resources Corporation ("Predecessor Synergy"), a private company. In conjunction
with the transaction, Predecessor Brishlin changed its name to Synergy Resources
Corporation and Predecessor Synergy changed its name to Synergy Resources, Ltd.
The Company was organized under the laws of the State of Colorado. The Company
is in its exploration stage and plans to engage in oil and gas acquisitions,
exploration, development and production service activities, primarily in the
area known as the Denver-Julesburg Basin. The Company has adopted August 31st as
the end of its fiscal year.
Interim Financial Information: The interim financial statements included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") as promulgated
in Item 210 of Regulation S-X. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP") have
been condensed or omitted pursuant to such SEC rules and regulations. The
Company believes that the disclosures included are adequate to make the
information presented not misleading, and recommends that these financial
statements be read in conjunction with the audited financial statements and
notes thereto for the period ended August 31, 2008, included in our Report on
Form 8-K/A filed on November 26, 2008.
In management's opinion, the unaudited balance sheet as of May 31, 2009,
the unaudited statements of operations for the three month and nine month
periods ended May 31, 2009, and the unaudited statement of cash flows for the
nine month period ended May 31, 2009, contained herein, reflect all adjustments,
consisting solely of normal recurring items, which are necessary for the fair
presentation of the Company's financial position, results of operations, and
cash flows on a basis consistent with that of its prior audited financial
statements. However, the results of operations for interim periods may not be
indicative of results to be expected for the full fiscal year.
Reclassifications: Certain amounts previously presented for prior periods
have been reclassified to conform with the current presentation. The
reclassifications had no effect on net loss, total assets, or total
shareholders' equity.
Merger Transaction: On September 10, 2008, Predecessor Brishlin consummated
an Agreement to Exchange Common Stock ("Exchange Agreement") with certain
shareholders of Predecessor Synergy to acquire approximately 89% of the
outstanding common stock of Predecessor Synergy. In subsequent transactions, all
the remaining outstanding common shares of Predecessor Synergy were acquired.
Prior to September 10, 2008, Predecessor Brishlin had 1,038,000 common shares
outstanding, and Predecessor Synergy had 9,960,000 common shares outstanding.
7
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
The merger transaction resulted in the Company with 10,998,000 common shares
outstanding, with the shareholders of Predecessor Synergy holding approximately
91% of the outstanding shares and the shareholders of Predecessor Brishlin
holding approximately 9% of the outstanding shares.
The Exchange Agreement further provided that the Company would issue
substitute Series A warrants to replace similar warrants held by certain
shareholders of Predecessor Synergy to purchase 2,060,000 shares of common stock
at $6.00 per share. Furthermore, the Company agreed to issue substitute options
to replace similar options outstanding prior to the merger transaction, which
options provide for the purchase of 2,000,000 shares of common stock at $1.00
per share and 2,000,000 shares of common stock at $10.00 per share.
Immediately prior to the transaction, Predecessor Brishlin completed a
one-for-ten reverse stock split of its outstanding common stock. All share and
per share data presented in this Report have been retroactively restated to
reflect the reverse stock split.
In anticipation of the merger transaction, Predecessor Brishlin declared a
dividend to its shareholders of record as of August 28, 2008, consisting of one
Series A warrant for each common share held.
Although the legal form of the transaction reflects the acquisition of
Predecessor Synergy by Predecessor Brishlin, the Company determined that the
accounting form of the transaction is a "reverse merger", in which Predecessor
Synergy is identified as the acquiring company and Predecessor Brishlin is
identified as the acquired company. At the time of the transaction, Predecessor
Brishlin had ceased most of its operations and liquidated most of its assets and
liabilities. In accordance with SEC regulations, the transaction was recorded as
a capital transaction rather than a business combination. The transaction is
equivalent to the issuance of common stock by Predecessor Synergy in exchange
for the net assets of Predecessor Brishlin and a recapitalization of Predecessor
Synergy. The assets and liabilities of Predecessor Brishlin were not restated to
their estimated fair market values and no goodwill or other intangible assets
were recorded. Selected financial data for Predecessor Brishlin at the
transaction date follows:
Selected Financial Data:
Cash $ 3,986
Current assets 5,129
Oil and gas assets 39,125
Current liabilities 33,907
Net assets $ 11,675
Financial information for all periods subsequent to September 10, 2008
includes the combined assets, liabilities and activities of both companies.
Historical financial information for periods prior to September 10, 2008,
8
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
presented for comparative purposes, includes only Predecessor Synergy.
Condensed pro-forma information assuming that the transaction occurred on
September 1, 2008 (beginning of fiscal year for the Company) has not been
presented. As Predecessor Brishlin had substantially reduced its operations
prior to the transaction, there is no material difference between the
information presented in the financial statements and the pro-forma information.
Oil and Gas Properties: The Company uses the full cost method of accounting
for costs related to its oil and gas properties. Accordingly, all costs
associated with acquisition, exploration, and development of oil and gas
reserves (including the costs of unsuccessful efforts) are capitalized into a
single full cost pool. These costs include land acquisition costs, geological
and geophysical expense, carrying charges on non-producing properties, costs of
drilling and overhead charges directly related to acquisition and exploration
activities.
All capitalized costs of oil and gas properties are amortized using the
unit-of-production method based upon estimates of proved reserves. For
amortization purposes, the volume of petroleum reserves and production is
converted into a common unit of measure at the energy equivalent conversion rate
of six thousand cubic feet of natural gas to one barrel of crude oil.
Investments in unevaluated properties and major development projects are not
amortized until proved reserves associated with the projects can be determined
or until impairment occurs. If the results of an assessment indicate that the
properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized.
In applying the full cost method, the capitalized costs are subject to a
quarterly "ceiling test". If capitalized costs, adjusted for such items as
accumulated depletion and deferred income taxes, exceed the "ceiling amount",
the excess is charged to earnings as an impairment expense. The "ceiling" is
estimated as the present value, discounted at 10%, of the future net cash flows
from proved oil and gas reserves plus the lower of cost or net realizable value
of unevaluated properties. The calculation of future net cash flows assumes
continuation of current economic conditions, including current prices and costs.
The "ceiling" is highly sensitive to changing prices for oil and gas. Once
impairment expense is recognized, it cannot be reversed in future periods, even
if increasing prices raise the "ceiling amount".
Revenue Recognition: Revenue is generally recognized for the sale of oil
and gas when there is persuasive evidence of a sale arrangement, delivery has
occurred, the price is determinable, and collection of sales proceeds is
reasonably assured. Revenue is accrued when these four conditions have been
satisfied and reasonable estimates can be made. Revenue estimates are prepared
for the quantity of petroleum product delivered to the customer and the price
that will be received. Payment is received at a later date, often sixty to
ninety days after production. Revenue accruals are adjusted to reflect updated
information as it is received.
9
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
Lease Operating Expenses: Operating expenses of producing wells are
recognized when incurred. For properties operated by third parties, expenses are
estimated based upon activity reports. Expense accruals are adjusted to reflect
updated information as it is received.
Per Share Amounts: SFAS 128, "Earnings per Share," provides for the
calculation of "Basic" and "Diluted" earnings per share. Basic earnings per
share include no dilution and is computed by dividing net income (or loss) by
the weighted-average number of shares outstanding during the period. Diluted
earnings per share reflect the potential dilution of securities that could share
in the earnings of the Company, similar to fully diluted earnings per share.
During the periods since inception, the Company has issued 7,801,334 potentially
dilutive securities, all of which were excluded from the calculation because
they were anti-dilutive.
Use of Estimates: The preparation of financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Management
routinely makes judgments and estimates about the effects of matters that are
inherently uncertain. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Estimates and assumptions are revised periodically
and the effects of revisions are reflected in the financial statements in the
period it is determined to be necessary. Actual results could differ from these
estimates.
Recent Accounting Pronouncements: On December 29, 2008, the SEC announced
final approval of new requirements for reporting oil and gas reserves to be
effective in January 2010. The new disclosure requirements provide for
consideration of new technologies in evaluating reserves, allow companies to
disclose their probable and possible reserves to investors, report oil and gas
reserves using an average price based on the prior 12 month period rather than
year-end prices, and revise the disclosure requirements for oil and gas
operations. The accounting for the limitation on capitalized costs for full cost
companies will also be revised. The new rule is expected to be effective for
years ending on or after December 31, 2009, although the transition may be
extended. The Company has not yet evaluated the effects on its financial
statements and disclosures.
In May 2009 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 165, "Subsequent Events" (SFAS
165). SFAS 165 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date. This disclosure should alert all users of financial statements that an
entity has not evaluated subsequent events after that date in the set of
financial statements being presented. SFAS 165 is effective for interim and
annual periods ending after June 15, 2009. The adoption of SFAS 165 is not
10
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
expected to have a material impact on the Company's financial statements.
There were various other accounting standards and interpretations issued
recently, none of which are expected to a have a material impact on the
Company's financial position, operations or cash flows.
2. Going Concern
The Company's financial statements are prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of obligations
in the normal course of business. Only recently has the Company commenced
revenue generating operations and it has financed operations primarily through
the sale of equity. The Company recently was successful in obtaining a bank loan
secured by oil and gas equipment. The Company has incurred losses since its
inception aggregating $11,298,476. These conditions raise substantial doubt
about the ability of the Company to continue as a going concern.
The Company has raised cash proceeds of $3,112,500, net of offering costs,
in sales of common stock since inception. Management believes that the cash
balances of $1,052,985 at May 31, 2009 will not be sufficient to fund its
operating activities and other capital resource demands during the next twelve
months.
The Company's ability to continue as a going concern is contingent upon its
ability to raise additional funds, such as (1) through the sale of equity or
sale of its assets, (2) joint venture or partnership arrangements, or (3)
issuing debt instruments, and ultimately attaining profitable operations. The
financial statements do not include any adjustments to the amount and
classification of assets and liabilities that may be necessary should the
Company not continue as a going concern.
3. Property and Equipment
Oil and gas property consists of various interests in oil and gas leases,
two wells, one of which is operating and one of which is in the completion
stage, and tubular goods to be used in the development of future wells.
In November 2008, the Company participated in an auction of oil and gas
leases conducted by the State of Colorado and was awarded leases to 1,600 acres
for total consideration of $113,600. The leases have a term of five years. In
February 2009, the Company participated in an auction of leases conducted by the
Bureau of Land Management and was awarded leases to 2,000 acres for total
consideration of $45,000. The leases have a term of ten years. The Company also
acquired several leases in private transactions covering approximately 3,000
acres for total consideration approximating $136,000. The leases have terms
11
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
ranging from two to five years. As of May 31, 2009, these leases covered
approximately 6,700 net acres, and none of them were included in the full cost
pool subject to amortization.
The Company has an option to acquire working interests in oil and gas
leases currently owned by related parties PM and PEM as described in Note 7. In
connection therewith, the Company recently participated in two wells drilled by
Kerr-McGee Oil & Gas Onshore LP ("KM"). As of May 31, 2009, one well was
operating and one well was in the completion stage. The Company has a 37.5%
working interest (28.125% net revenue interest) in each well.
Property and equipment at May 31, 2009, consisted of the following:
Oil and Gas Properties, full cost method:
Unevaluated costs, not subject to amortization:
Acquisition and other costs $ 355,992
Tubular goods 1,718,968
Well in progress 287,934
----------
Subtotal, unevaluated costs 2,362,894
---------
Evaluated costs 324,373
Less, accumulated depletion (21,788)
-----------
Subtotal, evaluated costs 302,585
----------
Oil and gas properties, net 2,665,479
---------
Other property and equipment:
Office equipment 1,337
Less, accumulated depreciation (185)
-------------
Other property and equipment, net 1,152
------------
Total Property and Equipment, net $ 2,666,631
=============
The Company commenced depletion of its full cost pool during the three
months ended May 31, 2009. Costs of oil and gas properties are depleted using
the unit of production method based on estimated reserves. Production volumes
for the quarter are compared to estimated total reserves to calculate a
depletion rate. For the nine months ended May 31, 2009, depletion of oil and gas
properties was $21,788 and depreciation of other property and equipment was
$185.
12
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
4. Bank Loan Payable
The Company entered into a credit facility with a commercial bank. The
borrowing arrangement provides for maximum borrowings up to $1,161,811 and is
collateralized by tubular goods and certain other assets. The maximum amount
that can be borrowed is reduced by usage or sale of the tubular goods. The loan
bears interest at the prime rate plus 1/2%, payable quarterly, with a minimum
interest rate of 5.5%. The loan maturity date is May 8, 2010. Interest costs of
$3,195 and loan fees of $5,917 were incurred during the period ended May 31,
2009.
The Company capitalizes interest on expenditures made in connection with
exploration and development projects that are not subject to current
amortization. Interest is capitalizable during the period that activities are in
progress to bring the projects to their intended use. During the nine months
ended May 31, 2009, interest expense of $9,112, including loan fees, was
capitalized.
5. Shareholders' Equity
Preferred Stock The Company has authorized 10,000,000 shares of preferred
stock with a par value of $0.01 per share. These shares may be issued in series
with such rights and preferences as may be determined by the Board of Directors.
Since inception, the Company has not issued any preferred shares.
Common Stock The Company has authorized 100,000,000 shares of common stock
with a par value of $0.001 per share.
Issued and Outstanding The total issued and outstanding common stock at May
31, 2009 is 10,601,334 common shares, as follows:
i. Effective June 11, 2008, the Company issued 7,900,000 common shares to
its founders at $0.001 per share, for aggregate proceeds of $7,900.
ii. Pursuant to a Private Offering Memorandum dated June 20, 2008, the
Company sold 1,000,000 units at $1.00 per unit. Each unit consists of
one share of restricted common stock and one Series A warrant that
entitles the holder to purchase one share of common stock at $6.00 per
share through December 31, 2012.
iii. Pursuant to a Private Offering Memorandum dated July 16, 2008, the
Company sold 1,060,000 units at $1.50 per unit for total cash proceeds
of $1,590,000. Each unit consists of one share of restricted common
stock and one Series A warrant that entitles the holder to purchase
one share of common stock at $6.00 per share through December 31,
2012.
13
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
iv. Effective September 10, 2008, the Company agreed to issue 1,038,000
common shares to the shareholders of Predecessor Brishlin, on an
exchange basis of one share of Synergy common stock for each share of
Brishlin common stock. In addition, the shareholders of Predecessor
Brishlin will receive 1,038,000 Series A warrants that entitle the
holder to purchase one share of common stock at $6.00 per share
through December 31, 2012.
v. Effective December 1, 2008, the Company repurchased 1,000,000 shares
of its common stock from one of the original Predecessor Synergy
shareholders for $1,000, the price at which the shares were originally
sold to the shareholder.
vi. Pursuant to a Private Offering Memorandum dated December 1, 2008, the
Company sold 301,667 units at $3.00 per unit for total cash proceeds
of $905,001. Offering costs associated with the offering aggregated
$275,400, resulting in net cash proceeds of $629,601. Each unit
consists of two shares of common stock, one Series A warrant and one
Series B warrant. Each Series A warrant entitles the holder to
purchase one share of common stock at a price of $6.00 per share. The
Series A warrants expire on December 31, 2012, or earlier under
certain conditions. Each Series B warrant entitles the holder to
purchase one share of common stock at a price of $10.00 per share. The
Series B warrants expire on December 31, 2012, or earlier under
certain conditions.
The following tables summarize information about the Company's issued and
outstanding common stock warrants for the period ended May 31, 2009:
Exercise
Remaining Price times
Number of Contractual Number
Exercise Price Shares Life (in years) of Shares
-------------- --------- --------------- -----------
$ 6.00 3,399,667 3.5 $20,398,002
$10.00 301,667 3.5 $ 3,016,670
Number of Weighted average
warrants exercise price
--------- -----------------
Outstanding, August 31, 2008 2,043,571 $6.00
Granted 1,657,763 $6.73
Exercised -- --
------------ ---------
Outstanding, May 31, 2009 3,701,334 $6.33
============ =========
14
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
6. Stock Based Compensation
The Company accounts for stock options activities as provided by SFAS
123(R), "Share-Based Payment," which requires the Company to expense as
compensation the value of grants and options as determined in accordance with
the fair value based method prescribed in SFAS 123(R). The Company estimates the
fair value of each stock option at the grant date by using the
Black-Scholes-Merton option-pricing model.
As described in the following paragraphs, the Company recorded stock-based
compensation expense of $10,282,000 for the nine months ended May 31, 2009.
During June 2008, stock options were granted to purchase 4,000,000 shares
of common stock. Effective June 11, 2008, grants covering 2,000,000 shares were
issued to the executive officers at an exercise price of $10.00 and a term of
five years, and these options will vest over a one-year period. The fair value
of these options was determined to be nil based upon the following assumptions:
expected life of 2.5 years, stock price of $1.00 at date of grant, nominal
volatility, dividend yield of 0%, and interest rate of 2.63%. Effective June 30,
2008, grants covering an additional 2,000,000 shares were issued to the
executive officers at an exercise price of $1.00 and a term of five years, and
these options will vest over a one-year period. Based upon a fair value
calculation, these options were determined to have a value of $127,000 using the
following assumptions: expected life of 2.5 years, stock price of $1.00 at date
of grant, nominal volatility, dividend yield of 0%, and interest rate of 2.63%.
Stock option compensation expense of $88,920 was allocated to the nine months
ended May 31, 2009, based on a pro-ration of the fair value over the vesting
period.
In connection with the merger, the Company agreed to issue stock option
grants covering 4,000,000 shares to replace the similar options described in the
preceding paragraph. Using the Black-Scholes-Merton option-pricing model, the
Company estimated that the fair value of the replacement options exceeded the
fair value of the options surrendered by $10,185,345. The assumptions used in
the model were: expected life of 2.5 years, stock price of $3.50 at date of
grant, volatility of 166%, dividend yield of 0%, and interest rate of 2.63%. The
incremental expense of $10,185,345 was pro-rated over the vesting period and
stock option compensation expense for the nine months ended May 31, 2009 was
$10,185,345.
Effective December 31, 2008, the Company granted stock options to an
employee to purchase 100,000 shares of common stock at an exercise price of
$3.00 and a term of ten years. These options will vest over a five year period.
Based on a fair value calculation, these options were determined to have a value
of $185,640 using the following assumptions: expected life of 5 years, stock
price of $2.00 at date of grant, volatility of 166%, dividend yield of 0%, and
interest rate of 3.13%. Stock option compensation expense of $7,735 was recorded
for the period ended May 31, 2009, based on a pro-ration of the fair value over
the vesting period.
15
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
The estimated unrecognized compensation cost from unvested stock options
as of May 31, 2009 was approximately $187,785, which will be recognized ratably
through December 31, 2013.
The following tables summarize information about stock options for the
period ended May 31, 2009:
Remaining Exercise Weighted
Contractual Price times Average
Number of Life (in Number of Exercise
Exercise Price Shares years) Shares Price
---------------------------------------------------------------------
$ 10.00 2,000,000 4.3 $ 20,000,000 $10.00
$ 1.00 2,000,000 4.3 2,000,000 $ 1.00
$ 3.00 100,000 9.5 300,000 $ 3.00
---------- -------------
4,100,000 $ 22,300,000 $ 5.44
========= =============
Number of Weighted average
shares exercise price
Outstanding, August 31, 2008 4,000,000 $5.50
Granted 4,100,000 $5.44
Terminated (4,000,000) $5.50
----------
Outstanding, May 31, 2009 4,100,000 $5.44
==========
Exercisable at June 30, 2009 4,000,000
==========
7. Related Party Transactions and Commitments
The Company's executive officers control two entities that have entered
into agreements with the Company. The entities are Petroleum Management, LLC
("PM") and Petroleum Exploration and Management, LLC ("PEM"). One agreement
provides various administrative services to the Company and the other agreement
provides an option to acquire certain oil and gas interests.
For the nine months ended May 31, 2009, the Company paid $180,000 under the
administrative services agreement.
Effective August 7, 2008, the Company entered into a letter of intent with
the related entities that provides an option to acquire working interests in oil
and gas leases which are owned by PM and/or PEM. The oil and gas leases cover
640 acres in Weld County, Colorado, and subject to certain conditions, will be
transferred to the Company for payment of $1,000 per net mineral acre. The
16
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
working interests in the leases vary but the net revenue interest in the leases,
if acquired by the Company, will not be less than 75%. The letter of intent, as
amended, has an expiration date of August 31, 2009.
Effective May 13, 2009, the Company acquired oil and gas equipment
consisting of casing and tubing from PM. PM was paid $1,718,967 as reimbursement
for the original cost of the tubular goods
On June 11, 2008, the Company entered into two year employment agreements
with its executive officers. Pursuant to the terms of those agreements, the
salaries of William E. Scaff, Jr. and Ed Holloway are each $12,500 per month.
For the nine months ended May 31, 2009, the Company paid $225,000 under these
agreements.
In June 2008, the Company sold 1,900,000 shares of its common stock to the
Synergy Energy Trust (the "Trust"). The Trust was created for the benefit of
consultants and others who have, or will in the future, benefit the Company. The
trustee is a shareholder of the Company. Effective December 1, 2008, the Company
repurchased 1,000,000 shares of its common stock from the Trust for $1,000, the
original selling price. During the nine months ended May 31, 2009, 900,000
shares were issued to the Trustee in exchange for certain services directly
related to raising additional capital for the Company, and the Trustee
terminated the Trust.
On June 1, 2008, the Company entered into an agreement with Energy Capital
Advisors, an entity related through common ownership interests. Energy Capital
Advisors provided certain services directly related to raising additional
capital for the Company. Compensation under the agreement was $30,000 per month
through December 31, 2008, and $10,000 per month from January 1, 2009 to May 31,
2009, when the agreement terminated. During the nine months ended May 31, 2009,
the Company paid $170,000 related to this agreement.
On June 1, 2008, the Company entered into an agreement with J3 Energy LLC,
an entity related through common ownership interests. Pursuant to the Agreement,
J3 Energy LLC agreed to provide certain services directly related to raising
additional capital for the Company. The agreement terminated on September 30,
2008. Compensation under the agreement was $8,000 per month. During the nine
months ended May 31, 2009, the Company paid $8,000 related to the agreement.
In connection with the merger, the Company entered into an agreement with
two directors to provide consulting services. The initial term of the agreement
is one year. Compensation under the agreement is $10,000 per month. During the
nine months ended May 31, 2009, the Company recorded costs of $90,000 related to
this agreement.
17
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 2009
(Unaudited)
8. Subsequent Events
Effective June 29, 2009, the Company completed the private sale of
1,000,000 units at a price of $3.00 per unit. Each unit consisted of two shares
of the Company's common stock, one Series A Warrant and one Series B warrant.
The sale of 1,000,000 units included 301,667 units sold on or before May 31,
2009 and 698,333 units sold subsequent to May 31, 2009.
18
SYNERGY RESOURCES CORPORATION
FINANCIAL STATEMENTS AS OF
August 31, 2008
AND PRO FORMA FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Synergy Resources Corporation
We have audited the accompanying balance sheet of Synergy Resources Corporation
(an Exploration Stage Company) as of August 31, 2008, and the related statements
of operations, changes in shareholders' equity, and cash flows for the period
from inception (December 28, 2007) to August 31, 2008. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States.) Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Synergy Resources Corporation
(an Exploration Stage Company) as of August 31, 2008, and the results of its
operations, and its cash flows for the period from inception (December 28, 2007)
to August 31, 2008, in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered losses from operations and has no
revenue generating operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Stark Winter Schenkein & Co., LLP
Denver, Colorado
November 24, 2008
1
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
BALANCE SHEET
as of August 31, 2008
ASSETS
Current assets:
Cash and cash equivalents $ 2,292,341
Other current assets 27,412
-------------
Total current assets $ 2,319,753
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,473
Accrued payroll taxes 40,853
-------------
Total current liabilities 53,326
-------------
Shareholders' equity:
Preferred stock - $0.0001 par value, 5,000,000
shares authorized: no shares issued and outstanding --
Common stock - $0.0001 par value, 50,000,000 shares
authorized:
9,943,571 issued and outstanding 994
Additional paid-in capital 2,585,261
Stock subscriptions receivable (27,650)
Deferred compensation (98,800)
(Deficit) accumulated during the exploration stage (193,378)
-------------
Total shareholders' equity 2,266,427
-------------
Total liabilities and shareholders' equity $ 2,319,753
=============
The accompanying notes are an integral part of these financial statements.
2
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
STATEMENT OF OPERATONS
for the period from Inception (December 28, 2007) to August 31, 2008
Revenues $ --
-------------
Expenses:
Administrative services contract - related party 53,333
Salaries and payroll taxes 72,382
Legal fees 41,098
Share based compensation - stock options granted 28,200
All other general and administrative 1,258
-------------
Total expenses 196,271
-------------
Operating (loss) (196,271)
Interest income 2,893
-------------
(Loss) before taxes (193,378)
Provision for income taxes --
-------------
Net (loss) $ (193,378)
=============
Net (loss) per common share:
Basic and Diluted $ (0.07)
=============
Weighted average shares outstanding:
Basic and Diluted 2,892,700
=============
The accompanying notes are an integral part of these financial statements.
3
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
STATEMENT OF CASH FLOWS
for the period from Inception ( December 28, 2007) to August 31, 2008
Cash flows from operating activities:
Net (loss) $ (193,378)
-------------
Adjustments to reconcile net (loss) to net cash (used in) operating
activities:
Stock options granted 28,200
Changes in operating assets and liabilities
(Increase) in other current assets (27,412)
Increase in accounts payable 12,473
Increase in accrued liabilities 40,853
-------------
Total adjustments 54,114
-------------
Net cash (used in) operating activities (139,264)
-------------
Cash flows from investing activities:
Net cash provided by (used in) investing activities --
-------------
Cash flows from financing activities:
Cash proceeds from sale of stock, net of
offering costs 2,431,605
-------------
Net cash provided by financing activities 2,431,605
-------------
Net increase in cash and equivalents 2,292,341
Cash and equivalents at inception --
-------------
Cash and equivalents at end of period $ 2,292,341
=============
Supplemental Cash Flow Information:
Interest paid $ --
=============
Income taxes paid $ --
=============
The accompanying notes are an integral part of these financial statements.
4
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the period
from Inception (December 28, 2007) to August 31, 2008
(Deficit)
Accumulated
Number of Additional Stock During Total
Common Common Paid-In Subscriptions Deferred Exploration Shareholders'
Shares Stock Capital Receivable Compensation Stage Equity
--------- ------ ---------- ------------- ------------ ------------ -------------
Balance at Inception,
December 28, 2007 -- $ -- $ -- $ -- $ -- $ -- $ --
Founders' shares
issued effective
June 11, 2008 7,900,000 790 7,110 (7,900) -- -- --
Shares issued for cash
at $1.00 per share
pursuant to June 20, 2008
offering memorandum 1,000,000 100 999,900 (19,750) -- -- 980,250
Stock options
granted effective
June 30, 2008 -- -- 127,000 -- (98,800) -- 28,200
Shares issued for cash
at $1.50 per share
pursuant to July 16, 2008
offering memorandum 1,043,571 104 1,565,251 -- -- -- 1,565,355
Offering costs -- -- (114,000) -- -- -- (114,000)
Net (loss) -- -- -- -- -- (193,378) (193,378)
----------- --------- ----------- ----------- ------------ ------------ -----------
Balance, August 31, 2008 9,943,571 $ 994 $2,585,261 $ (27,650) $ (98,800) $ (193,378) 2,266,427
=========== ========= =========== =========== ============ ============ ===========
The accompanying notes are an integral part of these financial statements.
5
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
1. Summary of Significant Accounting Policies
Basis of Presentation: Synergy Resources Corporation (the "Company") was
organized under the laws of the State of Colorado on December 28, 2007. The
Company plans to engage in oil and gas acquisitions, exploration, development
and production service activities, primarily in Weld County, Colorado. The
Company is in its exploration stage and has not yet generated any revenues from
operations.
Cash and Cash Equivalents: The Company considers cash in banks, deposits
in transit, and highly liquid debt instruments purchased with original
maturities of three months or less to be cash and cash equivalents.
Oil and Gas Properties: The Company plans to use the full cost method of
accounting for costs related to its oil and natural gas properties. All of the
properties acquired by the Company from the date of inception will undergo
evaluation to determine whether they will be included in the depletion,
depreciation, and amortization calculation. After the properties are evaluated,
the capitalized costs included in the full cost pool will be depleted on an
aggregate basis using the units-of-production method. A change in proved
reserves without a corresponding change in capitalized costs will cause the
depletion rate to increase or decrease.
Both the volume of proved reserves and any estimated future expenditures
to be used for the depletion calculation will be based on estimates such as
those described under "Oil and Gas Reserves" below.
The capitalized costs in the full cost pool will be subject to a quarterly
ceiling test that limits such pooled costs to the aggregate of the present value
of future net revenues attributable to proved oil and natural gas reserves
discounted at 10 percent plus the lower of cost or market value of unproved
properties less any associated tax effects. If such capitalized costs exceed the
ceiling, the Company will record a write-down to the extent of such excess as a
non-cash charge to earnings. Any such write-down will reduce earnings in the
period of occurrence and result in lower depreciation and depletion in future
periods. A write-down may not be reversed in future periods, even though higher
oil and natural gas prices or increased reserves may subsequently increase the
ceiling.
Changes in oil and natural gas prices are expected to have the most
significant impact on the Company's ceiling test. In general, the ceiling is
lower when prices are lower. Even though oil and natural gas prices can be
highly volatile over weeks and even days, the ceiling calculation dictates that
prices in effect as of the last day of the test period be used and held
constant. The resulting valuation is a snapshot as of that day and, thus, is not
necessarily indicative of a true fair value that would be placed on the
Company's reserves by the Company or by an independent third party. Therefore,
the future net revenues associated with the estimated proved reserves are not
based on the Company's assessment of future prices or costs, but rather are
based on prices and costs in effect as of the end the test period.
6
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
Oil and Gas Reserves: The determination of depreciation and depletion
expense as well as ceiling test write-downs related to the recorded value of the
Company's oil and natural gas properties will be highly dependent on the
estimates of the proved oil and natural gas reserves. Oil and natural gas
reserves include proved reserves that represent estimated quantities of crude
oil and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. There are numerous
uncertainties inherent in estimating oil and natural gas reserves and their
values, including many factors beyond the Company's control. Accordingly,
reserve estimates are often different from the quantities of oil and natural gas
ultimately recovered and the corresponding lifting costs associated with the
recovery of these reserves.
Property Retirement Obligation: The Company follows the guidelines of
Statement of Financial Accounting Standards (SFAS) 143, "Accounting for Asset
Retirement Obligations." SFAS 143 requires the fair value of a liability for an
asset retirement obligation to be recognized in the period that it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset.
Stock Based Compensation: The Company accounts for stock-based
compensation in accordance with SFAS 123(R), "Share Based Payment," requiring
the Company to record compensation costs determined in accordance with the fair
value based method prescribed in SFAS 123(R). The Company estimates the fair
value of stock options at their grant date by using the Black-Scholes-Merton
option-pricing model and provides for expense recognition over the service
period, if any, of the stock option. The Company accounts for common stock
issued to employees for services based on the fair value of the equity
instruments issued, and accounts for common stock issued to other than employees
based on the fair value of the consideration received or the fair value of the
equity instruments, whichever is more reliably measurable.
Per Share Amounts: SFAS 128, "Earnings Per Share," provides for the
calculation of "Basic" and "Diluted" earnings per share. Basic earnings per
share includes no dilution and is computed by dividing net income (or loss) by
the weighted-average number of shares outstanding during the period. Diluted
earnings per share reflect the potential dilution of securities that could share
in the earnings of the Company, assuming the issuance of an equivalent number of
common shares pursuant to options, warrants, or convertible debt arrangements.
Diluted earnings per share is not shown for periods in which the Company incurs
a loss because it would be anti-dilutive. Similarly, potential common stock
equivalents are not included in the calculation if the effect would be
anti-dilutive.
Income Taxes: Deferred income taxes are reported for timing differences
between items of income or expense reported in the financial statements and
those reported for income tax purposes in accordance with SFAS 109, "Accounting
for Income Taxes", which requires the use of the asset/liability method of
accounting for income taxes. Deferred income taxes and tax benefits are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and for tax loss and credit carry-forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The Company provides for deferred taxes for
the estimated future tax effects attributable to temporary differences and
carry-forwards when realization is more likely than not.
7
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
Use of Estimates: The preparation of financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Management
routinely makes judgments and estimates about the effects of matters that are
inherently uncertain. Estimates that are critical to the accompanying financial
statements include the valuation of deferred tax assets and the impact of
potential loss contingencies. As the Company implements its business plan, it is
expected that future critical estimates will include the identification and
valuation of proved and probable reserves, treatment of exploration and
development costs as either an asset or an expense, and the calculation of
depreciation, depletion, and amortization expense. Management bases its
estimates and judgements on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from these estimates. Estimates and assumptions are revised
periodically and the effects of revisions are reflected in the financial
statements in the period it is determined to be necessary.
Business Risks: The Company continually reviews the exploration and
political risks it encounters in its operations. It mitigates the likelihood and
potential severity of these risks through the application of high operating
standards. The Company's operations may be affected to various degrees by
changes in environmental regulations, including those for future site
restoration and reclamation costs. The oil and gas business is subject to
extensive licensing, permitting, governmental legislation, control and
regulations. The Company endeavors to be in compliance with these regulations at
all times.
Revenue Recognition: The Company plans to recognize revenue from the sales
of crude oil and natural gas when the product is delivered at a fixed or
determinable price, title has transferred and collectability is reasonably
assured.
Fair Value of Financial Instruments: SFAS 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments. Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to
management as of August 31, 2008.
The respective carrying value of certain on-balance-sheet financial
instruments approximate their fair values. These financial instruments include
cash and cash equivalents, prepaid expenses, accounts payable and accrued
liabilities. Fair values were assumed to approximate carrying values for these
financial instruments since they are short term in nature and their carrying
amounts approximate fair value, or they are receivable or payable on demand.
Concentration of Credit Risk: The Company's operating cash balances are
maintained in one primary financial institution and currently exceed federally
insured limits. The Company believes that the financial strength of this
institution mitigates the underlying risk of loss. To date, these concentrations
of credit risk have not had a significant impact on the Company's financial
position or results of operations.
8
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
Environmental Matters: Environmental costs are expensed or capitalized
depending on their future economic benefit. Costs that relate to an existing
condition caused by past operations with no future economic benefit are
expensed. Liabilities for future expenditures of a non-capital nature are
recorded when future environmental expenditures and/or remediation are deemed
probable and the costs can be reasonably estimated. Costs of future expenditures
for environmental remediation obligations are not discounted to their present
value.
Recent Accounting Pronouncements: In December 2007 the Financial
Accounting Standards Board (FASB) issued SFAS 141 (revised 2007), Business
Combinations ("SFAS 141R"). This statement replaces SFAS 141, Business
Combinations. The statement provides guidance for how the acquirer recognizes
and measures the identifiable assets acquired, liabilities assumed and any
non-controlling interest in the acquiree. SFAS 141R provides for how the
acquirer recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase. The statement determines what
information to disclose to enable users to be able to evaluate the nature and
financial effects of the business combination. The provisions of SFAS 141R will
be effective for our fiscal year commencing September 1, 2009 and do not allow
early adoption. Management is currently evaluating the impact of adopting this
statement.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements (SFAS 160), which will be effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008, and earlier adoption is not allowed. This standard
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent's ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The
Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. The Company does not
anticipate that this pronouncement will have a material impact on its results of
operations or financial position.
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement No. 133
(SFAS 161), which becomes effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. This standard
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under SFAS 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flows.
Management is currently evaluating the impact of adopting this statement.
9
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162), which becomes effective upon approval by the
SEC. This standard sets forth the sources of accounting principles and provides
entities with a framework for selecting the principles used in the preparation
of financial statements that are presented in conformity with GAAP. It is not
expected to change any of our current accounting principles or practices and
therefore, is not expected to have a material impact on our financial
statements.
There were various other accounting standards and interpretations issued
during 2008, none of which are expected to a have a material impact on the
Company's financial position, operations or cash flows.
2. Going Concern
The Company's financial statements are prepared on a going concern basis,
which contemplates the satisfaction of obligations in the normal course of
business. The Company has no source of operating revenue and has financed
operations through the sale and exchange of equity. The Company has incurred
losses since its inception aggregating $193,378. These conditions raise
substantial doubt about the ability of the Company to continue as a going
concern.
The Company has raised net cash proceeds of $2,431,605 in sales of common
stock from inception through August 31, 2008. Management believes that these
proceeds will not be sufficient to fund its operating activity and other capital
resource demands during the next twelve months.
The Company continues to raise capital through the sale of its common
shares and may also seek other funding or corporate transactions to achieve its
business objectives. The Company's ability to continue as a going concern is
contingent upon its ability to raise funds through the sale of equity, joint
venture or sale of its assets, and attaining profitable operations. The
financial statements do not include any adjustments to the amount and
classification of assets and liabilities that may be necessary should the
Company not continue as a going concern.
3. Income Taxes
The Company records deferred taxes in accordance with SFAS 109 "Accounting
for Income Taxes". The statement requires recognition of deferred tax assets and
liabilities for temporary differences between the tax bases of assets and
liabilities and the amounts at which they are carried in the financial
statements, the effect of net operating losses, based upon the enacted tax rates
in effect for the year in which the differences are expected to reverse. A
valuation allowance is established when necessary to reduce deferred tax assets
to the amount expected to be realized.
Reconciling items between the net loss reported for book purposes and the
taxable loss reported for tax purposes include the deferred tax asset valuation
allowance and differences whereby stock based compensation expenses are
generally deductible for tax purposes in different periods and in different
amounts than the expense recognized for book purposes.
The Company's deferred tax assets, valuation allowance, and change in
valuation allowance are as follows:
Estimated Estimated Change in
NOL NOL Tax Benefit Valuation Valuation Net Tax
Carry-Forward Expires from NOL Allowance Allowance Benefit
------------- ------- ----------- --------- --------- --------
August 31, 2008 $165,000 2028 $ 61,000 $(61,000) $(61,000) $ --
10
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
Income taxes at the statutory rate are reconciled to reported income tax
expense (benefit) as follows:
Federal tax expense (benefit) at statutory rate (34%)
State tax expense (benefit) at statutory rate, net (3%)
Stock based compensation 5%
Deferred income tax valuation allowance 32%
-----
0%
=====
At this time, the Company is unable to determine if it will be able to
benefit from its deferred tax asset. There are limitations on the utilization of
net operating loss carry-forwards, including a requirement that losses be offset
against future taxable income, if any. In addition, there are limitations
imposed by certain transactions which are deemed to be ownership changes.
Accordingly, a valuation allowance has been established for the entire deferred
tax asset.
4. Shareholders' Equity
Preferred Stock The Company has authorized 5,000,000 shares of preferred
stock with a par value of $0.0001 per share. These shares may be issued in
series with such rights and preferences as may be determined by the Board of
Directors. Since inception, the Company has not issued any preferred shares.
Common Stock The Company has authorized 50,000,000 shares of common stock
with a par value of $0.0001 per share.
Issued and Outstanding The total issued and outstanding common stock at
August 31, 2008 is 9,943,571 common shares, as follows:
i. Effective June 11, 2008, the Company agreed to issue 7,900,000 common
shares to its founders at $0.001 per share. Cash proceeds of $7,900 were
received subsequent to August 31, 2008.
ii. Pursuant to a Private Offering Memorandum dated June 20, 2008, the
Company sold 1,000,000 units at $1.00 per unit. Cash proceeds of
$980,250 were received prior to August 31, 2008 and cash proceeds of
$19,750 were received subsequent to August 31, 2008. Each unit consists
of one share of restricted common stock and one Series A warrant that
entitles the holder to purchase one share of common stock at $6.00 per
share through December 31, 2012.
iii.Pursuant to a Private Offering Memorandum dated July 16, 2008, the
Company sold 1,043,571 units at $1.50 per unit for total cash proceeds
of $1,565,355. Subsequent to August 31, 2008, the Company sold an
additional 16,429 units for cash proceeds of $24,645. Each unit consists
of one share of restricted common stock and one Series A warrant that
entitles the holder to purchase one share of common stock at $6.00 per
share through December 31, 2012.
11
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
The following tables summarize information about the Company's issued and
outstanding common stock warrants for the period ended August 31, 2008:
Remaining
Contractual Exercise Price
Exercise Number Life times Number
Price of Shares (in years) of Shares
--------- --------- ----------- --------------
$6.00 2,043,571 4.3 $ 12,261,426
Number of Weighted average
warrants exercise price
---------- -----------------
Outstanding, December 28, 2007 --
Granted 2,043,571 $6.00
Exercised --
---------
Outstanding, August 31, 2008 2,043,571 $6.00
=========
5. Stock Based Compensation
The Company accounts for stock options granted as provided by SFAS 123(R),
"Share-Based Payment," which requires the Company to expense as compensation the
value of grants and options as determined in accordance with the fair value
based method prescribed in SFAS 123(R). The Company estimates the fair value of
each stock option at the grant date by using the Black-Scholes-Merton
option-pricing model.
During the period ended August 31, 2008, stock options were granted to
purchase 4,000,000 shares of common stock. Effective June 11, 2008, grants
covering 2,000,000 shares were issued to the executive officers at an exercise
price of $10.00 and a term of five years, and these options will vest over a one
year period. The fair value of these options was determined to be nil based upon
the following assumptions: expected life of 2.5 years, stock price of $1.00 at
date of grant, nominal volatility, dividend yield of 0%, and interest rate of
2.63%. Effective June 30, 2008, grants covering an additional 2,000,000 shares
were issued to the executive officers at an exercise price of $1.00 and a term
of five years, and these options will vest over a one year period. Based upon a
fair value calculation, these options were determined to have a value of
$127,000 using the following assumptions: expected life of 2.5 years, stock
price of $1.00 at date of grant, nominal volatility, dividend yield of 0%, and
interest rate of 2.63%. Deferred compensation of $127,000 was recorded as a
component of shareholders' equity, and will be amortized to stock compensation
expense on a pro-rata basis over the vesting term. During the period ended
August 31, 2008, amortization of $28,200 was recorded.
12
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
The following tables summarize information about stock options for the
period ended August 31, 2008:
Contractual Exercise Price Weighted
Exercise Number Life times Number Average
Price of Shares (in years) of Shares Exercise Price
--------- --------- ----------- -------------- --------------
$10.00 2,000,000 4.8 $ 20,000,000 $10.00
$ 1.00 2,000,000 4.8 2,000,000 $ 1.00
--------- ------------ ------
4,000,000 $ 22,000,000 $ 5.50
========= ============ ======
Number of Weighted average
warrants exercise price
---------- -----------------
Outstanding, December 28, 2007 --
Granted 4,000,000 $5.50
Exercised --
---------
Outstanding, August 31, 2008 4,000,000 $5.50
=========
Exercisable, August 31, 2008 1,000,000
=========
6. Related Party Transactions and Commitments
The Company's executive officers control two entities that have entered
into agreements with the Company. The entities are Petroleum Management, LLC
("PM") and Petroleum Exploration and Management, LLC ("PEM"). As discussed
below, one agreement provides various services to the Company and the other
agreement provides an option to acquire certain oil and gas interests.
Effective June 11, 2008, the Company entered into an Administrative
Services Agreement with PM. The Company will pay $10,000 per month for leasing
office space and an equipment yard located in Platteville, Colorado, and will
pay $10,000 per month for office support services including secretarial service,
word processing, communication services, office equipment and supplies.
Additional employees, independent contractors or oil and gas professionals
provided to the Company by PM will be reimbursed at actual cost. Either party
may terminate the agreement with 30 days notice. For the period ended August 31,
2008, the Company paid $60,000 under this agreement, including $6,667 classified
as prepaid expenses.
13
SYNERGY RESOURCES CORPORATION
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 31, 2008
Effective August 7, 2008, the Company entered into a letter of intent with
the related entities that provides an option to acquire working interests in oil
and gas leases which are owned by PM and/or PEM. The oil and gas leases cover
640 acres in Weld County, Colorado, and subject to certain conditions, will be
transferred to the Company for payment of $1,000 per net mineral acre. The
working interests in the leases vary but the net revenue interest in the leases,
if acquired by the Company, will not be less than 75%. The letter of intent had
an original expiration date of November 1, 2008, but has been extended by mutual
agreement to August 31, 2009.
On June 11, 2008, the Company entered into two year employment agreements
with its executive officers. Pursuant to the terms of those agreements, the
salaries of William E. Scaff, Jr. and Ed Holloway are each $12,500 per month.
For the period ended August 31, 2008, the Company paid $75,000 under these
agreements, including $8,333 classified as prepaid expenses.
In June 2008, the Company sold 1,900,000 shares of its common stock to the
Synergy Energy Trust (the "Trust"). The Trust was created for the benefit of
consultants and others who have, or will in the future, benefit the Company. The
trustee is a shareholder of the Company. As of August 31, 2008, the Trust had
not sold, assigned or transferred any of the Company's shares.
On June 1, 2008, the Company entered an agreement with Energy Capital
Advisors, an entity related through common ownership interests. Energy Capital
Advisors will provide certain services directly related to raising additional
capital for the Company. The agreement will terminate on May 31, 2009, unless
terminated earlier for reason of non-performance. Compensation under the
agreement is $30,000 per month. During the period ended August 31, 2008, the
Company recorded costs of $90,000 related to this agreement. Since all of the
activities during the period were considered to be offering costs, they were
recorded as an offset to additional paid in capital.
On June 1, 2008, the Company entered an agreement with J3 Energy LLC, an
entity related through common ownership interests. J3 Energy LLC will provide
certain services directly related to raising additional capital for the Company.
The agreement terminated on September 30, 2008. Compensation under the agreement
is $8,000 per month. During the period ended August 31, 2008, the Company
recorded costs of $24,000 related to the agreement. Since all of the activities
during the period were considered to be offering costs, they were recorded as an
offset to additional paid in capital.
7. Subsequent Events
On September 10, 2008, Brishlin Resources, Inc. (Brishlin) acquired
approximately 89% of the outstanding shares of the Company in exchange for
8,902,500 shares of Brishlin's common stock. In conjunction with the
acquisition, the shareholders of Brishlin, at a special meeting held on
September 8, 2008, approved a resolution to change Brishlin's name to Synergy
Resources Corporation. For accounting purposes, the merger is considered a
"reverse merger" with Synergy as the accounting acquirer.
14
SYNERGY RESOURCES CORPORATION
PRO-FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited)
On September 10, 2008, Brishlin Resources, Inc. ("Brishlin") acquired
approximately 89% of the outstanding shares of Synergy Resources Corporation
("Synergy") for 8,902,500 shares of its common stock and 1,042,500 Series A
warrants. Brishlin expects to acquire the remaining shares of Synergy in a
separate transaction.
Subsequent to the business combination, Brishlin changed its name to Synergy
Resources Corporation. For purposes of this pro-forma information, we have
retained the original names.
Although the legal form of the transaction reflects the acquisition of Synergy
by Brishlin, we have determined that the accounting form of the transaction is a
"reverse merger", in which Synergy is identified as the accounting acquirer and
Brishlin is identified as the accounting acquiree. In this transaction, Synergy
reports the acquisition of Brishlin as a recapitalization under which the
outstanding shares of Brishlin are issued to acquire the net assets of Brishlin.
Future financial statements will present the historical information of Synergy
and the operations of Brishlin will be included from the date of the
combination.
The following pro-forma condensed combined financial statements present the
combined financial position and results of operation of Brishlin and Synergy as
they may have appeared had the combination described above occurred as of
January 1, 2008 for purposes of the pro-forma condensed combined statement of
operations, and as of August 31, 2008 for purposes of the pro-forma condensed
combined balance sheet.
The unaudited pro-forma condensed combined financial statements are provided for
illustrative purposes only and do not purport to present what the actual results
of operations or financial position would have been had the transactions
actually occurred on the dates indicated, nor do they purport to represent
results of operations for any future period or financial position for any future
date. These statements do not assume any potential cost savings or other future
benefits that may be obtained through the combination of these two entities.
The pro-forma condensed combined financial statements have been derived from,
and should be read in conjunction with, the historical financial statements and
notes thereto of Brishlin and Synergy. The audited financial statements of
Synergy as of August 31, 2008 and for the period from inception (December 28,
2007) to August 31, 2008 appear elsewhere in this Form 8-K/A. The audited
financial statements of Brishlin as of December 31, 2007 and for the two years
ended December 31, 2007, were previously filed on Form 10-K. The unaudited
financial statements of Brishlin as of June 30, 2008 and for the six months
ended June 30, 2008 were previously filed on Form 10-Q. Brishlin has elected to
change its fiscal year from December 31 to August 31, to coincide with the
fiscal year end of Synergy. Brishlin intends to file audited financial
statements as of August 31, 2008 and for the eight months ended August 31, 2008
on a transition report on Form 10-K no later than January 29, 2009.
PF-1
SYNERGY RESOURCES CORPORATION AND BRISHLIN RESOURCES, INC.
PRO-FORMA CONDENSED COMBINED BALANCE SHEET
as of August 31, 2008 (unaudited)
HISTORICAL PRO-FORMA
----------------------- ----------------------------------
Synergy Brishlin Adjustments Combined Notes
------- -------- ----------- --------- -----
ASSETS
Current assets:
Cash and cash equivalents $ 2,292,341 $ 7,569 $ -- $ 2,299,910
Prepaid expenses 27,412 1,428 -- 28,840
----------- -------- --------- -----------
Total current assets 2,319,753 8,997 -- 2,328,750
----------- -------- --------- -----------
Oil and gas properties, at cost,
using full cost method
Oil and gas properties, net -- 39,125 -- 39,125
Other assets -- 1,328 -- 1,328
----------- ---------- --------- -----------
Total assets $ 2,319,753 $ 49,450 $ -- $ 2,369,203
----------- ---------- --------- -----------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 12,473 $ 44,906 $ -- $ 57,379
Accrued salaries, benefits,
and taxes 40,853 3,604 -- 44,457
----------- ---------- --------- -----------
Total current liabilities 53,326 48,510 -- 101,836
----------- ---------- --------- -----------
Shareholders' equity:
Common stock 994 1,038 8,950 10,982 b
Additional paid-in capital 2,585,261 1,015,262 (1,015,360) 2,933,813 a
Additional paid-in capital -- -- (8,950) -- b
Additional paid-in capital -- -- 357,600 -- c
Stock subscriptions receivable (27,650) -- -- (27,650)
Deferred compensation (98,800) -- (278,200) (377,000) c
(Deficit) accumulated during
the exploration stage (193,378) (1,015,360) 1,015,360 (272,778) a
(Deficit) accumulated during
the exploration stage -- -- (79,400) -- c
----------- ---------- --------- -----------
Total shareholders' equity 2,266,427 940 -- 2,267,367
----------- ---------- --------- -----------
Total liabilities and
shareholders' equity $ 2,319,753 $ 49,450 $ -- $ 2,369,203
=========== ========== ========= ===========
The accompanying notes are an integral part of these
pro-forma condensed combined financial statements.
PF-2
SYNERGY RESOURCES CORPORATION AND BRISHLIN RESOURCES, INC.
PRO-FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
for the eight months ended August 31, 2008
(Unaudited)
HISTORICAL PRO-FORMA
------------------ ---------------------------------
Synergy Brishlin Adjustments Combined Notes
------- -------- ----------- -------- -----
Revenues $ -- $ -- $ -- $ --
-------- -------- --------- ---------
Expenses:
Oil and gas lease
expense -- 5,000 -- 5,000
General and
administrative 196,271 194,730 79,400 470,401 c
-------- -------- --------- ----------
Total expenses 196,271 199,730 79,400 475,401
-------- -------- --------- ----------
Operating (loss) (196,271) (199,730) (79,400) (475,401)
Other income (expense):
Interest income 2,893 90 -- 2,983
-------- -------- --------- ----------
(Loss) before taxes (193,378) (199,640) (79,400) (472,418)
Provision for
income taxes -- -- -- --
-------- -------- --------- ----------
Net (loss) $ (193,378) $(199,640) $ (79,400) $ (472,418)
========== ========= ========= ==========
Net (loss) per
common share:
Basic and Diluted $ (0.07) $ (0.20) $ (0.04)
========== ========= ==========
Weighted average
shares outstanding:
Basic and Diluted 2,892,700 1,005,869 7,083,002 10,981,571 d
========== ========= ========= ==========
The accompanying notes are an integral part of these
pro-forma condensed combined financial statements.
PF-3
SYNERGY RESOURCES CORPORATION
NOTES TO PRO-FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(unaudited)
1. Basis of Pro-Forma Presentation
On September 10, 2008, pursuant to an Agreement to Exchange Common Stock
("Exchange Agreement") with certain shareholders of Synergy Resources
Corporation, Brishlin Resources, Inc. acquired approximately 89% of the
outstanding shares of Synergy Resources Corporation in exchange for 8,902,500
shares of its common stock and 1,042,500 Series A warrants. Brishlin expects to
acquire the remaining 1,057,500 shares of Synergy Resources Corporation in a
subsequent transaction. For purposes of this pro-forma presentation, we assumed
that Brishlin acquired 100% of the outstanding shares of Synergy.
Brishlin Resources, Inc. ("Brishlin") was organized under the laws of the State
of Colorado on May 11, 2005 as Blue Star Energy, Inc. Effective December 11,
2007, the Company changed its name to Brishlin Resources, Inc. The Company plans
to engage in oil, gas and mineral acquisitions, exploration, development and
production service activities, primarily in the western region of the United
States. The Company is in its exploration stage and has not yet generated any
revenues from operations.
Synergy Resources Corporation ("Synergy") was organized under the laws of the
State of Colorado on December 28, 2007. The Company plans to engage in oil and
gas acquisitions, exploration, development and production service activities,
primarily in the D-J Basin, which is located in Colorado and neighboring states.
The Company is in its exploration stage and has not yet generated any revenues
from operations.
Management believes that the combination of the two entities will create a
company with greater access to experienced personnel, operational resources, and
financial resources.
The pro-forma condensed combined financial statements are presented as of August
31, 2008 and for the eight months ended August 31, 2008. The balance sheet as of
August 31, 2008 assumes that the combination occurred on August 31, 2008. The
statement of operations for the eight months ended August 31, 2008 assumes that
the merger occurred on January 1, 2008. Synergy did not undertake any
transactions between December 28, 2007 (its inception date) and January 1, 2008.
Accordingly, no adjustments have been made to account for the three days between
December 28, 2007 and January 1, 2008.
It is anticipated that the combined entity will have approximately 10,998,000
issued and outstanding common shares after Brishlin acquires all the outstanding
shares of Synergy. The former shareholders of Synergy will control approximately
91% of the outstanding shares and the former shareholders of Brishlin will
control approximately 9% of the outstanding shares.
For accounting purposes, this business combination is considered a "reverse
merger", in which Synergy will be considered the accounting acquirer. The
combination will be recorded as a recapitalization under which Synergy issues
shares in exchange for the net assets of Brishlin. The assets and liabilities of
Brishlin will be recorded at their respective book values and will not be
adjusted to their estimated fair values. No goodwill or other intangible assets
will be recorded in the transaction.
Brishlin and Synergy had different fiscal years. On October 31, 2008, Brishlin
elected to change its fiscal year end from December 31 to August 31. Where
necessary, the historical amounts presented in the condensed combined pro-forma
financial statements have been adjusted to reflect the August 31 year end.
PF-4
2. Reverse Stock Split and Name Change
On September 8, 2008, Brishlin shareholders approved a reverse stock split of
the outstanding shares of common stock, pursuant to which each ten shares of
Brishlin's pre-split common stock issued and outstanding was exchanged for one
share of the Company's post-split common stock. After giving effect to the
reverse stock split, there were 1,038,000 shares of Brishlin common stock issued
and outstanding. All share amounts presented in this report have been adjusted
to reflect the reverse stock split.
Similarly, Brishlin shareholders approved a name change on September 8, 2008.
Upon completion of the share exchange, Brishlin changed its name to Synergy
Resources Corporation. To avoid confusion in these pro-forma statements, we have
retained the original names for the individual entities and used the name
"Synergy Resources Corporation" for the combined entity.
3. Pro-Forma Adjustments
The pro-forma condensed combined financial statements have been prepared to
reflect the reverse merger between Synergy and Brishlin. Pro-forma adjustments
included in the pro-forma condensed combined financial statements are as
follows:
a. To eliminate the historical accumulated deficit account for Brishlin.
b. To record the exchange of Synergy shares with a par value of $0.0001
per share for Brishlin shares with a par value of $0.001 per share.
c. To record deferred compensation for the estimated incremental fair
value of Brishlin stock options issued to replace Synergy stock options
and to amortize deferred compensation over the vesting term.
d. To adjust the calculation of weighted average shares outstanding as if
all shares had been issued as of January 1, 2008.
PF-5
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY ..............................................
RISK FACTORS ....................................................
DILUTION AND COMPARATIVE SHARE DATA..............................
MARKET FOR DISCOVERY'S COMMON STOCK .............................
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION ......................................
BUSINESS.........................................................
MANAGEMENT ......................................................
PRINCIPAL SHAREHOLDERS...........................................
PLAN OF DISTRIBUTION ............................................
SELLING SHAREHOLDERS.............................................
DESCRIPTION OF SECURITIES........................................
LEGAL PROCEEDINGS................................................
INDEMNIFICATION .................................................
AVAILABLE INFORMATION............................................
GLOSSARY ........................................................
FINANCIAL STATEMENTS.............................................
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this prospectus, and
if given or made, such information or representations must not be relied upon as
having been authorized by Synergy Resources Corporation. This prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any of
the securities offered in any jurisdiction to any person to whom it is unlawful
to make an offer by means of this prospectus.
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following table show the costs and expenses payable by the Company in
connection with this registration statement.
SEC Filing Fee $ 1,229
Blue Sky Fees and Expenses 1,000
Printing Expenses 1,000
Legal Fees and Expenses 30,000
Accounting Fees and Expenses 10,000
Miscellaneous Expenses 1,771
---------
TOTAL $45,000
=======
All expenses other than the SEC filing fee are estimated.
Item 14. Indemnification of Officers and Directors The Colorado Business
Corporation provides that the Company may indemnify any and all of its officers,
directors, employees or agents or former officers, directors, employees or
agents, against expenses actually and necessarily incurred by them, in
connection with the defense of any legal proceeding or threatened legal
proceeding, except as to matters in which such persons shall be determined to
not have acted in good faith and in the Company's best interest.
Item 15. Recent Sales of Unregistered Securities.
Note
Reference
In May 2005, the Company issued 600,000 shares of
common stock to Raymond McElhaney and Bill Conrad, its two
officers and directors, and 30,000 shares to a group of private
investors for cash of $6,300. A
In June 2005, the Company sold 250,000 shares to an investor
for cash of $5,000 and issued 6,000 shares to another person in
exchange for a 2% working interest in an oil and gas prospect,
valued at $6,000. A
Between August 2005 and June 2006 the Company sold 212,000
shares of common stock to 21 persons for $424,000. The shares
were purchased by individuals or entities that were friends,
relatives or business contacts of the founders of the Company. B
1
Note
Reference
On September 21, 2006 the Company issued 20,000 shares
of common stock, valued at $50,000, as well as a promissory
note in the principal amount of $200,000 to Prospector Capital
Inc. in partial payment for an oil and gas property. The promissory
note was converted on December 31, 2006 into 40,000 shares of
common stock. B
Between February 2007 and April 2007 the Company sold 33,000
shares of common stock to eight persons for $165,000. B
On September 10, 2008 the Company acquired approximately 89%
of the outstanding shares of Synergy Resources Corporation in exchange
for 8,882,500 shares of the Company's common stock and 1,042,500 Series
A warrants. On December 19, 2008 the Company acquired the remaining
shares of Synergy for 1,077,500 shares of the Company's common stock
and 1,017,500 Series A warrants. All but three of the Synergy
shareholders were accredited investors. C
Between December 8, 2008 and June 30, 2009, the Company
sold Units to 1,000,000 investors in a private offering at a price
of $3.00 per unit. Each unit consisted of two shares of the Company's
common stock, one Series A warrant and one Series B warrant. The
Company agreed to pay sales agents participating in the private
offering a commission of up to 10% of the amount the sales agents
raised in this offering. The Company also agreed to issue to
selected sales agents one Sales Agent warrant for each five Units
sold by the selected sales agents. C
A. The Company relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 with respect to the issuance of these shares. The persons
who acquired these shares were sophisticated investors and were provided full
information regarding the Company. There was no general solicitation in
connection with the offer or sale of these securities. The persons who acquired
these shares acquired them for their own accounts. The certificates representing
these shares bear a restricted legend providing that they cannot be sold except
pursuant to an effective registration statement or an exemption from
registration. No commission or other form of remuneration was given to any
person in connection with the issuance of these shares. Share numbers are
post-split
B. The Company relied on the exemption from registration provided by Rule
504 of the Securities and Exchange Commission in connection with the sale of
these shares. The Company did not engage in any general solicitation or
advertising. The shares which were sold or issued were restricted securities as
that term is defined in Rule 144 of the Securities and Exchange Commission. No
commission or other form of remuneration was given to any person in connection
with the issuance of these shares. Share numbers are post-split.
C. The Company relied upon the exemption provided by Rule 506 of the
Securities and Exchange Commission with respect to the issuance of these
securities. The persons who acquired these securities were sophisticated
investors and were provided full information regarding the Company. There was no
general solicitation in connection with the offer or sale of these securities.
The persons who acquired these securities acquired them for their own accounts.
2
The certificates representing these securities bear a restricted legend
providing that they cannot be sold except pursuant to an effective registration
statement or an exemption from registration. No commission or other form of
remuneration was given to any person in connection with the acquisition of
Synergy. The Company paid a commission to Scottsdale Capital Advisors in
connection with the sale of the units.
Item 16. Exhibits and Financial Statement Schedules
The following exhibits are filed with this Registration Statement:
Exhibits Page Number
3.1.1 Articles of Incorporation (1)
3.1.2 Amendment to Articles of Incorporation (2)
3.1.2 Bylaws (1)
10.1 Employment Agreement with Ed Holloway (2)
10.2 Employment Agreement with William E.
Scaff, Jr. (2)
10.4 Agreement regarding Conflicting Interest
Transactions (2)
10.5 Letter agreement regarding acquisition of
oil and gas properties from Petroleum
Management (2)
10.6 Agreement with Energy Capital, LLC (2)
14. Code of Ethics (2)
(1) Incorporated by reference to the same exhibit filed with the Company's
registration statement on Form SB-2, File #333-146561.
(2) Incorporated by reference to the same exhibit filed with the Company's
transition report on Form 10-K for the period ended August 31, 2008.
3
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section l0 (a)(3) of the
Securities Act:
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities that remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of l933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
4
(5) That, for the purpose of determining liability under the Securities
Act of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B:
(A) Each prospectus filed by the registrant pursuant to Rule
424(b)(3) shall be deemed to be part of the registration statement as of the
date the filed prospectus was deemed part of and included in the registration
statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for
the purpose of providing the information required by section 10(a) of the
Securities Act of 1933 shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of prospectus is
first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer and any person that is at that date
an underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such effective date, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such effective date; or
(ii) If the registrant is subject to Rule 430C, each prospectus filed
pursuant to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and
included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use, supersede or
modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such date of first use.
(6) That, for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities:
The undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to
5
the purchaser, if the securities are offered or sold to such purchaser bye means
of any of the following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or
on behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
6
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Denver, Colorado on the 8th day
of October 2009.
SYNERGY RESOURCES CORPORATION
By: /s/ Ed Holloway
-------------------------------------
Ed Holloway, President
By: /s/ Frank L. Jennings
-------------------------------------
Frank L. Jennings, Principal Financial
Officer and Principal Accounting Officer
In accordance with the requirements of the Securities Act of l933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Ed Holloway Director October 8, 2009
----------------------
Ed Holloway
/s/ William E. Scaff, Jr. Director October 8, 2009
-------------------------
William E. Scaff, Jr.
/s/ Benjamin Barton Director October 8, 2009
----------------------
Benjamin Barton
Director
Rick Wilber
/s/ Rayond E. McElhaney Director October 8, 2009
------------------------
Raymond E. McElhaney
/s/ Bill M. Conrad Director October 8, 2009
----------------------
Bill M. Conrad
/s/ R.W. Noffsinger, III Director October 9, 2009
------------------------
R.W. Noffsinger, III
EXHIBITS
SYNERGY RESOURCES CORPORATION
REGISTRATION STATEMENT ON FORM S-1
AMENDMENT NO. 1
