<PAGE>



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

(Mark One)

   [X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934
                  For the fiscal year ended December 31, 2001

   [ ]   TRANSITION REPORT UNDER SECITON 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
           For the transition period from ___________ to _____________

                        Commission file number: 02-26721

                        SYNERGY TECHNOLOGIES CORPORATION
                 (Name of small business issuer in its charter)

                COLORADO                                     84-1379164
     (State or other jurisdiction of                      (I.R.S. Employer
     incorporation or organization)                      Identification No.)

                              1689 Hawthorne Drive
                          Conroe Texas, USA 77301-3284
                            Telephone: (936) 788-8220
   (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)

Securities registered under Section 12(b) of the Exchange Act:

     Title of each class               Name of each exchange on which registered
              None
--------------------------------       -----------------------------------------

--------------------------------       -----------------------------------------


Securities registered under Section 12(g) of the Exchange Act:

              100,000,000 shares of Common Stock, par value $0.002
              ----------------------------------------------------
                                (Title of class)


     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
                                                          [X] Yes   [ ] No
                                                          ---       ---

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  [X]
                                       ---

     State issuer's revenues for its most recent fiscal year: $4,365
                                                              ------


<PAGE>


     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)

$16,702,823 as of March 26, 2002

Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.

      (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST 5 YEARS)

     Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
                       _____Yes                 ______No

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 39,109,395

                       DOCUMENTS INCORPORATED BY REFERENCE

     If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1990).

     Transitional Small Business Disclosure Format (Check one): ____Yes ____No

                                       2


<PAGE>


                                TABLE OF CONTENTS

PART I   .................................................................. 4
ITEM 1.  DESCRIPTION OF BUSINESS........................................... 4
ITEM 2.  DESCRIPTION OF PROPERTIES.........................................22
ITEM 3.  LEGAL PROCEEDINGS.................................................22
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE  OF
         SECURITY HOLDERS..................................................22
PART II  ..................................................................23
ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS...............................................23
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR
         PLAN OF OPERATION.................................................25
ITEM 7.  FINANCIAL STATEMENTS..............................................31
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH
         ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE..............................................31
PART III...................................................................32
ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
         AND CONTROL PERSONS; COMPLIANCE WITH
         SECTION 16(A) OF THE EXCHANGE ACT.................................32
ITEM 10. EXECUTIVE COMPENSATION............................................35
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
         OWNERS AND MANAGEMENT.............................................37
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
         TRANSACTIONS......................................................38
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..................................39
SIGNATURES.................................................................40
ITEM 7.  FINANCIAL STATEMENTS COVER PAGE...................................F-1
         TABLE OF CONTENTS.................................................F-2
INDEX OF EXHIBITS FILED HEREWITH






                                       3




<PAGE>



                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         General.
         -------

         Synergy Technologies Corporation ("we," "us," "Synergy," or the
"Company") develops proprietary technologies that convert lower value liquid and
gaseous hydrocarbon feedstocks into commercially valuable fuels. The focuses of
Synergy's technologies include:

          o    enhancing the value of uneconomical or marginal hydrocarbon
               feedstocks;

          o    lowering operational costs; and

          o    reducing environmental waste.

         Synergy has developed two primary technologies:

          o    The SynGen Process: A process that economically, and without
               catalysts, converts natural gas or liquid hydrocarbons such as
               gasoline or diesel oil into their basic components of hydrogen
               and carbon monoxide to make synthesis gas, or syngas. Syngas can
               be used as feedstock for a Fischer-Tropsch process to produce
               liquid fuels and has a number of applications in the petroleum,
               petrochemical and fuel cell industries. The SynGen process also
               can be used to break hydrogen sulfide into elemental sulfur and
               hydrogen, which is valuable in the oil refining and petrochemical
               industries. We believe that the process is significantly more
               efficient and economical than the partial oxidation and steam
               reforming currently used to perform similar functions.

          o    The CPJ Process: A steam-driven hydrocarbon breaking process that
               (i) allows oil producers to upgrade heavy oil into a higher-value
               synthetic crude that's easier to transport, (ii) creates a
               synthetic crude oil product, and (iii) allows refineries to
               upgrade heavy intermediate refining streams, which are similar to
               virgin heavy oils. The process can be tailored to suit crude
               feedstock composition, and can vary the viscosity of the output
               to match the optimum requirements of the refiner.

     The flow chart presented below briefly describes Synergy's technologies and
their applications.


                                       4
<PAGE>


                 SYNERGY'S TECHNOLOGIES AND THEIR APPLICATIONS

                               [GRAPHIC OMITTED]



<TABLE>


<S>               <C>                                         <C>                                 <C>
                  ------------------------                    -----------------------------       -----------------------------
                       CPJ HEAVY OIL                                                                    ADVANCED CATALYST
                         UPGRADING                                 SYNGEN TECHNOLOGY                   FISCHER-TROPSCH GTL
                         TECHNOLOGY                                                                        TECHNOLOGY
                  ------------------------                    -----------------------------        -----------------------------

                  ------------------------                    -----------------------------        -----------------------------
FUNCTION         Thermal cracking of large                        Non-thermal cold plasma             Synthesizes syngas into
                 molecule hydrocarbons with                    technology efficiently breaks             liquid fules with
                high yield of lighter liquid                      down hydrocarbons and               proprietary chain-limiting
                           fuels                                       hydrogen sulfide                        catalyst
                  ------------------------                    -----------------------------        -----------------------------


                                                                           SynGen
                                                      SynGen               Reformer        SulfArc
                  ------------------------          -------------      -----------------   ----------      ---------------------
                  Transforms low value               Transforms          Transforms
                    heavy oil into high              sub-optimal       liquid fuels and    Breaks down    Efficiently converts
BENEFITS        value synthetic crude with          gas and liquid      gaseous fuels        hydrogen      syngas into liquid
                        low sulfur                   hydrocarbons       into hydrogen-       sulfide        fuels with no wax
                                                      into syngas          rich gas
                  ------------------------          -------------      -----------------   ----------      ---------------------

                                                                                              ----------------
                                                                                                  Synergy's
                                                                                Syngas         Proprietary F-T
                                                                                                Gas-to-Liquids
                                                                                                   Process
                                                                                              ----------------

                  ------------------------          -------------      -----------------   -----------      ---------------------
                      Synthetic crude oil           Feedstock for           Power            Produces       Sulfur-free gasoline,
OUTPUT                 into pipelines to              plastics,           source for       hydrogen and          diesel fuel,
                           refineries               alcohols, etc.        fuel cells     elemental sulfur    transportable Fuels
                  ------------------------          -------------      -----------------   -----------      ---------------------
</TABLE>


         The Business Opportunity.
         ------------------------

         During the past few decades, the world has been awash with cheap fossil
fuels, creating major hurdles for market acceptance of new energy technologies
offered by development-stage companies like Synergy. Today, however, the tide
has changed. Worldwide demand for all forms of energy, particularly
environmentally friendly fuels, has increased dramatically and new technologies
and conservation efforts are expected to lead the way to greater independence
from foreign oil.

         As the world's energy consumption continues to grow, there is a need to
satisfy demand from a diversified mix of sources. In particular, there is a
pressing need to satisfy a growing portion of the demand with non-OPEC sources
of energy. Technology will continue to play an important role in developing
cost-competitive supply sources that fit the profile of being diversified and
stable.

         Energy consumption is expected to grow at 3% to 4% per year through
2020, as emerging economies are forecast to consume more energy at higher rates.
According to the Energy Information Administration, worldwide demand in 2002 is
expected to increase by about 0.7 million barrels per day (bpd), to 76.5 million
bpd. As demand growth rises, additional sources of energy are imperative. Heavy
oil, as defined in the petroleum industry, is abundant, with worldwide reserves
of 6.3 trillion barrels of heavy crude.

         Historically, oil depletion of light reserves has increased at an
average of 2.6% per year. Cumulatively, the world has consumed 45% of all known
light oil reserves, while new reserves of light oil become harder to find and
more costly to extract. Remaining known reserves and additional new discoveries
are forecast to total 1,020 billion barrels.

         The so called "energy crisis" in the United States during the winter of
2000-2001 refocused attention on the importance of identifying and implementing
alternate fuel technologies. Hundreds of millions of dollars are budgeted for
fiscal year 2002 energy conservation and alternate fuel research and development
programs by the U.S. Department of Energy. In both Canada and the U.S., various
levels of federal and state government are actively working with the upstream
and downstream sectors of the petroleum industry to increase energy efficiencies
and to reduce greenhouse gas emissions. These include reduction in sour gas
flaring (the burning of any unusable combustible substance) and improving
pipeline transportation efficiencies for heavy crude oils.


                                       5
<PAGE>

         Synergy is addressing many problems that historically have affected the
petroleum and petrochemical industries. Synergy offers these industries advanced
technologies and processes providing new economics for the exploitation of
hydrocarbons, particularly in the areas of heavy oil, stranded natural gas,
conventional oil refining and byproduct treatment. The Company sees its future,
in part, as a provider of systems by which oil and gas producers can
economically enter markets which heretofore have been unattractive for reasons
of production costs, end price, logistics or environmental issues.

         Our Products.
         ------------

1.       SynGen Technology.

         A.  Applications.

Synergy's proprietary, patented SynGen process is a technology that:

         o    Reforms various gaseous hydrocarbons such as natural gas and
              liquid hydrocarbons such as gasoline and diesel feedstocks into a
              widely used product called syngas. Syngas, a combination of
              hydrogen and carbon monoxide, can be used as the feedstock for a
              process to produce liquid fuels and has a number of applications
              in the petroleum, petrochemical and fuel cell industries. This
              process is extremely valuable because of its feedstock
              versatility, scalability, relatively low energy requirements and
              overall low cost. It is significantly more efficient and more
              economical than the partial oxidation and steam reforming
              currently used to perform similar functions.

         o    When used in Synergy's SulfArc process, scalable SulfArcSynGen
              reactors employing the SulfArcSynGen process can recover valuable
              hydrogen from refinery acid gas while creating sulfur as a
              by-product.

     The various applications of the SynGen process improve the overall
economics of other proven processes within the petroleum industry that have been
used for many years through efficient syngas production, the basis for a variety
of products and uses. Specifically, development is underway for:

         o    Making Smaller Scale Gas-To-Liquids Projects Economically
              Feasible: SynGen, is an important first step to converting
              stranded natural gas reserves into transportable zero-sulfur
              fuels.

         o    Improving Fuel Cell Economics: SynGen converts a variety of fuels
              including heavy, dirty fuels such as diesel to power fuel cells.
              Lower costs can be realized by using lower cost feedstocks,
              improving the overall reforming costs through the SynGen process,
              and by efficiently scaling the process to fit applications from
              the very small scale to very large scale.

         o    Improving Refinery Economics through Hydrogen Recovery Using
              SulfArc: A specialized refinery application that recovers and
              reuses hydrogen from refinery hydrogen sulfide (acid gas).

         o    Other Potential Applications: SynGen produces hydrogen from
              certain hydrocarbons for use in petrochemical applications. It
              also has biomass processing applications and biohazard remediation
              applications.

         Fuel Cell Applications
         ----------------------

         The SynGen process reforms readily available fuel sources such as
natural gas, propane, gasoline, and diesel oil into hydrogen-rich fuels for a
variety of fuel cell applications. Fuel cells are electrochemical devices in
which hydrogen and oxygen combine in a controlled manner (in contrast to
combustion or explosion) to directly produce an electric current and heat. Fuel
cells have many advantages in the generation of electricity, including,
increased efficiency, greater scalability, more simplicity, and reduced noxious
emissions. The SynGen process produces relatively inexpensive hydrogen, the
feedstock for many of the fuel cells in use today. An inexpensive source of
hydrogen can significantly reduce the primary disadvantage of fuel cells, namely
the cost of the feedstock. Internal testing of SynGen has successfully reformed
pipeline-grade natural gas, commercial propane, gasoline and diesel fuel at
atmospheric pressure and with electrical power as low as 90 watts. The low power
required by the SynGen reactor to affect the reformation of these feedstocks is
significant in that, to date, the cost and energy



                                       6



<PAGE>

required to produce the fuel on which fuel cells operate increases the overall
cost to operate the units, thereby making them uneconomical, and the greatest
barrier to mass adoption of fuel cell technology.

         Excepting existing fuel cell manufacturers, we are unaware of another
stand-alone entity that is producing something similar to the SynGen reactor as
a companion product for fuel cell applications. SynGen's compelling efficiencies
and scalability lead Synergy to believe that it can compete with or eliminate
existing technologies used by fuel cell manufacturers who are continually
looking to refine their processes.

         Gas-to-Liquid Applications
         --------------------------

         A further application of the SynGen process is its ability to create
liquid hydrocarbon fuels directly from syngas, otherwise known as a
gas-to-liquid, or GTL, process. Synergy has developed an advanced GTL process
that employs a proprietary cobalt-based, chain-limiting catalyst to create the
liquid hydrocarbon fuels based upon the basic Fischer-Tropsch process that uses
catalysts to synthesize diesel, gasoline or naphtha from syngas composed of
hydrogen and carbon monoxide, while producing less particulate matter than
existing technologies during production. The resulting fuels are similar to
conventional refinery products; however, they are extremely high grade,
aromatic-free, and posses clean-burning properties, making them desirable for a
multitude of purposes. The Fischer-Tropsch process has been in use in various
forms since World War II. The basic Fischer-Tropsch processes in use today
primarily produce waxes from syngas in addition to the desired middle
distillates. The waxes must then be subject to a catalytic hydrocracker to
convert them into the more widely used and desired middle distillate fuels.
Synergy's process limits wax formation, improving the yield of desirable
hydrocarbons such as naphtha, gasoline and diesel and obviates the use of
hydrocrackers, thereby reducing both capital and operating expenses of the GTL
process, resulting in more economically attractive plants.

         The high grade, aromatic-free, and clean-burning properties of the
liquid fuels produced using the SynGen GTL process make them suitable for a
variety of purposes including mixing the products with lower grade fuels to meet
increasingly stringent environmental regulations.

         Efficient and economical production of diesel, gasoline or naphtha from
syngas using our GTL process opens a vast untapped resource encompassing
hydrocarbons which have been dubbed "stranded gas." Stranded gas can be defined
as gas reserves that cannot be brought to market efficiently or economically
because they exist in locations that are remote, or are without markets and/or
pipelines. Reserves of stranded gas are estimated to be about 5,100 trillion
cubic feet (Tcf). Many of these remote reserves, which are flared (burned at the
site), vented into the atmosphere or reinjected with the more valuable
associated oil production, are essentially valueless to their owners. Because
natural gas cannot be shipped via tanker in its gaseous state, it must be
converted via liquefied natural gas (LNG) or subjected to a GTL processes for
transportation.

         The second major opportunity for SynGen/GTL is the reformation of
coalbed methane ("CBM") into Syngas, and the subsequent conversion of the Syngas
into synthetic fuels. CBM is contained within the coal seams and surrounding
rock strata and generally does not escape into the atmosphere unless exposed by
coal mining activity. When released into the mines, the gas becomes coal mine
methane, which must be removed from the coal mines for safety reasons. However,
once in the atmosphere CBM becomes a greenhouse gas that is 21 times as potent
as carbon dioxide. Recovery and use of CBM not only yields financial rewards,
but it contributes substantially to emission reduction, benefiting the global
environment.

         The U.S., China, Canada, Australia, UK, Germany and the Ukraine have
substantial CBM reserves. Typically, a CBM well will only produce some 170,000
standard cubic feet per day (SCFD) per well, but these wells have extremely long
lifetimes. China's CBM resource is said to be 1,306 Tcf.

         The SulfArc Solution for Hydrogen Sulphide Cracking
         ---------------------------------------------------

         The SynGen cold plasma reactor can be used to generate hydrogen and
sulfur from hydrogen sulphide, a by-product of the refining process, a process
Synergy refers to as SulfArc. Refineries are a major source of atmospheric
emissions of noxious chemicals and are a significant source of sulfur, reduced
sulfur compounds and oxides of sulfur. Significant quantities of sulfur must be
removed from fuel oils to meet existing clean air legislation. Refineries reduce
or eliminate sulfur by hydro-treating their products, i.e., cleaning them with
hydrogen. The additional cost incurred by refiners to acquire sufficient
hydrogen to clean their products can be reduced significantly using Synergy's
SulfArc process. The SulfArc process breaks down a hydrogen sulphide molecule
into

                                       7
<PAGE>

its elements, pure hydrogen and pure sulfur. By employing the SulfArc process,
refiners can recapture hydrogen that they may otherwise have to purchase in any
event in order to permit them and their products to comply with clean air
legislation. The hydrogen may be used to hydrogenate fuels such as diesel or
gasoline to produce higher quality and cleaner burning fuels. By capturing and
retaining the pure hydrogen and sulfur released from hydrogen sulphide
by-products emitted in the refining process, refineries can reduce operating
costs and may resell both the hydrogen and sulfur to third parties.

     B.  The Process.

     The SynGen process employs an advanced, cold plasma gliding-arc electrical
discharge technology to create syngas. Synergy's compact SynGen reactors are
powerful, inexpensively manufactured and produce an easily controllable gliding
discharge, a type of electrical current, that can be used as a low-cost method
of producing syngas, hydrogen and carbon monoxide (H2 and CO), from natural gas
combined with an oxidant. Feedstocks are injected into the reactor combined with
an oxidant (such as air) where they are subjected to electric discharges
produced by electrodes to promote the partial oxidation of the natural gas,
resulting in the production of the synthesis gas. With the addition of electric
energy (and, optionally, steam and/or carbon dioxide), the synthesis gas of a
desired composition can be easily obtained from almost any natural gas
feedstock. In addition, the process can break down the feedstock from a gas to a
liquid. SynGen reactors require no cooling, run using simple power supplies, and
have insignificant electrode corrosion, which allow the reactors to be
integrated easily into other processes. The system may be modularized and
scaled-up using multiple-electrode configurations. SynGen processes can replace
high energy-consuming and/or troublesome classical processes. No catalysts are
required in the process which significantly reduces the operating and
maintenance costs.

         The SynGen process is highly efficient, requires no expensive catalyst,
uses small amounts of energy, is easily scalable, and can be adapted to many
applications. SynGen is a core technology that can be leveraged in the future as
the various processes it helps make more cost-effective grow in demand.

         SynGen's economics are dependent on the type of project and the size of
the scalable SynGen reactor. Feedstock costs will vary depending on type of
fuel, its location and the application. However, the primary driver for the use
of SynGen in these applications is the relative lower cost of making Syngas.

         Synergy has built and is operating a small scale model of the SynGen
reformer at its facility in Conroe, Texas. We are using this model to
demonstrate the viability and efficiency of the technology. We have undertaken
demonstration sessions for a number of oil companies, multinational and
regional.

          SYNGEN COLD PLASMA AND ADVANCED FISCHER-TROPSCH TECHNOLOGIES

<TABLE>
<CAPTION>
<S>               <C>              <C>              <C>                   <C>               <C>
Feedstocks         Cold Plasma      Reactor          Second Stage          Final              MARKETS
                   Reactor          Output                                 Products


Natural                                              Advanced Catalyst                        STRANDED
Gas                                                  Fischer-Tropsch                          GAS
                   SYNGEN                            Gas-to-Liquids        Liquid Fuels       COALBED
                   COLD                              Process                                  METHANE
                   PLASMA
                   REACTOR          Reformer         Impurities            Fuels for          DISTRIBUTED
                   FUEL             CO + H2          Extractors            Fuel Cells         ENERGY
Liquid             REFORMER
Hydrocarbon
                                                     Chemical              Alcohols,          INDUSTRIAL
                                                     Companies             plastics, etc.     CHEMICALS


                                                                           Hydrocarbons       LOW-
                   SulfArc          Hydrogen    H2    Sulfur               with lower         SULFUR
Hydrogen           Cold             sulfur            Reduction            sulfur content     FUELS
Sulfide            Reactor
                                                                           Hydrogen fuel      HYDROGEN
                                    Elemental   H2    Hydrogen             or input to        FOR FUEL
                                    Sulfur                                 process            CELLS OR
                                                                                              INPUT TO
                                                                                              PROCESS
</TABLE>

                                       8
<PAGE>

         C.  Intellectual Property.

         SynGen is protected by two U.S. patents, 5,993,761 and 6,007,742 and
three French patents: 2,758,317; 2,768,424 and 2,786,409. Patents are pending in
the ARIPO states (Africa), Australia, Brazil, Canada, China, Eurasia, Europe,
Georgia, Indonesia, Japan, Korea, Mexico, Mongolia, New Zealand, Nigeria, OAPI
states, Ukraine, Uzbekistan and Vietnam. Management expects to file patents in
other countries which cover the intellectual property included in existing
patents, as well as patents covering improvements to the SynGen and SulfArc
technologies in all countries where it deems patent protection is desirable.

         D.  Future Development.

         At such time as we have secured financing sufficient to permit the
future development of our technologies, we propose to undertake the activities
described below:

         2002

         o    Expand and secure existing and new patents.
         o    Continue process development and testing.
         o    Engage outside expert consultants to enhance the SynGen
              technologies.
         o    Undertake additional testing of the various technologies to
              determine electrical efficiency and product yield.
         o    Identify and enter into agreements with commercial fuel cell
              partners.
         o    Identify and enter into agreements with oil company partners for
              our GTL process.
         o    Identify and enter into agreements with commercial refinery
              partners for our SulfArc application of the SynGen process.

         2003-2004

         o    Refine process engineering.
         o    Commence construction of GTL facility.
         o    Identify new partners for all applications.
         o    Initiate new, larger-scale projects for fuel cell, GTL and SulfArc
              applications.
         o    Continue intellectual property enhancement and protection.
         o    Achieve significant revenue growth and positive cash flow.

         The foregoing represents the goals we will seek to achieve during the
years referenced. We may not meet these goals for various reasons, including,
among other reasons, our failure to obtain sufficient financing on a timely
basis; our failure to accurately predict costs to be incurred in connection with
meeting these goals; unforeseen difficulties or delays in achieving
technological milestones; the development by our competitors of devices and
processes that are more practical and efficient than ours; the impact and timing
of government regulations as they effect our business; and general economic
conditions within the industry or worldwide that delay or prevent investment in
capital projects by potential business partners.

         E.  Investment.

         Through December 31, 2001, in addition to the use of shares for the
acquisition of SynGen and related assets, we have invested approximately
$2,070,000 on the development of the various applications including operation of
our pilot plants, development of our Fischer-Tropsch catalyst and fuel cell
research. These costs include materials, testing, and various fees including
consulting and travel.

         F.  Commercialization.

         Synergy has constructed a small demonstration SynGen reactor which is
housed at its research center in Conroe, Texas. We have used this reactor to
demonstrate the efficacy and commercial viability of SynGen technology and
related applications to potential licensees and other business partners. We
believe that among the many advantages of the SynGen process over existing
technologies include:

                                       9
<PAGE>

         o    The capital investment required for a syngas plant could be
              reduced by more than 40% compared with the typical investment in a
              conventional plant. A relatively simple process, SynGen operates
              in low-temperature and low-pressure environments, ultimately
              reducing operating costs.

         o    SynGen reactors can handle a wide variety of feedstocks including
              natural gas containing high levels of carbon dioxide (up to 35%)
              and can economically convert these to acceptable syngas.

         o    Because of simple and efficient design and no need for catalysts,
              SynGen plants are suitable for remote sites.

         o    SynGen-fed Fischer-Tropsch gas-to-liquids products are free of
              undesirable aromatics, nitrogen, or sulfur compounds.

         We will continue to demonstrate the validity, efficacy and economies of
our SynGen technology to our various target markets.

         o    GTL technology will be targeted to refiners and other major oil
              companies. We intend to market the technology by making these
              entities aware that the technology is capable of producing clean,
              aromatic-free, high-grade diesel fuel or naphtha which already are
              marketable at premium prices and which will become more attractive
              as environmental regulations are enacted because the produced
              fuels can be mixed with low grade fuels to raise the level of such
              fuels to comply with existing regulations. We also will promote
              the process as a means of capturing stranded gas which will allow
              refiners to retain what is now unused product which will increase
              output and revenues.

         o    Syngas production capabilities will be marketed to fuel cell
              manufacturers, with which we will seek to establish alliances to
              supply reforming technology. The SynGen pilot unit has
              successfully demonstrated the scalability and efficiency of the
              process. We will continue to advertise in trade journals and make
              personal contact with these companies to introduce them to the
              technology. We expect to generate revenues in this market segment
              from licensing fees, royalty streams, joint development contracts
              and government funding.

         o    We will focus marketing of our SulfArc solution to refiners as a
              means both of promoting plant efficiency, in that they will no
              longer need to purchase hydrogen from outside sources, and as an
              additional revenue stream in that they may sell the hydrogen and
              sulfur resulting from this application.

G.  Acquisition of the SynGen Technology.

         As a result of a series of transactions commencing in May 1998 and
consummated in August 2000, Synergy acquired all right, title and interest in
and to a patented and proprietary gas-to-liquids ("GTL") technology known as
SynGen from Laxarco Holding Limited in consideration of the issuance of an
aggregate of 14,943,510 shares of common stock to Laxarco. Thomas Cooley, is one
of our directors and is our Chief Technology Officer and former President, is a
principal shareholder of Laxarco.

         As at December 31, 2001 the Company determined that the cash flows
expected to be received through the construction of a plant, licensing or other
arrangements had not been achieved. Accordingly, the net book value of the
Syngen technology and other associated assets has been written down to
$3,500,000 representing the value of the associated pilot plants, fuel cells,
catalysts and associated patents. The Company continues to actively pursue the
initiatives related to Syngen technology as indicated above.

2.       CPJ Technology.

         A.  Applications.

         Synergy's proprietary, patented CPJ heavy oil upgrading process is a
technology that converts lower value heavy crude oils into higher value lighter
gravity synthetic crude oils. The price differential between heavy and lighter
gravity oils historically ranges between $5 to $14 per barrel, depending on
specific gravity, market conditions and other crude qualities. Whereas, the cost
range to install and operate a 5,000 barrel per day (bpd) CPJ plant is expected
to range from $3 to $5 per barrel, depending on the particular application. The
ability to upgrade heavy crude oil should be attractive to oil producers given
the ever increasing depletion of light crude oil and limited available proven
reserves.

                                       10
<PAGE>

         CPJ technology is characterized by simple design and flexibility of
supply sources and output characteristics and is easily adapted to a variety of
applications within the three primary segments (upstream, midstream and
downstream) of the crude oil value chain.

         o    Upstream: CPJ allows crude oil producers (the upstream segment) to
              increase the value of their production, thereby enhancing the
              value of the reserves in the ground. Since the CPJ process is
              steam-based, it is particularly well suited to be used in
              conjunction with a Steam Assisted Gravity Drainage (SAGD) heavy
              oil recovery project. A SAGD project involves injecting steam into
              the reservoir to reduce the viscosity of the crude so that it can
              be extracted and refined. When used in conjunction with a SAGD
              project, the installation and operating costs of the CPJ process
              are at their lowest.

         o    Midstream: For pipeline companies (the midstream segment), the CPJ
              process not only converts lower- value flowing crude oil into
              higher-value lighter synthetic crude oil, but it lowers
              transportation costs as lighter crude oils can be transported more
              easily while eliminating the need for costly diluents.
              Additionally, by blending with other heavy crude oils, CPJ
              increases the total value of the blended stream.

         o    Downstream: Refiners (the downstream segment) can use the process
              to enhance overall margins by converting refinery produced heavy
              ends to higher-value lighter crude products as well as lowering
              their costs by minimizing unwanted by-products.

         The CPJ process is uniquely flexible and can be adjusted to optimize
output characteristics of the synthetic crude in order to maximize final product
value. For example, the characteristics of the synthetic crude oil can be
altered to allow refineries to maximize heating or gasoline production as
seasonal demands change.

         CPJ economics are dependent on the total cost of installing and
operating a CPJ plant, as well as the price spread between heavy crude and
lighter-gravity synthetic crude oil.

         Management believes that there are four unique advantages to the CPJ
process over other competing technologies:

         o    High Yields: The ability to produce synthetic crude yields in
              excess of 90% liquid volume with the API gravities and/or
              distillate/gas oil ratios adjusted to suit the needs of the
              refiner (i.e. allowing refiners to maximize heating oil or
              gasoline fractions to meet seasonal demand changes).

         o    Minimal By-Products: The ability to split the large heavy oil
              molecules roughly in half, to various light oil fractions, while
              producing very little soot and gas.

         o    No Catalyst: The process requires neither a catalyst nor the
              addition of hydrogen which contributes to an operating cost
              advantage over competing systems.

         o    Sulfur Reduction: The process reduces sulfur levels roughly in
              half in the synthetic crude it produces, making it environmentally
              friendly with no further processing.

         B.  The Process

         The underlying principle of the CPJ process is to apply an
instantaneous thermal shock to the crude using superheated steam. The heavy oil
feedstock is preheated to near its thermal cracking point and contacted with
superheated steam in a proprietary injector where most of the reaction takes
place. Contact time is a matter of seconds. The hot reactants then are allowed
to "stabilize" in a soaker vessel with adequate void space to achieve a minimum
residence time. Soaker effluent is then flashed through the control valve to a
separator where the heaviest product stream is drawn off and used as fuel. The
overhead stream from this separator is cooled and flowed to another flash tank
where the vacuum gas oil fraction is drawn off and pumped back to the reactor
for additional upgrading. The overhead stream is further cooled and condensed
water is drawn off and the upgraded synthetic crude is pumped to external tanks.
The CPJ process does not require vacuum separation.

                                       11
<PAGE>

         The CPJ process employs fewer steps (meaning less equipment) than
conventional conversion methods and therefore requires less up-front capital.
Further, operating costs are lower since the process does not utilize catalysts
or additional hydrogen. The CPJ process is extremely efficient, producing very
little by-product matter and results in synthetic crude oil yields in excess of
90% by volume. The small amounts of pitch that are produced can be used as fuel
to power the process. In contrast, alternative technologies generally average
only about 70% yields based on volume and create high levels of less valuable
pitch/coke and waste gas. The process has successfully transformed dense heavy
oils into significantly lighter synthetic crude oil.

         By design, the CPJ process is efficient, requires no expensive
catalyst, reduces any sulfur contained within the oil, and creates minimal
unwanted by-products. These traits, coupled with the overall simplicity of
design, present the opportunity to create value in many more projects and
applications when compared to existing upgrading alternatives.

         Estimated capital costs for installing a 5,000 bpd CPJ plant range
between $25 million and $35 million, depending on the type of application and
location. Significant cost reduction to approximately $15 million is possible if
the CPJ plant is built in conjunction with an existing or planned SAGD project.
The savings are a result of shared infrastructure costs associated with the
generation of steam required for the SAGD operation and for the CPJ process. For
a 25,000 bpd unit, the capital costs are estimated to range between $120 million
and $175 million.

         The operating cost of the CPJ process is not so much related to the
facility size but rather is dependant upon the crude feedstock and the desired
output. The operating costs are estimated to range between $0.50 and $2.50 per
barrel. The high end of the range is applicable when the sulfur content of the
crude feedstock must be significantly reduced beyond the natural capabilities of
the CPJ process using traditional sulfur recovery processes. The expected
operating costs presume a range of runtime performance factors that will vary
depending upon the characteristics of the crude feedstock.

         We have constructed and operate a one-half barrel per day CPJ pilot
unit at our research center in Conroe, Texas. A full analysis of samples from
tests performed on crude oils after having been subjected to the CPJ process, as
well as a by-product known as pitch, was performed by the National Center for
Upgrading Technology located near Edmonton, Alberta. Mass balances, which are a
scientific calculation to show the composition of total ingoing product versus
the composition of total produced products, showed that not only is the
carbon/hydrogen ratio increased in the synthetic crude oil relative to the heavy
oil, but also that the hydrogen content is increased some 10% by the CPJ
process. An increase in hydrogen content results in the production of a lighter
synthetic crude oil. We undertook two tests employing the CPJ process with a
heavy crude oil to make two lighter crude oils for analysis. The tests were
undertaken to demonstrate the flexibility of the process to produce different
synthetic crude oil compositions. The samples from the test runs were sent for
analysis to the National Center for Upgrading Technology located in Calgary,
Alberta, Canada. The analysis compared a sample of a heavy crude oil to two
different synthetic crude oils produced by the CPJ process. The tests evidenced
that the pilot unit functioned as expected and the heavy crude oils were
transformed into significantly lighter synthetic crude oils. The tests also
revealed that the longer the CPJ process was applied, the lighter the synthetic
crude oil. The results of the tests demonstrated that the CPJ process can change
the composition of heavy crude oils to produce lighter synthetic crude oils and
also demonstrated that the end composition of the products can be changed to
meet specific requirements of refiners.

                                       12
<PAGE>

                       DETAILS OF CPJ HEAVY OIL UPGRADER

HEAVY        -            Recycle          --
CRUDE
OIL

                          PROPRIETARY                           Gas
Heavy                     CPJ
Oil                       INJECTOR              Fraction-       Synthetic
             Oil                                ator            Crude
             Heater       Injector


Steam                               Soaker      Separator
Heater                                          Reactor

                                                             Pitch

         C.  Intellectual Property.

         Developed in France, the CPJ process is covered by French patent
2,785,289. Patents are pending in the U.S. and Canada as well as other European
countries, ARIPO (Africa), Australia, Brazil, China, Costa Rica, Cuba, Eurasia,
Georgia, Indonesia, Japan, Korea, Mexico, Madagascar, Mongolia, New Zealand,
Nigeria, Norway, OAPI (Africa), Poland, and the Ukraine. Management expects to
file patents in other countries which cover the intellectual property included
in existing patents, as well as patents covering improvements to the CPJ in all
countries where it deems patent protection is desirable.

         D.  Future Development.

         Our CPJ process is substantially ready for full-scale
commercialization. In order to commence the technology roll-out, we anticipate
undertaking the following activities in the years to come:

         2002

         o    Expand and secure existing and new patents.
         o    Continue process development and testing to determine conversion
              yields.
         o    Modify plant design for efficiency and incorporate modifications
              required to be made as determined by testing.
         o    Bring new pilot plant and laboratory on line.
         o    Identify and enter into agreements with commercial partners.
         o    Obtain project financing.
         o    Commence full scale pilot plant construction.

         2003-2004

         o    Refine process engineering.
         o    Complete plant construction.
         o    Identify new partners.
         o    Initiate new, larger-scale projects.
         o    Achieve revenues and positive cash flow

         E.  Investment.

                                       13
<PAGE>

         Through December 31, 2001, we have invested approximately $1,284,000,
including amounts invested by Synergy and our former joint venture partner, on
the development of our CPJ technology, including costs of materials, testing,
and various fees including consulting and travel.

         F. Commercialization.

         The results of heavy oil upgrading testing using our CPJ technology
show that the technology is mature and ready for full-scale commercialization.
We have demonstrated the pilot unit to potential licensees and partners and
supplied them with the test results achieved. We expect to continue to make
improvements to the technology and the process in the future based on further
testing of heavy oil reaction to the CPJ process.

         We expect to pursue commercialization of our CPJ technology both by
licensing the process and by participating in the ownership of CPJ processing
plants. Our primary targets will be oil refiners and pipeline owners who may
require that heavy viscous crude oil be lightened and made more fluid for
transportation.

         G. CPJ Technology Acquisition

         Pursuant to a series of transactions among Synergy and its
subsidiaries, and Texas T Petroleum Ltd. and its subsidiaries, and Pierre
Jorgensen, the inventor of the CPJ technology, commencing in May, 1998 and
concluding in March 2002, Synergy acquired all right, title and interest in and
to the CPJ technology.

         As a result of these transactions, Synergy:

         o    agreed to invest a minimum of $1,000,000 in the development of the
              CPJ process. The combined investment from all sources to date is
              $1,284,000;

         o    issued to Pierre Jorgensen an aggregate of 2,491,334 shares of
              Synergy common stock and agreed to register 1,991,334 of said
              shares for public resale under the Securities Act of 1933, subject
              to the provision that the sale of such shares would yield
              $1,100,000 in proceeds to Dr. Jorgensen and that in the event of
              any deficiency from such amount Synergy would issue additional
              shares to achieve proceeds of $1,100,000 and in the further event
              that a lesser number of shares was required to achieve proceeds of
              that amount, the balance of the shares would be returned to
              Synergy for cancellation;

         o    agreed to pay to Dr. Jorgensen a royalty equal to 5% of the net
              proceeds generated from the CPJ technology;

         o    agreed to appoint Dr. Jorgensen as scientific director for CPJ
              technology development and agreed to pay a monthly fee in Synergy
              stock equivalent to $5,000;

         o    agreed to appoint Dr. Jorgensen as a member of a scientific
              advisory board when it is created by Synergy.

         o    agreed to pay to Texas T a 2.5% royalty in connection with and
              upon income realized from the CPJ technology. Said royalty rights
              shall last for a period of five years, and shall commence on the
              date that the first 5,000 BOPD or greater CPJ technology plant
              operates at 80% plus capacity.

         o    issued to Texas T an aggregate of 2,300,000 shares of common
              stock, of which 1,900,000 shares are being held in escrow to be
              released to Texas T on December 20, 2004 or upon the happening of
              certain other events, subject to the provision that if Synergy
              conveys the CPJ technology to Texas T, the shares held in escrow
              will be cancelled and Texas T shall (i) be obligated to pay to
              Synergy a royalty equal to 2.5% of the revenues derived by Texas T
              from the CPJ technology for five years and (ii) issue to Synergy
              500,000 shares of its common stock (or the capital stock in
              whatever entity Texas T places ownership of the CPJ Technology),
              which it agrees to register under the Securities Act of 1933 for
              public resale.

Competition.
------------

         While we believe that our products offer advantages over existing
competing technologies, we find that our technologies are targeted at highly
competitive markets. Due to the nature and size of the entities that would use
our

                                       14
<PAGE>

technologies, including some governments, there are sometimes other competitors
who may have significantly greater name recognition and greater financial and
other resources than we do. We believe however, the proprietary nature of our
products when partnered with our level of technical expertise and the quality of
our services give us a competitive advantage against some of the entities
against which we compete.

         SynGen: We expect to compete against major multinational oil and gas
corporations and refiners in the licensing of our SynGen technology. These
entities generally possess significantly greater financial and personnel
resources than we do and we cannot be certain that we will be able to compete
effectively in this environment. We believe that our SynGen technology can
compete with technologies and processes that purport to accomplish similar
results as those obtained by SynGen. We believe that SynGen possesses a number
of advantages over competing technologies, including decreased capital
investments for a plant employing the SynGen process over the typical investment
in a conventional plant; SynGen reactors can handle a wide variety of feedstocks
including natural gas containing high levels of carbon dioxide and can
economically convert these to acceptable syngas; because SynGen plants are
constructed using a simple and efficient design and the process requires no
catalysts, the plants are suitable for remote sites; and SynGen-fed
Fischer-Tropsch gas-to-liquids products are free of undesirable aromatics,
nitrogen, or sulfur compounds, making them suitable for a multitude of purposes.

         CPJ technology: Heavy oil upgrading processes have been developed and
in use for many decades and are the subject of significant research and
development by a wide range of entities from multinational oil companies and
refiners to small businesses and individuals. Most of these entities possess
significantly greater financial and personnel resources than Synergy does and we
cannot be certain that we will effectively compete against such entities. We
believe that our CPJ technology can compete against other existing technologies
that have been developed to upgrade heavy oil on the basis of performance and
economics of use. CPJ facility designs are flexible and the process can be
adjusted to optimize output characteristics of the synthetic crude in order to
maximize final product value, the ability to produce synthetic crude yields in
excess of 90% liquid volume; the ability to split the large heavy oil molecules
roughly in half, to various light oil fractions, while producing very little
soot and gas; the fact that the process requires neither a catalyst nor the
addition of hydrogen which contributes to an operating cost advantage over
competing systems; and the process reduces sulfur levels roughly in half in the
synthetic crude it produces, making it environmentally friendly with no further
processing.

Government Regulation.
---------------------

         We have been testing the efficiency of our SynGen reactor and CPJ
technology at our facilities and will continue to do so as we feel such tests
are warranted. Our operating plans contemplate that we will construct full scale
demonstration facilities for each technology in the future, if funds are
available for such purpose. Our current technology testing operations and any
future facilities we construct are and will be subject to extensive federal,
state and local laws and regulations relating to the protection of the
environment, including laws and regulations relating to the release, emission,
use, storage, handling, cleanup, transportation and disposal of hazardous
materials and employee health and safety. In addition, any SynGen or CPJ
facilities in which we may have an ownership interest will be subject to the
environmental and health and safety laws and regulations of any foreign
countries in which these plants are to be located. Violators of these laws and
regulations may be subject to substantial fines, criminal sanctions or third
party lawsuits. We may be required to install costly pollution control equipment
or, in some extreme cases, curtail operations to comply with these laws. These
laws and regulations may also limit or prohibit activities on lands lying within
wilderness areas, wetlands or other protected areas. Our operations in the
United States are also subject to the federal "Superfund" law, and similar state
laws, which can impose joint and several liability for site cleanup, regardless
of fault, upon statutory categories of parties, including our company, that sent
wastes offsite for disposal and current owners and operators of property.
Environmental laws and regulations often require the acquisition of a permit or
other authorization before activities may be conducted and compliance with laws
and regulations, and any requisite permits, can increase the costs of designing,
installing and operating our facilities. For example, we are required to obtain
numerous Australian environmental, health and safety permits in connection with
our Sweetwater project.

         SynGen and CPJ plants will generally be required to obtain permits
under applicable state and federal clean air and water laws and various permits
for industrial siting and construction. Emissions from these plants will contain
noxious fumes and may require abatement equipment to be installed in order to
meet state and federal permit requirements. Additionally, SynGen and CPJ plants
will be required to adhere to state and federal laws applicable to the disposal
of byproducts produced.

                                       15
<PAGE>

         Although we do not believe that compliance with environmental and
health and safety laws in connection with our current operations will have a
material adverse effect on us, we cannot predict with certainty the future costs
of complying with environmental laws and regulations and containing or
remediating contamination. In the future, we could incur material liabilities or
costs related to environmental matters, and these environmental liabilities or
costs (including fines or other sanctions) could have a material adverse effect
on our business, operating results and financial condition. We do not currently
carry environmental impairment liability insurance to protect us against these
contingencies but may, in the future, seek to obtain insurance in connection
with our participation in the construction and operation of SynGen or CPJ plants
if coverage is available at reasonable cost and without unreasonably broad
exclusions.

Employees.
----------

     As  of December 31, 2001, we had nine full-time employees and four
         officers.

     On  January 1, 2002, the Company hired Mr. Barry Coffey as the President
         and Chief Executive Officer.

         None of our employees are covered by a collective bargaining agreement.
We consider our employee relations to be satisfactory and have not experienced
any labor problems.

Risk Factors.
------------

         This Form 10-KSB and other public statements and announcements made by
Synergy and its representatives from time to time contain or may contain
forward-looking statements, as such term is defined in Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Exchange Act of 1934, as amended (the "Exchange Act"), pertaining to, among
other things, Synergy's ability to fund continuing operations, future results of
operations, research and development activities, including the development of
our primary technologies, sales and licensing expectations, federal, state and
local regulations, and general business, industry and economic conditions
applicable to Synergy. These statements are based largely on Synergy's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. Factors
that can cause actual results to differ materially include, but are not limited
to, those discussed below. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
following factors should be considered in addition to the other information
contained herein in evaluating Synergy and its business. Forward-looking
statements contained in this Form 10-KSB speak only as of its date. We assume no
obligation to update any of the forward-looking statements after the filing of
this Form 10-KSB to conform such statements to actual results or to changes in
our expectations.

RISKS RELATING TO OUR INDUSTRY

Our business is predicated to some extent on environmental regulations that
mandate cleaner fuels and any change in such regulations or delay in their
implementation could have a negative adverse effect on our business prospects.

         Existing federal and state regulations mandating the use of cleaner
burning fuels, such as those produced by our GTL technology, have been
promulgated by California and other states. For example, California regulations
requiring reduced sulfur emissions take effect in 2005. Compliance with these
regulations will create premium prices for GTL sulfur-free gasoline and diesel
fuel both in the United States and Europe relative to virgin products refined
from crude oil. Either as blending stocks or as fuels slated for certain urban
markets, the GTL fuels are expected to achieve higher prices due to the absence
of sulfur, thereby making the prices less dependent upon gas and crude oil
prices. Any changes in these laws or delay in their implementation could
diminish demand for our technologies and negatively impact our business
prospects.

Low world oil prices may negatively affect demand for our CPJ technology which
could adversely affect our business prospects.

         Our CPJ technology transforms heavy crude oils into lighter, more
valuable, easily transported and refined crude oils. CPJ technology is
economically viable only when the price spread between light and heavy crude
oils is wide enough to justify the use of the process. This spread is adversely
affected when base crude oil prices drop worldwide. Heavy oils are generally in
less demand because they require significantly more refining than light crude
oils. Our business is predicated somewhat on the world economy and the demand
for oil. CPJ processes are

                                       16
<PAGE>

inherently very capital intensive. When crude oil prices fall below $15 per
barrel, rates of return for CPJ plants become marginalized, thereby reducing the
likelihood of implementation. In addition, reduction in world oil demand also
reduces the emphasis on heavy oil production and promotes increased usage of
lighter crude oils. Long cycles of light crude oil prices could negatively
impact demand for our CPJ technology and adversely affect our business
prospects.

The operations of any commercial plants, based on either of our technologies,
will be subject to environmental regulations. Such regulations could either
prevent construction of a plant in a given locale or severely tax the
construction or operations in a manner that make the plant uneconomical.

         Our operations may be subject to environmental regulations promulgated
by government agencies from time to time. In order to proceed with the
development of our technologies and the construction of processing facilities
employing them, it may be necessary to obtain permits or to post bonds with
notices to several governmental agencies including the applicable environmental
agency. In certain areas defined as sensitive areas, the environmental agency
requires special work permits. These licenses, bonds and special work permits
may require additional capital from the owner of the plant. The amounts required
will vary and cannot be determined at this time. While we do not foresee the
potential requirement of any licenses, permits or bonds as a hindrance to our
general operations or the development of our two technologies, we cannot be
assured that reliance on this opinion is reasonable and we may be faced with
regulations which could forestall development or commercialization.

RISKS RELATING TO OUR COMPANY

You are unable to evaluate our business and prospects because we have a limited
operating history in the development of oil and gas technologies and have
incurred significant losses from such operations.

         We commenced our energy technology development in 1999 with the
acquisition of our SynGen technology. Our limited operations to date have
consisted primarily of the development of our technologies and the construction
of pilot facilities to prove their efficacy and commercial viability. We have
only just recently begun to engage in significant marketing efforts with respect
to our technologies and products and have not entered into any licenses or joint
venture or partnering agreements with respect to any of them from which we could
derive significant revenues during the next 12 months. We are subject to all of
the business risks associated with a new enterprise, including:

         o    risks of unforeseen capital requirements,

         o    failure of the market to accept our products and technologies,

         o    the failure of our technologies to perform as demonstrated in our
              pilot facilities;

         o    our failure to compete effectively,

         o    the fact that we have incurred significant operating losses
              through 2001 and will incur further losses during the current
              year,

         o    our not having so far entered into any licenses for our
              technologies for which we will be paid or to enter into
              revenue-producing contracts with third parties, and

         o    possible financial failure of any projects on which we and our
              potential working partners may embark.

         Since our inception, we have generated only limited revenues from
operations, have not achieved profitability and expect to continue to incur
operating losses for the foreseeable future. For the year ended December 31,
2001, we had incurred losses of $38,412,491 and for the period inception through
December 31, 2001, we incurred losses of $47,442,947. While our management
believes that we may recognize some revenues during 2002, based on expressions
of interest from third parties to acquire licenses and enter into agreements to
use some of our technologies, there can be no assurance as to when or whether we
will be able to commercialize our products and technologies and realize any
revenues. Specifically, to be profitable, we must demonstrate that the
successful results achieved at our pilot units are scalable and can be
duplicated at larger facilities. We have not yet

                                       17
<PAGE>

attempted to implement our technologies on such basis, and there can be no
assurance that they will function within design parameters under such
circumstances. Our ability to operate the business successfully will depend on a
variety of factors, many of which are outside our control, including:

         o    the success of our marketing efforts,

         o    competition,

         o    extent of patent and intellectual property protection afforded to
              our products,

         o    changes in domestic and foreign regulatory requirements,

         o    costs associated with equipment development, repair and
              maintenance,

         o    ability to manufacture and deliver products at prices that exceed
              our costs, and

         o    world oil prices.


We will require additional capital to fund our operations and any failure to
obtain such capital may cause us to discontinue our operations.

         Since 1999, we have succeeded in achieving an increase in our capital
resources as a result of the sale of capital stock. It is nevertheless likely
that we will require significant additional funds to continue in business and
implement the full range of our business objectives, including:

         o    continuing research and development of our technologies and
              products;

         o    establishing the commercial viability of our technologies; and

         o    marketing our technologies and products.

     Our future capital requirements could vary significantly depending on a
number of factors. Many of these factors are not within our control. These
include:

         o    economic factors outside control such as the demand for oil and
              world oil prices;

         o    ongoing development and testing of our products; and

         o    the existence and terms of agreements for the marketing, licensing
              and sale of our technologies.

         No assurance can be given that the working capital that we have
obtained will be sufficient to support our operations until we commence earning
revenues, that we will be able to generate revenues soon enough and in
sufficient amounts to avoid the need for more financing, or that, if necessary,
we will in the future be able to arrange more financing on any terms or on terms
that will not cause further substantial dilution to our shareholders. Achieving
revenues depends on our ability to market our technologies, and we cannot assure
you that we will be successful in doing that.

The auditors' report on our consolidated financial statements includes a
paragraph explaining that the Company has suffered recurring losses and requires
additional financing, conditions that raise substantial doubt about our ability
to continue as a going concern. If we are not able to continue operations, you
could lose your entire investment.

         We have not generated any significant income and have experienced
negative cash flows from operating activities both during the year ended
December 31, 2001 and cumulatively from inception through December 31, 2001. The
report of our independent auditors for the year ended December 31, 2001
indicates that these conditions raise substantial doubt about our ability to
continue as a going concern. Our continued existence is dependent upon

                                       18
<PAGE>

our ability to obtain additional financing and/or achieve significant revenues.
However, there is no assurance that additional financing will be realized or
that revenues will be generated. If we are unable to realize this additional
financing or achieve revenue generation, we could cease to be a going concern
and you could lose the entire amount of your investment in Synergy.

Because we have a limited operating history, we don't know if the market will
accept our products and technologies.

         To date, we have focused on developing and proving the efficacy of our
technologies and have engaged in only limited marketing activities. Accordingly,
our technologies have not been used on a wide scale commercial basis. Our growth
and future financial performance in large measure will depend upon our ability
to demonstrate to prospective licensees, joint venture and collaborative
partners and other users the efficacy of our technologies and the advantages
they possess over alternative products and technologies. If we are unable to
prove the commercial viability of our technologies on a commercial scale to
potential licensees and other end-users, either in theory or by the construction
of commercial scale facilities, our business would be materially adversely
effected. Even if we are able to establish the commercial viability of our
technologies, we cannot assure you that our products will gain wide-scale market
acceptance, given the number of competing technologies similar to those we are
developing. Gaining wide-scale acceptance of our products will also be dependent
upon the implementation of an effective marketing program. If we are unable to
demonstrate the efficacy of our technologies to potential end-users or if they
are not satisfied with our test results or if we cannot develop and implement a
successful marketing plan that results in significant revenues, our results of
operations will be materially adversely effected.

We might not successfully commercialize our technology, and commercial-scale
plants using our proprietary SynGen or CPJ may never be successfully constructed
or operated.

         To date, we have not constructed commercial-scale plants based on the
SynGen or CPJ technologies. Neither we nor any of our future business partners
or licensees may ever build commercial-scale plants using either the SynGen or
the CPJ technology. Our success depends on our ability, and the ability of our
business partners or licensees, to economically design, construct and operate
SynGen and CPJ plants based on our processes on a commercial scale. The
successful commercial construction and operation of SynGen or CPJ plants based
on our technologies depends on a variety of factors, many of which are outside
our control. We do not have significant experience managing the financing,
design, construction or operation of commercial-scale SynGen or CPJ plants, and
we may not be successful in doing so.

Commercial-scale SynGen or CPJ plants based on our technologies might not
produce results necessary for success, including results demonstrated on a
laboratory and pilot plant basis.

         A variety of results necessary for successful operation of plants
employing the SynGen and CPJ processes could fail to occur at a commercial
plant, including reactions successfully tested on a laboratory and pilot plant
basis. The most important factors that could cause commercial scale plants
employing our technologies to fail are the fact that:

         o    yields achieved in full scale commercial plant operations are not
              consistent with those achieved in our pilot facilities; and

         o    operating costs of these facilities could exceed our estimates.

         In addition, these plants could experience mechanical difficulties,
either related or unrelated to elements of our proprietary processes.

We face significant competition from entities that have significantly greater
resources than us, that may be able to respond to changing market conditions
more quickly than we can and that are able to allocate greater resources to the
marketing of their products.

         Gas to liquid, heavy oil upgrading and hydrocarbon reforming
technologies are rapidly evolving with new technologies being developed
frequently and, as such, we face intense competition. Other companies have
developed technologies with capabilities similar to our technologies. Many of
our existing and potential competitors are multinational corporations and have
greater technological, financial, marketing and personnel resources than we have
and are able to compete effectively against us. These entities may be able to
respond more quickly to changing market conditions by developing new products
that meet customer requirements and may be able to more effectively

                                       19
<PAGE>

market their products than we can because of the financial and personnel
resources they possess. We cannot assure you that we will be able to distinguish
ourselves in a competitive market. To the extent that we are unable to
successfully compete against existing and future competitors, our business,
operating results and financial condition will be harmed.

Lengthy marketing and sales cycles could result in wide fluctuations in results
of operations.

         Given the nature of our technologies and the potential market
therefore, with respect to each of the financial commitments involved, the time
required to market and license the technology and bring facilities on-line, the
acceptance and the use and adoption of our technologies may occur only after
these entities have completed a comprehensive investigation of our technologies
and the construction of facilities at which they will be implemented. Management
expects a time-lag in excess of 3 months from the initiation of marketing
efforts to an organization before such entity agrees to license our
technologies, if ever. Thereafter, if we enter into a licensing arrangement with
a customer, we expect to generate a portion of the licensing fee upon the
execution of the contract and the balance of any fees due upon the completion of
construction of the facility employing our technology. In the event we elect to
participate in the ownership of a facility employing our technology, we would
not recognize any revenues from such facility until such facility commences
generating revenues from operations. Consequently, we expect to suffer extreme
fluctuations in operating results from quarter to quarter which are tied to
marketing efforts and the generation of revenues from the licensing of our
technologies.

Failure to properly manage growth could adversely affect our business.

         If we successfully execute our business plan, we will experience growth
in our business that could place significant strain on our management and other
resources. Our ability to manage our growth will require us to improve our
operational, financial and management information systems, to implement new
systems and motivate and effectively manage our employees. We cannot assure you
that we be able to effectively manage this growth.

We can't predict whether our proprietary technology and patents will be
protected.

         We rely on patents to protect our technologies in the United States and
other key countries around the world. Nevertheless, we cannot be certain that:

         o    any patents issued to us will provide us with competitive
              advantages;

         o    patents will not be successfully challenged by third parties;

         o    other people's patents will not have an adverse effect on our
              ability to conduct our business; or

         o    one or more of our technologies will not infringe on the patents
              of others.

         We cannot assure you that others will not independently develop similar
or superior technologies, duplicate any of our processes, or design around any
technology that is patented by us. It is possible that we may need to acquire
licenses to, or to contest the validity of, issued or pending patents of third
parties relating to our products. There can be no assurance that any license
under such patents would be made available to us on acceptable terms, if at all,
or that we would prevail in any contest involving our patents. We could incur
substantial costs in defending ourselves in suits brought against us on our
patents or in bringing patent suits against other parties. We also rely on trade
secrets, proprietary know-how and technology that we seek to protect, in part,
by confidentiality agreements with our prospective working partners and
collaborators, employees and consultants. We can not assure you that these
agreements will not be breached, that we would have adequate remedies for any
breach, or that our trade secrets and proprietary know-how will not otherwise
become known or be independently discovered by others.

We expect to be subject to financial and operating risks associated with
international sales.

         We currently are negotiating to construct a facility in at least one
foreign country and expect that international transactions will account for a
portion of our revenues. If we are able to develop international market demand
for our technologies, such business would be subject to the financial and
operating risks of conducting business internationally, including:

                                       20
<PAGE>

         o    unexpected changes in, or impositions of, legislative or
              regulatory requirements;

         o    fluctuating exchange rates, tariffs and other barriers;

         o    greater difficulties in accounts receivable collection and longer
              payment cycles;

         o    potentially adverse tax consequences; and

         o    potential hostilities and changes in diplomatic and trade
              relationships.

         If any of the forgoing events occur, our business and results of
operations could suffer.

Upon any dissolution of the Company, investors may not recoup all or any portion
of their investment.

         In the event of any termination of the Company's business, the
proceeds, if any, realized from the liquidation of its assets will be
distributed to the holders of the Common Stock only after the satisfaction of
all claims of our creditors. Accordingly, the ability of an investor in the
Common Stock to recover all or any portion of such investment under such
circumstances will depend on the amount of funds realized in connection with the
liquidation of our assets and claims to be satisfied therefrom.

Additional shares entering the market as a result of registration under the
Securities Act of 1933 or pursuant to Rule 144 without additional capital
contribution could decrease the public trading price of our stock.

         An increase in the number of shares of Common Stock available for
public sale without any increase to our capitalization could decrease the market
price of our shares. After a one-year holding period restricted shares of common
stock will become eligible for public resale pursuant to Rule 144 of the General
Rules and Regulations of the Securities and Exchange Commission. All of such
shares would enter the market without any additional payment to the Company or
any increase to our capitalization.

The market price of our common stock is influenced by many factors and may
fluctuate widely as a result of factors beyond our control.

         Prices for our common stock could fluctuate widely and will be
influenced by many factors, including the depth and liquidity of the market for
the common stock, investor perception of us and our products, and general
economic and market conditions. Factors which could cause fluctuation in our
stock price include:

         o    demonstration of the viability of our technologies on a commercial
              scale;

         o    conditions or trends in our industry;

         o    changes in the market valuations of other technology companies;

         o    announcements by us or our competitors of significant
              technological developments;

         o    capital commitments;

         o    additions or departures of key personnel;

         o    sales of Common Stock;

         o    actual or anticipated variations in quarterly results; and

         o    changes in financial estimates by securities analysts.

Because our common stock price is below $5.00, brokers dealing in our stock are
subject to additional rules and regulations.

                                       21
<PAGE>

         The SEC has adopted regulations that generally define a "penny stock"
to be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Our common stock is at this time a "penny stock."
As such, it is subject to rules that impose additional sales practice
requirements on broker/dealers who sell our securities to other than established
customers and accredited investors. The "penny stock" rules may restrict the
ability of broker/dealers to sell our common stock and accordingly affect
adversely its liquidity in the hands of investors.

Limitations on liability and indemnification matters

         As permitted by the corporate laws of the State of Colorado, we have
included in our Articles of Incorporation a provision to eliminate the personal
liability of its directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors, subject to certain exceptions. In addition,
our By-Laws provide that we are required to indemnify our officers and directors
under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and we are required to advance
expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified.

ITEM 2.  DESCRIPTION OF PROPERTIES

      PRINCIPAL PLANTS AND OTHER PROPERTY

      Synergy's property holdings are as follows:

            (1) 335 - 25th Street SE, Calgary, Alberta, Canada T2A 7H8

         Synergy leases office and laboratory space located at this property
         from Capital Reserve Corporation at the combined rate of $19,171 per
         month including operating expenses pursuant to a written, five year
         lease agreement terminating on August 31, 2005. A portion of this
         monthly rent is billed to Synergy's 50% owned subsidiary, Carbon
         Resources. Synergy leases 8,414 square feet of office space at the rate
         of $7.54 per square foot per annum plus operating expenses and 4,364
         square feet of laboratory space at the rate of $18.86 per square foot
         per annum plus operating expenses.

            (2) 1689 Hawthorne Drive, Conroe Texas, USA 77301-3284

         Synergy leases office and laboratory space located at this property
         from T.W. Manufacturing Inc. at the combined rate of $4,537 per month
         excluding operating costs pursuant to a written agreement effective
         January 1, 2002. The lease is for a five year term with an option to
         cancel the lease with 90 days notice prior to the end of each fiscal
         year.

ITEM 3.  LEGAL PROCEEDINGS.

         Synergy is not party to any material legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            On February 18, 2002, Synergy held a special meeting of shareholders
         to consider and act upon (i) an amendment to Synergy's Articles of
         Incorporation to increase the number of shares it is authorized to
         issue from 50,000,000 shares of common stock to 100,000,000 shares of
         common stock and (ii) adopt a stock option plan titled the 2002 Stock
         Option Plan. The meeting was held at Synergy's offices in Calgary,
         Alberta. There were 27,580,445 shares represented at the meeting either
         by shareholders attending in person or by proxy. The votes for each of
         the matters at this meeting were as follows:

<TABLE>
<CAPTION>
                    Item                                      Votes For         Votes Against    Votes Withheld
         <S>                                                  <C>               <C>              <C>
         1.  Amendment of Articles of Incorporation           26,970,478             285,180            324,787
         2.  Adoption of 2002 Stock Option Plan               21,021,366             391,895         6,167,184
</TABLE>

                                       22
<PAGE>

            On June 15, 2001 Synergy held its annual meeting of shareholders.
         The meeting was held at Synergy's offices in Calgary, AB.

            At this meeting, the following directors were elected: Mr. Barry
         Coffey; Mr. Thomas E. Cooley; Mr. Duane E. Baumert; Mr. Cameron
         Haworth; Mr. James Nielson, Mr. James Shone, and Ms. Jacqueline
         Danforth.

            At the meeting, the shareholders voted on each of the following
         matters:

         -  appointment of KPMG, LLP as independent auditors of Synergy;

         -  authorization of the Board of Directors to fix the remuneration of
            the auditors; to elect Directors for the year end; and set the
            number of members of the Board of Directors at seven.

         -  authorization of the Board of Directors, in their discretion, to
            re-negotiate any existing stock option and to grant options to
            Insiders of the Company, and/or its subsidiaries, at such price or
            prices and upon such terms as maybe acceptable.

            There were 26,993,479 shares represented at the meeting either by
         shareholders attending in person or by proxy. The votes for each of the
         matters at this meeting were as follows:

<TABLE>
<CAPTION>
         Item                                         Votes for        Votes Against        Votes Withheld
        <S>                                         <C>                     <C>                  <C>
         1.  Appointment of Auditors                23,936,028              17,400               23,033
         2.  Remuneration of Auditors               24,939,892              11,536               25,033
         3.  Election of Directors
                 Mr. Coffey                         24,940,078              17,533                8,350
                 Mr. Cooley                         24,940,078              17,533                8,350
                 Mr. Baumert                        24,940,078              18,833                8,350
                 Mr. Haworth                        24,940,078              18,833                8,350
                 Mr. Nielson                        24,940,078              17,533                8,350
                 Mr. Shone                          24,940,078              18,833                8,350
                 Ms. Danforth                       24,940,078              18,833                8,350
         4.  Authorization of stock option plan     17,967,222             347,801               35,783
</TABLE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Synergy's common stock is traded on the OTC/BB under the symbol "OILS".
High and low bid prices for the last two fiscal years are set forth below; these
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions:

         2001                                    HIGH        LOW
         Fourth Quarter                        $  0.97     $  0.60
         Third Quarter                         $  1.18     $  0.57
         Second Quarter                        $  1.43     $  0.58
         First Quarter                         $  2.25     $  0.75

         2000
         Fourth Quarter                        $  2.00     $  0.75
         Third Quarter                         $  3.00     $  1.94
         Second Quarter                        $  4.43     $  1.94
         First Quarter                         $  6.00     $  0.50

         As of March 26, 2002, there were 21 market makers in Synergy's stock.
The last available reported trade by the OTC/BB prior to the filing of this
report was March 26, 2002, at $0.74 per share. As of March 26, 2002, there were
approximately 112 record holders of Synergy's stock.

         Synergy has never paid any cash dividends to its shareholders.
Synergy does not anticipate that it will pay

                                       23
<PAGE>

any dividends on its common stock in the near future. Any profits that it may
generate will most likely be retained to fund ongoing operations or future
projects that involve our technologies.

         On February 9, 2001, Stone Canyon Resources Ltd., a former affiliate of
Synergy, converted a promissory note in the principal amount of $1,000,000 into
1,000,000 shares of common stock at an exercise price of $1.00 per share. We
issued the shares pursuant to the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933.

         On February 16, 2001, Filgrave Investments, an unaffiliated third
party, exercised warrants to purchase 80,000 shares of common stock at an
exercise price of $1.00 per share. We issued the shares pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933.

         On February 22 and April 2, 2001, Buccaneer Holdings Inc., an
unaffiliated third party, exercised warrants to purchase 65,000 shares and
39,000 shares of common stock, respectively, at an exercise price of $1.00 per
share. We issued the shares pursuant to the exemption from registration afforded
by Section 4(2) of the Securities Act of 1933.

         On March 13, 2001, Caribbean Overseas Investment Fund, an unaffiliated
third party, exercised warrants to purchase 80,000 shares of common stock at an
exercise price of $1.00 per share. We issued the shares pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933.

         On March 16, 2001, we issued 375,000 shares of common stock at a price
of $1.06 per share to James Cromwell, an unaffiliated third party, in
consideration of services rendered to Synergy aggregating $397,500. We issued
the shares pursuant to the exemption from registration afforded by Section 4(2)
of the Securities Act of 1933.

         On June 19, 2001, Synergy commenced a private placement of its units
pursuant to Regulation D, Rule 506, promulgated by the SEC under the Securities
Act of 1933. Each unit consisted of one share of common stock and one warrant
exercisable any time two years from the date of subscription. Synergy completed
this offering on August 31, 2001 and realized proceeds of $1,500,000 on the sale
of 2,215,382 units at $0.65 per unit and 100,000 units at $0.60 per unit. No
commissions, fees or other selling expenses were paid. We sold the Units to
accredited investors as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933 to 11 persons who are residents of
the United States and to 32 non United States persons. We sold 176,023 of these
units, aggregating $114,415, to persons who are officers and/or directors of
Synergy.

         On July 27, 2001, we issued 53,763 shares of common stock to CIBC World
Markets Corp. at a price of $0.93 per share in consideration of investment
banking services rendered pursuant to the terms of an agreement between the
parties dated July 16, 2001. We issued the shares pursuant to the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933.

         On October 1, 2001, we issued 34,247 shares of common stock to CIBC
World Markets Corp. at a price of $0.73 per share in consideration of investment
banking services rendered pursuant to the terms of an agreement between the
parties dated July 16, 2001. We issued the shares pursuant to the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933.

         On November 18, 2001, we issued 60,000 shares of common stock, which we
valued at an aggregate price of $54,600 or $0.91 per share, to Etudes Chimiques
et Physiques in consideration of the assignment of a patent by that entity to
Synergy relating to electrical control of plasma arc. We issued the shares
pursuant to the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933.

         On December 31, 2001, we issued options to Huntingtown Associates Inc.
to purchase 407,658 shares of common stock at an exercise price of $1.00 per
share through December 31, 2006. The options were issued pursuant to the terms
of a management consulting agreement between Synergy and Huntingtown Associates.
We assigned a value to the options at $103,500, the value of the services
rendered giving rise to the issuance of the options. Duane Baumart, a director
of Synergy, is the sole shareholder of Huntingtown Associates. We issued the
options pursuant to the exemption from registration afforded by Section 4(2) of
the Securities Act of 1933.

                                       24
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION

         Certain information in this report, including the following discussion,
may include forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934. The
Company intends the disclosure in these sections and throughout the Annual
Report on Form 10-KSB to be covered by the safe harbor provisions for
forward-looking statements. All statements regarding the Company's expected
financial position and operating results, its business strategy, its financing
plans, and the outcome of any contingencies are forward-looking statements.
These statements can sometimes be identified by the Company's use of
forward-looking words such as "may," "believe," "plan," "will," "anticipate,"
"estimate," "expect," "intend" and other phrases of similar meaning. Known and
unknown risks, uncertainties, and other factors could cause the actual results
to differ materially from those contemplated by the statements. The
forward-looking information is based on various factors and was derived using
numerous assumptions.

IMPORTANT FACTORS THAT MIGHT AFFECT OUR BUSINESS, OUR RESULTS OF OPERATIONS AND
OUR STOCK PRICE

         Although we believe that our expectations that are expressed in these
forward-looking statements are reasonable, we cannot promise that its
expectations will turn out to be correct. Our actual results could be materially
different from our expectations, due to a variety of factors, including the
following:

         o    We may not, in fact, be able to profitably commercialize any of
              our technologies. Expressions of interest from potential customers
              and ongoing negotiations may not result in actual agreements or
              generation of revenues in the time frame we envision, if at all.

         o    We have a limited operating history and, therefore, little history
              on which to base any forecasts.

         o    We have incurred substantial operating losses and risk never
              making any money.

         o    Shareholders will face substantial dilution of their equity
              ownership percentage if we have to issue more shares to raise
              capital. The extent of potential dilution depends significantly on
              the market price of our outstanding shares and may cause
              significant dilution in the value of your investment.

         o    There is a risk that the market will not accept any of our
              technologies.

         o    Environmental regulation in various countries may prevent the
              cost-effective application of some or all of our technologies.

         o    We may be subject to significant competition and the existence or
              development of preferred technologies, which may keep us from
              selling our technologies at a profit or at all.

         o    Our proprietary technology and patents may not give us adequate
              protection, therefore others may be able to develop similar
              technologies or may not allow us to apply our technologies, either
              at all or without paying license fees.

         o    A substantial amount of our anticipated business is expected to
              come from international operations. There is a high degree of
              uncertainty and risk associated with the projects and may never
              yield profitable results.

         o    We may run out of money before we begin to generate cash flow from
              operations and we may not be able to obtain needed financing.

         Forward-looking statements included in this Report speak only as of the
date of this Report and we do not undertake any obligation to release publicly
any revisions to any forward-looking statements to reflect events or
circumstances after the date of this Report or to reflect the occurrence of
unanticipated events.

                                       25
<PAGE>

Overview

         We are a development stage company acquiring and developing
technologies the primary purposes of which include: 1) enhancing the value of
uneconomical or marginal hydrocarbon feedstocks, 2) lowering operational costs
and 3) reducing environmental waste. We enhance these assets by managing
comprehensive engineering and scientific development programs designed to create
an array of solutions. We commercialize these assets using various financial and
transactional vehicles including: technology transfers, licensing and joint
ventures.

         In the following paragraphs, we will attempt to provide you with a
picture of where we stand on the various technologies on which we are currently
working. The technologies are described in detail in Part 1, Item 1 of this
report.

         We are not a subsidiary of another corporation, entity, or other
person. We have subsidiaries.

The primary applications for our core technologies includes:

SYNGEN

         o    Making Smaller Scale Gas-To-Liquids Projects Economical: SynGen is
              an important first step to converting stranded natural gas
              reserves into transportable zero-sulfur fuels.
         o    Improving Refinery Economics through Hydrogen Recovery Using
              SulfArc: A specialized refinery application that recovers and
              reuses hydrogen from refinery hydrogen sulfide (acid gas)
         o    Improving Fuel Cell Economics: SynGen converts a variety of fuels
              to power fuel cells. Lower costs can be realized by using lower
              cost feedstocks, improving the overall reforming costs through the
              SynGen process, and by efficiently scaling the process to fit
              applications from the very small scale to very large scale.

CPJ HEAVY OIL UPGRADING PROCESS

     Each CPJ technology application provides an opportunity to create a
distinct, value-added commercial partnership with the potential to be leveraged
into many other areas.

         o    Upstream: When mated with steam assisted gravity drainage (SAGD)
              projects, CPJ allows producers to upgrade heavy oil into a
              higher-value synthetic crude that's easier to transport. Non-SAGD,
              upstream applications exist as well.
         o    Midstream: CPJ provides additional value between the wellhead and
              the refinery by creating a synthetic crude oil product that not
              only has a higher inherent value, but also offers many more market
              options. It can be used as a diluent blendstock that captures a
              portion of the blending value derived from the other blended
              crudes.
         o    Downstream: CPJ allows refineries to upgrade heavy intermediate
              refining streams, which are similar to virgin heavy oils. The
              process can be tailored to suit crude feedstock composition, and
              can vary the viscosity of the output to match the optimum
              requirements of the refiner.

THE BUSINESS OPPORTUNITY

         In today's world the search for oil, as well as for alternative fuels,
has never been greater. The company's technologies which allow for the
conversion of heavy crude into light oil on a cost effective basis or the
ability to convert stranded gas into liquid form economically on site allowing
it to be transported to the world markets provide the company with technologies
which have a current and real need.

         Synergy is addressing many problems that historically have affected the
petroleum and petrochemical industries. Synergy offers these industries advanced
technologies and processes providing new economics for the exploitation of
hydrocarbons, particularly in the areas of heavy oil, stranded natural gas,
conventional oil refining and byproduct treatment. We sees our future, in part,
as a provider of systems by which oil and gas producers can economically enter
markets which heretofore have been unattractive for reasons of production costs,
end price, logistics or environmental issues.

                                       26
<PAGE>

Present Situation

         Synergy will seek to raise up to $20 million in equity capital to begin
commercialization of our technologies as well as to fund continued research and
development, and day-to-day operations. However, we do not currently have
commitments to provide these funds.

         We currently are negotiating initial agreements designed to exploit the
extensive markets for the economic upgrading of heavy oil and the transforming
of gas-to-liquids (vapors to fuels).

         Additionally, we are testing and perfecting the scale-up of its SulfArc
technology which produces hydrogen from hydrogen sulfide generated by oil
refineries and petrochemical processes. This additional hydrogen can be used to
lower the production cost of low-sulfur fuels.

         Lastly, Synergy is seeking to commercialize its proprietary cold plasma
fuel reforming technology capable of producing a clean stream of hydrogen that
meets specific needs of oil refiners to hydrogenate heavy hydrocarbons. Very
importantly, this same technology can be used to supply economically reliable
fuel streams for fuel cell systems.

         Additional funds will be required for the financing of commercial
plants and systems integration needed to bring us to early profitability.

Application of the Technologies:

SYNGEN COLD PLASMA PROCESS

         The patented SynGen process uses GlidArc, a non-thermal cold plasma
technology that economically, and without catalysts, converts gaseous or liquid
hydrocarbons into their basic components of hydrogen and carbon monoxide to make
synthesis gas (syngas). The process can use liquid hydrocarbons such as gasoline
and diesel oil as feedstocks to produce a combination of hydrogen and carbon
monoxide. Syngas can be used as the feedstock for a Fischer-Tropsch process to
produce liquid fuels and has a number of applications in the petroleum,
petrochemical and fuel cell industries. Syngas can be used to power fuel cells
and as an input for making various petrochemicals. This process is extremely
valuable because of its feedstock versatility, scalability, relatively low
energy requirements and overall low cost. It is significantly more efficient and
more economical than the partial oxidation and steam reforming currently used to
perform similar functions.

         This process improves the economics of pure hydrogen manufacturing from
readily available, so-called dirty hydrocarbon feedstocks. The hydrogen can be
used in oil refineries to enhance hydrogen deficient fractions in the cracking
process. Greater availability of lower cost hydrogen, along with the
co-generated carbon monoxide, support the future commercialization of fuel cells
that convert these gases directly into electricity.

SulfArc Process

         SulfArc is a version of SynGen used to break hydrogen sulfide into
hydrogen and elemental sulfur using cold plasma technology. This technology,
which is non-catalytic and non-chemical, has significant potential to recover
valuable hydrogen in the oil refining and petrochemical industries.

         According to the Environmental Protection Agency (EPA), at least half
of the country's 152 oil refineries are believed to be violating air-pollution
laws, but with the refineries stretched to near capacity, officials are debating
as to how stringently to regulate the business.

         The Company's SulfArc process is extremely well positioned to fit
technologically with most oil refining plants and has experimentally shown the
ability to economically reduce hydrogen sulfide to hydrogen and elemental
sulfur. In many instances, net production of hydrogen generated from hydrogen
sulfide by the SulfArc process can be recycled, making the process economically
very competitive with other methods of producing hydrogen. The output of
hydrogen can be used in the oil refining process to hydrogenate heavy bottoms.
Additionally, SulfArc could be used in eliminating sour gas flares (hydrogen
sulfide) to help comply with EPA regulations.

                                       27
<PAGE>

Gas to-Liquids (GTL) Employing Proprietary Fischer-Tropsch

         Synergy's proprietary Fischer-Tropsch GTL process converts SynGen
(generated synthesis gas) to a mixture of liquid fuels having no sulfur or
aromatics. Conventional Fisher-Tropsch catalysts produce a high ratio of wax
that must be further processed to produce higher value fuels. Synergy's advanced
Fischer-Tropsch cobalt catalyst not only limits wax formation but also raises
the yield of liquid fuels in a highly efficient and cost-effective manner, which
is a definite competitive advantage over conventional Fischer-Tropsch
operations.

         Approximately half of the world's total of 5,100 trillion cubic feet
(Tcf) of known gas reserves are considered to be "stranded," meaning they are
without markets or pipelines. These reserves have remained undeveloped due to
lack of local power demand, flow rates too small to justify a Liquid Natural Gas
(LNG) plant and the lack of any pipeline to reach markets. In addition, the U.S.
Department of Energy (DOE) estimates that approximately 9 Tcf of gas is wasted
each year by flaring or venting at producing oil wells.

         Stranded, flared or vented gas from oil production, coalbed methane, as
well as other contaminated or dirty natural gas and low-BTU natural gas can all
be transformed by SynGen to produce syngas. In turn, syngas gas is the feedstock
for Synergy's advanced catalyst Fischer-Tropsch process for the economic
conversion of low-value gases to high-value liquid fuels. Liquid fuels created
from syngas are sulfur free and can be used to blend with high-sulfur-content
fuels to meet new EPA and European regulations.

CPJ Heavy Oil Upgrading Technology

         The CPJ proprietary process is a technology that upgrades heavy oils to
lighter gravity synthetic crude oils using a controlled thermal shock via steam
cracking and without employing a catalyst or hydrogen. The process is highly
efficient and is capable of overall liquid volume yields in excess of 90% by
volume in converting heavy crude oil into synthetic light crude while producing
very little by-products. It is also uniquely flexible, allowing the output
characteristics of the synthetic oil to be changed to maximize product value.

         The CPJ process, which employs a "least energy" method of splitting
heavy molecules, offers significant benefits, both in terms of cost and
effectiveness, when compared against capital-intensive conventional cokers or
other upgrading methods. The technology can be applied in all sectors (upstream,
midstream and downstream) within the energy industry. In the upstream segment,
the process could be used to enhance the value of a producer's heavy oil
reserves as well as reduce transportation costs. In the midstream segment, a
gatherer, processor, or shipper, for example, could use the process to upgrade
the oil downstream of the wellhead and capture the spread value. Finally, in the
downstream sector, refiners could use the technology to enhance their yields of
higher value products as well as lower their operating costs.

         Worldwide reserves of heavy crude are estimated to be 6.3 trillion
barrels and approximately 40% of these reserves are located in Canada and
Venezuela. The CPJ technology is specifically designed to greatly enhance the
value of these reserves at minimal costs. Management believes that a rate of
return greater than 20% can be realized by utilizing this process in areas where
the pricing spread between heavy and lighter gravity crudes exceeds $8.00 per
barrel. In Canada alone, this pricing spread averaged $9.15 per barrel from 1997
through 2001, and so far in 2002, has averaged $13.15 per barrel. Management
believes that with these types of pricing spreads the CPJ process becomes very
profitable, yielding rate of returns in the range of 25% to 40%.

MILESTONES
----------

NEAR-TERM GOALS (2002)

         Synergy's immediate goal is to raise sufficient equity capital to
further develop our infrastructure. Specifically, we will enhance our new Conroe
laboratory facilities, complete development of our multi-cluster reactor to
demonstrate the commercial viability and scalability of our SynGen and SulfArc
technologies, complete work on our hydrogen reforming systems for the petroleum,
petrochemical and fuel cell industries, and advance its patent work and
coverage.

         Our near-term business goals are to create or develop relationships
with heavy oil producers, other oil patch participants and fuel cell developers
who can utilize Synergy's technologies to add value to their products or to

                                       28
<PAGE>

bring them into compliance with environmental regulations. Synergy's specific
objectives can be summarized as follows:

         o    Identify a heavy oil producer(s) to partner with on an initial CPJ
              plant;

         o    Form a research and development partnership for a fuel reformer
              based on SynGen technology, with at least one principal fuel cell
              developer;

         o    Identify a refinery partner to begin on-site testing of SulfArc
              technology;

         o    Secure a long-term gas supply contract for a proposed 20,000
              barrels per day (bpd) GTL facility in Nigeria and/or Malaysia;

         o    Continue to develop and refine all of the Company's technologies.

         Synergy is currently in discussions with potential partners for its CPJ
technology, its gas-to-liquids process and its hydrogen reforming technology. We
expect to have various agreements in place over the next few months.

INTERMEDIATE-TERM (2003 -- 2004)

         Building on our near-term initiatives, Synergy expects to be able to
advance on several fronts over the intermediate term.

         o    Synergy expects to complete arrangements for the siting, design,
              engineering and construction of a commercial CPJ plant capable of
              producing 1,000 bpd to 5,000 bpd of light synthetic crude with a
              heavy oil producer using SAGD technology. We believe our best
              chance for success in this area lies with a co-development and
              marketing arrangement with a North, Central or South American
              heavy oil producer or pipeline operator.

         o    We expect to demonstrate the viability of the scaled-up SynGen
              multi-cluster reactor for transforming stranded gas to syngas and
              begin building or licensing commercial scale operations.

         o    Synergy anticipates that we will be able to attract development
              and pre-production funds in partnership with an established fuel
              cell systems designer and manufacturer from government sources or
              from industry players who have a need for cheap, reliable,
              relatively sulfur free, hydrogen or carbon monoxide as fuel.
              Although it will take fuel cell manufacturers time to build sales
              volume, the Synergy reformer's distinct advantages in accepting a
              wide variety of feedstocks and dirty fuels should attract
              partners.

         o    Using the multi-cluster SynGen technology, we believe it will have
              demonstrated the value of its SulfArc process to produce hydrogen
              from streams of hydrogen sulfide and start selling equipment or
              licensing this technology to refineries.

         o    Synergy is negotiating with a large gas producer to develop a
              gas-to-liquids plant using its proprietary cobalt-based, chain
              limiting catalyst Fisher-Tropsch process for converting gas to
              liquids without waxes. This gas-to-liquids plant using
              conventional technology in conjunction with our advanced catalyst
              process would be capable of producing 20,000 bpd of gasoline and
              diesel fuel.

         We believe that we can achieve these goals within two to three years if
funds are available through equity investment and project financing can be
arranged.

LONG-TERM (2005 AND BEYOND)

         We intend to more fully commercialize our various technologies and
leverage our partnerships to become a leading technology provider for heavy oil
upgrading, transforming stranded natural gas into useful fuels, hydrogen
generation and recovery of hydrogen from refinery acid gas streams, which are
rich in hydrogen sulfide.

                                       29
<PAGE>

         Synergy believes that its GTL technology can ultimately compete
successfully with existing and less efficient conventional GTL processes to
increasingly capture the value of stranded natural gas reserves with a
combination of our SynGen reactors and advanced Fisher-Tropsch catalyst
technology.

         We expect to enter into agreements to provide reforming technology to
fuel cell manufacturers.

INTELLECTUAL PROPERTY

         Synergy has developed its proprietary technologies, CPJ Heavy Oil
Upgrading, SynGen and SulfArc, and Advanced Catalyst Fischer-Tropsch, based on
the work of three principal inventors. We continue to advance the work of each
technology.

         We have four French patents and two U.S. patents. There are also
approximately 120 patents pending throughout the world covering our various
technologies and processes.

FINANCIAL OUTLOOK

         Synergy expects to generate revenues within this fiscal year, primarily
from licensing, royalty arrangements, government grants and joint development
programs. We believe that commercial plants, owned wholly or in part by Synergy
will generate substantial cash flows, once Synergy negotiates definitive
commercial agreements with producers of heavy oil, natural gas and
petrochemicals.

         In total, the Company is seeking to raise 20 million dollars. This
amount should provide adequate funding for us until sufficient income can be
generated from operations. There is no assurance that we will be successful in
raising sufficient capital.

Our Results of Operations

COMPARISON OF 2001 AND 2000

         For the year ended December 31, 2001 and year ended December 31, 2000,
we incurred operating losses of $38,412,491 and $6,072,071 respectively. The
losses result principally from expenses incurred in the development of our
technologies, general and administrative expenses and the absence of revenues.
The larger loss in the 2001 period resulted principally from the write-down of
certain technology costs.

         Research and development expenses decreased by $687,602 to $715,445 for
the year ended December 31, 2001 from $1,403,047 for the year ended December 31,
2000. During 2001, we spent $128,675 on further developments in Nigeria,
$128,629 on testing of our GTL Calalyst, $82,794 on patent fees related to our
technologies and $375,347 on development of other technologies. We are
continuing to fund the commercialization of CPJ through our now 100% subsidiary,
Carbon Resources Limited.

         Other general and administrative expenses increased by $893,800 to
$2,662,442 for year ended December 31, 2001 from $1,768,642 for the year ended
December 31, 2000. The increase is attributable principally to increases in
consulting fees for promotional purposes, legal fees, SEC filings and employee
benefits.

         Interest income/other income decreased by $27,078 to $4,365 for year
ended December 31, 2001 from $31,443 for the year ended December 31, 2000. The
decrease is from a smaller amount of cash on hand as our funding in 2001 was
less than in fiscal 2000.

Liquidity and Capital Resources

SUMMARY OF WORKING CAPITAL AND STOCKHOLDERS" EQUITY

         As of December 31, 2001, we had negative working capital of
($3,594,542) and Stockholders' Equity of $2,245,793 compared with negative
working capital of ($60,855) and Stockholders' Equity of $36,726,164 as of
December 31, 2000. Stockholders' Equity declined for the following reasons.
First, our operating losses increased due primarily to the fact that we
wrote-down certain technology assets as a result of the stringent conditions
placed

                                       30
<PAGE>

on technology companies to quantify their asset values. Second, we were unable
to obtain infusions of additional capital in amounts sufficient to fund our
operating losses and our other uses of cash described in our financial
statements and otherwise discussed below.

LIQUIDITY

         We will require up to $20 million over the next three years to
implement our business plan which includes significant marketing efforts, the
continued development of the technologies, expand management resources, support
day-to-day operations and pursue commercialization efforts. In the past, we have
been successful raising money to fund our operations through the sale of equity.
We cannot be certain that we will be able to raise any additional capital to
fund our operations.

SOURCES OF WORKING CAPITAL

         During 2001, our primary sources of working capital have been the net
proceeds of:

         o    $1,500,000 from the issuance of 2,315,382 shares and of a warrant
              to purchase an additional 2,315,382 shares of our common stock at
              $1.30 per share;

         o    $264,000 from the conversion of outstanding warrants into common
              stock;

         o    $5,500 from the exercise of stock options.

CONVERTIBLE DEBENTURES

         During the year ended December 31, 2001 the obligation under
convertible debentures totaling $2,250,000, plus accrued interest of $336,086
remained recorded on our balance sheet as a current liability.

         We are pursuing commercial opportunities that will allow us to
implement our SynGen and CPJ technologies. During the fiscal year 2001, we
experienced longer than expected selling cycles as well as reduced availability
of cash resources to fulfill our expectations that we referred to in our
previous year-end report. We have recently hired a new CEO who is leading the
continued efforts towards commercialization.

ITEM 7.  FINANCIAL STATEMENTS

         We submit with this report the financial statements and related
information listed in the Index to Financial Statements on page 1 following this
report's signature page.

ITEM 8.  CHANGES IN AND DISAGREEMENS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not applicable.

                                       31
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

         The following table sets forth the names and ages of all directors and
executive officers of Synergy as of the date of this report, indicating all
positions and offices with Synergy held by each person:

<TABLE>
<CAPTION>
NAME                  AGE    POSITION
<S>                 <C>      <C>
Barry Coffey           50    Chairman, President and CEO

Thomas E. Cooley       61    Chief Technology Officer and member of the Board of Directors

Duane F. Baumert       61    Member of the Board of Directors and Audit Committee

Marc Cernovitch        28    Vice President, Corporate Development

Cameron Haworth        42    Member of the Board of Directors

James E. Nielson       70    Member of the Board of Directors and Audit Committee

James Shone            27    Member of the Board of Directors and Audit Committee

Kelly Warrack          34    Controller, Secretary-Treasurer
</TABLE>

         The members of Synergy's Board of Directors are elected by the holders
of Synergy's common stock. Cumulative voting for directors is not permitted. The
term of office of directors of Synergy ends at the next annual meeting of
Synergy's shareholders or when the successors are elected and qualified. The
annual meeting of shareholders is specified in Synergy's bylaws to be held
within six months of the end of each fiscal year and the last annual meeting was
held on June 15, 2001. The term of office of each officer of Synergy ends at the
next annual meeting of the Synergy's Board of Directors, expected to take place
immediately after the next annual meeting of shareholders, or when his or her
successor is elected and qualified. Except as otherwise indicated below, no
organization by which any officer or director previously has been employed is an
affiliate, parent, or subsidiary of Synergy.

         Mr. Barry Coffey -- CEO, President and Director

         Mr. Coffey was elected to the position of CEO effective January 1, 2002
in addition to his position on the Board of Directors since January 2001. Mr.
Coffey is a senior human resources and operations executive with broad domestic
and international experience spanning more than 20 years. He has held several
senior management positions including RJR Nabisco (1984-1991), Sony Corporation
(1991-1995), and QED Consulting (1995-2001), a global management-consulting firm
of which he was a founder and managing partner. In addition, Mr. Coffey has
extensive experience with the operation of both start-up and growth stage
corporations. Mr. Coffey earned a B.A. degree and a M.A. degree from Scarritt
College in 1976 and 1977 and a Ph.D. (ABD) from Drew University in 1980.

         Mr. Thomas E. Cooley -- Chief Technology Officer and Director

         Mr. Cooley has been Synergy's technology director since October 1997,
became a member of the Board of Directors on August 2, 2000 and was appointed
Chief Executive Officer from January 16, 2001 until December 31, 2001. Mr.
Cooley previously served as President of Kvaerner Membrane Systems, Inc. from
August 1994 through October 1997. Prior to that, from 1984 through August 1994,
Mr. Cooley was the General Manager - Marketing and Engineering for Grace
Membrane Systems, which was acquired by Kvaerner in August 1994. Mr. Cooley is a
registered professional engineer in the State of Texas and the Province of
Alberta, Canada. Mr. Cooley holds three U.S. patents and two Canadian patents
and has eight published papers. Mr. Cooley is one of the pioneers of the
development application of gas permeable membranes for natural gas processing.
Mr. Cooley earned a B.A. degree in Chemical Engineering from Rice University in
1963 and a B.S. degree in Chemical Engineering from Rice University in 1964.

                                       32
<PAGE>

         Mr. Duane F. Baumert -- Director and Audit Committee Member

         Mr. Baumert was elected to the Board of Directors in September 2000.
Mr. Baumert has experience in the area of worldwide licensing of technology and
intellectual property rights. Mr. Baumert has been the Business Director of
UNICARB(R)Systems Business of the Union Carbide Corporation since 1990. Mr.
Baumert has been with Union Carbide since 1966 and during that time has held the
positions of Director of Marketing, National Sales Management and International
Business Director. Mr. Baumert received a B.S. in Business Administration and
Management from the University of Nebraska in 1963.

         Mr. Marc Cernovitch -- Vice President, Corporate Development

         Marc has been actively involved in the management and financing of
Synergy since the Company's inception. Marc began his career as a broker in the
financial services industry. He has extensive experience in the financing of new
technology and energy companies. Marc manages investor relations, planning and
administration for Synergy. Marc has a B.A. in Economics from McGill University,
Montreal, Canada.

         Mr. Cameron Haworth -- Director

         Mr. Haworth who has been with Synergy since December 1997, obtained his
B.Sc. Petroleum Engineering in December 1987 from the University of Wyoming and
a Degree in Petroleum Technology from Southern Alberta Institute of Technology
in 1984. Mr. Haworth was previously employed by Schlumberger (formerly REDA
Services) as sales manager. Mr. Haworth has several years of experience in the
oil and gas industry supervising and coordinating the marketing, sales and field
services and order initiation for the Canadian market. Mr. Haworth has extensive
experience in preparing business plans and presentation material.

         Mr. James E. Nielson -- Director and Audit Committee Member

         Mr. Nielson served on Synergy's Advisory Board from January 2000 until
his election to the Board of Directors in September 2000. Mr. Nielson has been a
member of the Audit Committee since March 16, 2001. With an extensive career as
an oil and gas executive, Mr. Nielson brings an understanding of the industry to
Synergy. Mr. Nielson was President and Chief Executive Officer of Husky Oil of
Calgary, Alberta, Canada, from 1973 to 1979, during which time Husky Oil
experienced tremendous growth, a four-fold increase in operating revenues and a
six-fold increase in profits. He also began the planning that led to the
development of Husky's heavy oil upgrader at Lloydminster, Alberta. Upon his
return to Wyoming in 1979, Mr. Nielson formed JN Oil and Gas, a privately owned
exploration and production Company. After 12 years at the helm of JN Oil and
Gas, he formed Nielson and Associates. Mr. Nielson, currently serves as a
director at the American Petroleum Institute, the Shoshone First Bank of Cody,
Wyoming, Y-Tex Corporation of Cody, Wyoming and Ultra Petroleum Corp.

         Mr. James Shone -- Director and Audit Committee Member

         Mr. Shone has been with Synergy since December 1997 and has been a
member of the Audit Committee since March 16, 2001. Mr. Shone is currently
employed by the Business Development Bank of Canada (BDC) in the finance
department. Previously employed with the Trust Company of the Bank of Montreal
as a client service officer, Mr. Shone understands the review and assessment of
the financial operations of corporate operations. Mr. Shone takes an active role
in the management of Synergy's financial operations and annual corporate
expenditures. Mr. Shone has knowledge of financial statement review and
preparation, budgeting and financial forecasting. Mr. Shone is a graduate of
McGill University with a B.Com. degree in Finance in 1996.

         Mr. Kelly Warrack -- Controller, Secretary/Treasurer

         Mr. Warrack has been Synergy's Controller since January 2000 and was
appointed Secretary-Treasurer on July 31, 2001. Mr. Warrack previously served as
Divisional Controller for Tesco Corporation from June 1995 through December
1999. Prior to that, from 1988 through 1995, Mr. Warrack held positions as
Accounting Supervisor and Budget Coordinator for Texaco Canada Petroleum Inc.
Mr. Warrack became a Certified Management Accountant in the Province of Alberta,
Canada in 1991.

                                       33
<PAGE>

Advisory Board

         Synergy has also created an Advisory Board for the purpose of obtaining
the advice and services of experienced knowledgeable business people and
professionals. Synergy believes that this is a means by which additional advice
may be obtained in areas that it needs assistance, such as finance, government
environmental policy, international relations and law and publishing. While the
Advisory Board's advice is sought by Synergy, the Advisory Board has no control
or direct influence over the policies or management of Synergy or Synergy's
Board of Directors.

         Synergy's Advisory Board is comprised of the individuals identified
below:

         Senator Alan K. Simpson, Retired

         In 1978 Mr. Simpson was elected to the United States Senate for the
first of three terms. His political career included a period as the Assistant
Majority Leader and a great deal of high profile committee work. During his
service to the Environment and Public Works Committee, Mr. Simpson co-sponsored
the Clean Air Act of 1994. Prior to his time on Capitol Hill, Mr. Simpson had a
long career in the Wyoming State Legislature serving as the Majority Whip,
Majority Floor Leader and Speaker Pro-Tem. The Simpson family has practiced law
in Wyoming for more than one hundred years, and Alan Simpson was the third
generation to take up the call. He practiced law for eighteen years including a
short term as the Wyoming Assistant Attorney General. Mr. Simpson sits on
numerous Boards, including the Board of Directors for IDS Mutual Fund Group,
Biogen Corporation and PacifiCorp.

         Gordon Barrows

         Mr. Barrows has had a long and distinguished career as a publisher and
world authority on the structure and suitability of oil and gas contracts and
legislation. As the publisher of Petroleum Legislation, Basic Oil Laws and
Concession Contracts, Mr. Barrows travels around the world advising private and
government organizations. Mr. Barrows is the President of Barrows Company Inc.,
and is an advisor to various international organizations including the United
Nations, the World Bank and various national governments. Mr. Barrows has a
Bachelor of Arts in mathematics and languages from the University of Wyoming and
a Master of Arts in international relations and law from John Hopkins. He speaks
fluent French and Spanish.

         H.S. (Scobey) Hartley

         Mr. Hartley brings an entrepreneurial drive to the Synergy Board with a
background that spans a wide range of petroleum-related projects. In addition to
being the current Chairman of the Board of Prism Petroleum Ltd. and President of
Faster Oilfield Services Ltd., Mr. Hartley was the President and co-founder of
Cayenne Energy Corporation, the owner and President of Sea Hawk Resources, and
the President of Smith International Canada, Ltd. Mr. Hartley sits as a Director
on the Boards of the Heritage Park Society, Production Operators Canada, Inc.,
and iCore, Alberta Informantics Circle of Research, among others.

         Charles C. Rumsey, Jr.

         Mr. Rumsey brings a diverse range of talents to Synergy. As a private
financier of oil and gas investments, Mr. Rumsey has a well-established network
of contacts on Wall Street. Over the years, Mr. Rumsey has been a significant
investor in several new oil companies, some of which became publicly traded. The
founder and President of Sunshine Pacific Corp., a privately held oil company,
Mr. Rumsey has been an investor with Synergy since the beginning. Mr. Rumsey is
a graduate of Harvard Law School and practiced law in New York for many years
before devoting his full-time efforts to oil and gas and fine art investments.

Technical Staff and Inventors


         Dr. Albin Czernichowski

         Dr. Czernichowski, co-inventor of SynGen, consults for the Company. He
also continues his activities as a 1st class professor at the University of
Orleans (France). A graduate in Chemical Engineering at the Technical University
of Wroclaw (Poland), he also received his Ph.D. and Habilitation grades in
Physical Chemistry and then

                                       34
<PAGE>

the full professor position (1979). For almost 40 years he has been involved in
different fields of Plasma Chemistry. Supervisor of 21 Master's and 18 Ph.D.
theses, he is the author of six monographs and textbooks, 63 papers published in
scientific journals, 155 other papers (conferences, communications), 30 patents
and more than 62 reports. For more than 10 years he has been developing plasma
reactors for hydrocarbon conversion processes such as heavy hydrocarbons
cracking and hydrogenation, light hydrocarbons cracking, reforming or partial
oxidation in order to produce H2, CO, C2H2, C2H4 as well as the hydrogen sulfide
destruction and its full or partial utilization in the oil & gas and geothermal
industries. Work related to environmental clean up has included such
applications as VOC abatement in flue gases, flue-gas SOX or NOX reduction, soot
after-burning, and CO2 dissociation.

         Dr. Pierre Jorgensen

         Dr. Jorgensen, inventor of the "CPJ" process, is a retired French
process engineer and Ph.D. who spent his career dealing with fluid catalytic
crackers, cokers, visbreakers and bottom of the barrel refinery economics. Dr.
Jorgensen retired from British Petroleum in the late 80's. His technical career
spanned not only oil refining for BP, but also the French military nuclear
program and glassmaking.

         While at BP he focused improving the economics of bottom of the barrel
processes such as fluid catalytic cracking, hydrocracking, and delayed coking.
He therefore became very interested in molecular bond structures as they relate
to the heaviest fractions in crude oil. When he retired from BP, Dr. Jorgensen
enrolled at the university in Orleans, France and pursued his doctorate. His
thesis was on the energy required to break certain molecular bond structures.
Out of this thesis work came his conception of the process, which he developed
and named CPJ. CPJ stands for Conversion Pierre Jorgensen. Dr. Jorgensen
continues to assist the Company in process development, assay of client crudes,
and commercialization activities for the CPJ process.

         Dr. Vladimir S. Boudtsov

         Dr. Boudtsov joined the Company full time in June 2000. He is a highly
specialized leading technologist and the former Chief of the Novocherkassk Plant
of Synthetic Products located in Novocherkassk, Russia. Dr. Boudtsov graduated
with a degree in chemical technology from the Technical University of Don in
1984 and then began work at the Novocherkassk plant. He continued his studies
concerning the Fischer-Tropsch technology under the direction of the world's
leading specialist in the field, Professor Albert Lapidus, Dr. of Sciences,
Member of the Russian Academy of Sciences, and Head of Laboratory at the N.D.
Zelinsky Institute of Organic Chemistry of Moscow. His experimental work on
catalyst development was performed using the large laboratory facilities and
also the Fischer-Tropsch industrial reactors of the Novocherkassk plant. In
1995, Dr. Boudtsov received his Ph.D. on development and industrial application
of new Fischer-Tropsch catalysts with a controlled selectivity of hydrocarbon
production. Dr. Boudtsov is the author of five publications and one Russian
patent, all concerning the Fischer-Tropsch technology.

ITEM 10.  EXECUTIVE COMPENSATION

         The following table sets forth information for the individuals who
served as the senior executive officer of Synergy during any portion of the last
three fiscal years and the most highly compensated executive officer of
Synergy's subsidiary, Carbon Resources Limited. No disclosure need be provided
for any executive officer, other than the senior executive officer, whose total
annual salary and bonus for the last completed fiscal year did not exceed
$100,000.

<TABLE>
<CAPTION>
                                                                                          Securities
                                                                        Other Annual      Underlying        All Other
     Name and Principal Position       Year                Salary       Compen-sation       Options       Compen-sation
<S>                                   <C>                 <C>          <C>               <C>             <C>
Cameron Haworth, President and         1999                      -              -         150,000(1)              -
Director

Cameron Haworth, President and         2000                 66,134              -                  -              -
Director

John Gradek, Chief Executive Officer   2000                 44,018              -                  -              -
and Director
</TABLE>

                                       35
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Securities
                                                                        Other Annual      Underlying        All Other
     Name and Principal Position       Year                Salary       Compensation       Options        Compensation
<S>                                   <C>                 <C>          <C>               <C>             <C>
Thomas E. Cooley, Chief Technical      1999                      -              -         220,648(2)              -
Officer

Thomas E. Cooley, Chief Technical      2000                140,000         10,673            250,000          1,583
Officer

Thomas E. Cooley, Chief Technical      2001                140,000          6,588                  -         18,583
Officer and Acting  Chief Executive
Officer
</TABLE>

1.       Mr. Haworth received options to purchase 250,000 shares of common stock
         in exchange for his services as President and a member of the Board of
         Directors for the years 1998 and 1999. Since the exercise price for
         such options exceeded the market price for the shares during the time
         that they were earned, no value has been ascribed to such options.
2.       Mr. Cooley received 220,648 shares of Synergy as compensation for his
         services in 1999, which was valued at $143,921.

COMPENSATION PURSUANT TO MANAGEMENT CONTRACTS

         Mr. Cooley receives compensation for his services through a consulting
agreement between Synergy and Glidarc Technologies (see "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS").

OTHER COMPENSATION

         None; no stock appreciation rights or warrants exist.

COMPENSATION OF DIRECTORS

         None

EMPLOYMENT AGREEMENTS.

         On January 1, 2001, we entered into an agreement with Barry Coffey to
serve as our Chief Executive Officer and President for a period of 3 years,
automatically renewable for successive 12 month periods thereafter unless a
party gives notice of its intention not to renew the agreement 60 days prior to
an expiration date. We have agreed to pay to Mr. Coffey a base salary equal to
$240,000 per year and to make him eligible for a bonus equal to up to 100% of
that amount based upon the achievement of certain milestones to be agreed upon
between Mr. Coffey and the Board of Directors. In addition, we granted Mr.
Coffey options under the 2002 Stock Option Plan to purchase up to 4,500,000
options at a price of $.72 per share. An aggregate of 1,500,000 vest to Mr.
Coffey in each of the three years of the employment agreement. We also have
agreed to furnish Mr. Coffey with payments to cover expenses for insurance not
to exceed $20,000 per annum and to reimburse him for all reasonable expenses
incurred by him in connection with maintaining his home office in New York City.
The employment agreement contains customary confidentiality and non-competition
clauses. If we terminate Mr. Coffey for "cause" or if he resign for other than
"good reason," as such terms are defined in the agreement, all of his rights to
receive his salary shall terminate on such date and all options granted shall
expire immediately. If Mr. Coffey terminates his employment for "good reason" or
we terminate his employment without "cause," we are required to pay him his base
salary for a period of 12 months after the date of such termination and all
stock options shall fully vest on such date. In the event that Mr. Coffey dies
or if he becomes "disabled," as such term is defined in the agreement, for 90
consecutive days or 120 days during the course of any twelve month period, all
compensation rights terminate under the agreement except that he shall be
entitled to the benefit of any stock options that have vested as of such date.

                                       36
<PAGE>

2002 STOCK OPTION PLAN.

         On December 14, 2001, the Board of Directors adopted the 2002 Stock
Option Plan ("Plan") to take effect on January 1, 2002, subject to the approval
of the stockholders. Our shareholders approved the Plan at the Special Meeting
of Shareholders held on February 18, 2002.

         The following is a brief summary of the Plan, which is designed to
enhance our long-term profitability and stockholder value by aligning the
interests of selected directors, officers, employees and consultants with our
performance targets.

         The Plan authorizes the issuance of statutory and non-statutory options
to purchase up to 10,000,000 shares of our common stock.

         The Plan is administered by the Board of Directors, which may empower a
committee to administer the Plan. The Board is generally empowered to interpret
the Plan, prescribe rules and regulations relating thereto, determine the terms
of the option agreements, amend them with the consent of the optionee, determine
the individuals to whom options are to be granted, and determine the number of
shares subject to each option and the exercise price thereof. The per share
exercise price for options granted under the Plan is determined by the Board,
provided that the exercise price of incentive stock options is not be less than
100% of the fair market value of a share of the common stock on the date the
option is granted (110% of fair market value on the date of grant of an
incentive stock option if the optionee owns more than 10% of our common stock).
Upon exercise of an option, the optionee may pay the purchase price with
previously acquired securities of the Company.

         Options will be exercisable for a term determined by the Board, which
will not be greater than ten years from the date of grant and five years in the
case of incentive stock options, unless such grant is for a period of ten years,
as determined by the Board, except that an Incentive Stock Option granted to the
beneficial owner of more than 10% of the outstanding shares of our common stock
shall expire, to the extent that it has not theretofore been exercised, at the
close of business five (5) years from the date of grant. Options may be
exercised only while the original grantee has a relationship with us which
confers eligibility to be granted options or within three months after
termination of such relationship with us, or up to one year after death or total
and permanent disability. In the event of the termination of such relationship
between the original grantee and us for cause, as defined in the Plan, all
options granted to that original optionee terminate immediately. In the event of
certain basic changes in the Company, including a reorganization, merger or
consolidation of the Company, or the purchase of shares pursuant to a tender
offer for shares of our common stock, in the discretion of the Board or
administering committee, each option may become fully and immediately
exercisable. Incentive stock options are not transferable other than by will or
the laws of descent and distribution. Non-qualified stock options may be
transferred to the optionee's spouse or lineal descendants, subject to certain
restrictions. Options may be exercised during the holder's lifetime only by the
holder, his or her guardian or legal representative.

         Options granted pursuant to the Plan may be designated as incentive
stock options ("ISO"), with the attendant tax benefits provided under Sections
421 and 422 of the Internal Revenue Code of 1986. Accordingly, the Plan provides
that the aggregate fair market value determined at the time an ISO is granted of
the common stock subject to incentive stock options exercisable for the first
time by an employee during any calendar year under all our plans may not exceed
$100,000. The Board may modify, suspend or terminate the Plan; provided, that
certain material modifications affecting the Plan must be approved by the
shareholders, and any change in the Plan that may adversely affect an optionee's
rights under an option previously granted under the Plan requires the consent of
the optionee.

         As of the date hereof, we have granted options to purchase up to
4,500,000 shares of common stock to our President and Chief Executive Officer
pursuant to his employment agreement with us. A more complete discussion of the
terms of the option granted to Mr. Coffey may be found under ITEM 10 EXECUTIVE
COMPENSATION-Employment Agreements.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information, as of March 26, 2002 with
respect to the beneficial ownership of Synergy's common stock by each person
known by us to be the beneficial owner of more than 5% of the outstanding common
stock, by each of Synergy's officers and directors, and by the officers and
directors of Synergy as a group.

                                       37
<PAGE>

         Information is also provided regarding beneficial ownership of common
stock if all outstanding options, warrants, rights and conversion privileges (to
which the applicable officers and directors have the right to exercise in the
next sixty days) are exercised and additional shares of common stock are issued:

<TABLE>
<CAPTION>
BENEFICIAL OWNER                                       NUMBER OF SHARES                   PERCENT OF CLASS
<S>                                                    <C>                                <C>
Barry Coffey (1)                                            775,000                            1.8%

Thomas Cooley (2)                                         1,093,159                            2.8%

Duane F. Baumert(3)                                         501,158                            1.3%

Marc Cernovitch(4)                                        1,701,622                            4.3%

Cameron Haworth (5)                                         278,837                            0.7%

James E. Nielson(6)                                         823,846                            2.1%

James Shone(7)                                              124,400                            0.3%

Kelly Warrack(8)                                            147,800                            0.4%

Laxarco Holding Limited                                  14,793,510                           37.8%

Officers and Directors as a group (8 persons)              5,445,822                          12.8%
</TABLE>

1.       Mr. Coffey's total shareholdings are all options to purchase 775,000
         shares.
2.       Mr. Cooley's total shareholdings includes options to purchase 250,000
         shares. Mr. Cooley is also a shareholder of Laxarco Holding Limited but
         disclaims any investment control over or beneficiary interest in the
         shares of Synergy owned by Laxarco Holding Limited, for purposes
         hereof.
3.       Mr. Baumert's total shareholdings include options to purchase 497,658
         shares; his wife Dorothy T. Baumert, owns 3,500 shares in her
         retirement plan.
4.       Mr. Cernovitch's total shareholdings include options to purchase
         235,000 shares. 247,936 shares owned directly; 549,600 shares owned by
         CMJ Consulting Ltd. of which Mr. Cernovitch is the sole officer,
         director and shareholder; warrants to purchase 669,086 shares
         subscribed for by CMJ Consulting Ltd. but unissued as of the date
         referenced above.
5.       Mr. Haworth's total shareholdings include options to purchase 244,500
         shares.
6.       Mr. Nielson's total shareholdings include options to purchase 170,000
         shares.
7.       Mr. Shone's total shareholdings include options to purchase 100,000
         shares.
8.       Mr. Warrack's total shareholdings include options to purchase 107,500
         shares.

         COMMON STOCK

         The holders of common stock are entitled to one vote per share on all
matters voted on by our stockholders, including the election of directors.
Except as otherwise required by law, the holders of shares of common stock
exclusively possess all voting power of our stockholders. The holders of common
stock are entitled to those dividends as may be declared form time to time by
the board of directors from funds available for dividends.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         On January 3, 2002, we entered into a settlement agreement with John
Gradek, our former Chief Executive Officer, which extinguished a lawsuit filed
by Mr. Gradek against us on February 27, 2001. In that suit, Mr. Gradek

                                       38
<PAGE>

claimed that Synergy breached its employment agreement with him by terminating
him without cause and asserted that Synergy owed him his monthly salary of
$10,000 for 32 months plus paid vacation days and attorney fees of up to
$80,000. Pursuant to the settlement agreement, we agreed to (i) pay to Mr.
Gradek the sum of $100,000 in two installments of $50,000 each, the first on or
before February 1, 2002 which sum was paid and the second by May 1, 2002 and
(ii) issue to Mr. Gradek 150,000 shares of common stock. In addition, each party
released the other from all actions or claims with respect to Mr. Gradek's
employment with Synergy.

         During the fiscal years ended December 31, 2001 and 2000, we paid an
aggregate of $196,210 and $146,919, respectively, to Glidarc Technologies Inc.
for process management services and technical personnel. Mr. Thomas Cooley is an
officer of Glidarc Technologies and is also our Chief Technology Officer and a
member of our Board of Directors. Mr. Cooley also serves on the Board of
Directors of Syngen Technologies Limited and Carbon Resources Limited, wholly
owned subsidiaries of the Company. At December 31, 2001 and 2000, we owed to
Glidarc $30,783 and $23,515 respectively, for such services.

         On October 19, 2000, we issued a three-year promissory note in the
principal amount of $1,000,000 in favor of Stone Canyon Resources, Inc., a
former affiliate of Synergy by virtue of common officers, directors and
shareholders, in settlement of the terms of a certain Share Exchange Agreement,
previously filed with, and described in, past filings made by Synergy with the
Securities and Exchange Commission. We issued the promissory note to Stone
Canyon to settle what Stone Canyon alleged was a breach of the Share Exchange
Agreement resulting from our inability to develop certain oil and gas producing
properties. On February 9, 2001, Stone Canyon converted the promissory note into
shares of common stock at the price of $1.00 per share.

         On July 1, 2001 Synergy entered into a Management and Consulting
Agreement with Huntintown Associates LLC wholly owned by Mr. Duane Baumart, a
member of our Board of Directors. Pursuant to the Management and Consulting
Agreement, Synergy engaged Huntintown Associates for a minimum of 40 days during
2001 and a minimum of 80 days up to a maximum of 120 days during 2002 to provide
assist with the development of product licensing, business and patent
strategies, business plan development and certain other matters. The agreement
provides that during 2001 we were to have compensated Huntingtown Associates at
the rate of $1,500 per day payable in stock options valued at 33% of the higher
of $1 or the average market price for our common stock during the month in which
the services were rendered. During 2002, we have agreed to compensate
Huntingtown Associates at the rate of $1,500 per day payable $350 in cash and
the balance ($1,150) in stock options valued at 33% of the higher of $1 or the
average market price for our common stock during the month in which the services
were rendered. We have agreed to register the common stock issued to Huntingtown
Associates pursuant to the agreement for public resale under the Securities Act
of 1933. During the fiscal year ended December 31, 2001, we incurred $138,674 in
favor of Huntingtown Associates LLC for consulting services and reimbursement of
actual expenses pursuant to the Management Consulting Agreement, $25,631 of
which remained outstanding at December 31, 2001. Thus far during 2002, we have
incurred $7,500 in consulting fees and expenses to Huntingtown Associates, none
of which has been paid. Mr. Duane Baumert is and is also the sole proprietor of
Huntingtown Associates. At December 31, 2001, we owed Huntingtown Associates
$25,631 in respect of the fees payable to him during 2001.

         On January 14, 2000, James Nielson and the Wood River Trust entered
into a Financing and Security Agreement with Synergy whereby $300,000 was loaned
to Synergy. Mr. Nielson's portion of the loan was $125,000. The loan accrued
interest at the rate of 8% per annum and was convertible into shares of
Synergy's common stock at the rate of $0.50 per share. Upon conversion of the
loan, all accrued interest thereon is forgiven. On June 13, 2000, the loan was
converted and Mr. Nielson received 250,000 shares of Synergy's common stock. Mr.
Nielson became a member of Synergy's Board of Directors on September 27, 2000.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this report:
         1. The financial statements and related information referred to in
            response to Item 7.
         2. The following financial statement schedules: None
         3. There are filed herewith or incorporated by reference the Exhibits
            listed in the Exhibit Index that follows the financial statements.

(b) We filed no Current Reports on Form 8-K during the fourth quarter of 2001
and first Quarter of 2002.

                                       39
<PAGE>

SIGNATURES

         In accordance with the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

SYNERGY TECHNOLOGIES CORPORATION

By: /s/  Barry J. Coffey
    --------------------
Name:   Barry J. Coffey
Title:  President and Chief Executive Officer
Dated:  March 29, 2002

         In accordance with the Exchange Act, this report has been signed below
by the following person on behalf of the registrant and in the capacities and on
the dates indicated.

By:  /s/  Kelly L. Warrack
     ---------------------
Name:   Kelly L. Warrack
Title:  Controller, Secretary/Treasurer
Dated:  March 29, 2002

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated, who constitute the entire board of directors:

By:  /s/  Barry J. Coffey
     --------------------
Name:   Barry J. Coffey
Title:  Chairman, President and CEO
Dated:  March 29, 2002

By:  /s/  Thomas E. Cooley
     ---------------------
Name:   Thomas E. Cooley
Title:  Chief Technology Officer
Dated:  March 29, 2002

By:  /s/  Duane F. Baumert
     ---------------------
Name:  Duane F. Baumert
Title:  Director
Dated:  March 29, 2002

By:  /s/ Cameron Haworth
     -------------------
Name:  Cameron Haworth
Title:  Director
Dated:  March 29, 2002

By:  /s/  James E. Nielson
     ---------------------
Name:  James E. Nielson
Title:  Director
Dated:  March 29, 2002

By:  /s/  James Shone
     ----------------
Name:  James Shone
Title:  Director
Dated:  March 29, 2002


                                       40
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.








                              FINANCIAL STATEMENTS

                        SYNERGY TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)






<PAGE>

                        SYNERGY TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)


<TABLE>
<CAPTION>
<S>                                                                                           <C>
TABLE OF CONTENTS...........................................................................  F-2

Financial Statements:
               Reports of Independent Auditors..............................................  F-3

               Consolidated Balance Sheet - December 31, 2001 and December 31, 2000.........  F-4

               Consolidated Statement of Operations for the years ended December
               31, 2001 And 2000 and for the Period from February 10, 1997 (Date
               of Inception) to December 31, 2001...........................................  F-5

               Consolidated Statement of Cash Flows for the years ended December 31, 2001
               and 2000 and for the Period from February 10, 1997 (Date of Inception) to
               December 31, 2001............................................................  F-6

               Consolidated Statement of Changes in Stockholders' Equity for the
               year ended December 31, 2001 and December 31, 2000...........................  F-7

Notes to Consolidated Financial Statements..................................................  F-8
</TABLE>


                                      F-2
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


THE BOARD OF DIRECTORS AND STOCKHOLDERS
---------------------------------------
SYNERGY TECHNOLOGIES CORPORATION:
---------------------------------

We have audited the accompanying consolidated balance sheets of Synergy
Technologies Corporation (and subsidiaries) (a development stage enterprise) as
of December 31, 2001 and 2000 and the related consolidated statements of
operations, cash flows and changes in stockholders equity for each of the two
years in the period ended December 31, 2001 and for the period from February 10,
1997 (inception) to December 31, 2001. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit. The cumulative statements of operations, cash flows, and changes in
stockholders equity for the period from February 10, 1997 (inception) to
December 31, 2001 include amounts for the period from February 10, 1997
(inception) to December 31, 1999 which were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for the period February 10, 1997 (inception) to December 31,
1999 is based solely on the report of other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 made 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, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Synergy Technologies Corporation
(and subsidiaries) (a development stage enterprise) as of December 31, 2001 and
2000 and the related consolidated statements of operations, cash flows and
changes in stockholders equity for each of the two years in the period then
ended and for the period from February 10, 1997 (inception) to December 31,
2001, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered negative cash flows
from operations and requires additional financing that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.




                                                             /s/ KPMG LLP
                                                             ------------
                                                          Calgary, Canada
                                                           March 28, 2002

                                      F-3
<PAGE>

                        SYNERGY TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                          (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                     ASSETS
                                                                      AS AT DECEMBER 31, 2001        AS AT DECEMBER 31, 2000
                                                                    ---------------------------  ----------------------------
CURRENT ASSETS
<S>                                                                 <C>                          <C>
       Cash                                                         $                    38,746  $                     76,059
       Receivables (Note 5)                                                              38,560                        84,761
       Receivables - related parties                                                          -                         2,842
       Prepaid expenses                                                                  39,727                        73,714
                                                                    ---------------------------  ----------------------------
       TOTAL CURRENT ASSETS                                                             117,033                       237,376

INVESTMENTS (NOTE 3)
       SynGen Technologies and associated assets                                      3,500,000                    38,028,244
       CPJ Technologies and associated assets                                         1,432,500                     1,062,500
       Investment in Private US corporation                                           1,000,000                     1,000,000
                                                                    ---------------------------  ----------------------------
                                                                                      5,932,500                    40,090,744
       Investment in joint venture (Note 3)                                              80,768                             -
                                                                    ---------------------------  ----------------------------

       TOTAL INVESTMENTS                                                              6,013,268                    40,090,744

 Office equipment and computers, net of accumulated
 depreciation  $43,486                                                                   59,780                        80,361
                                                                    ---------------------------  ----------------------------
TOTAL ASSETS                                                        $                 6,190,081  $                 40,408,481
                                                                    ===========================  ============================

                                            LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
       Accounts payable                                             $                 1,018,649  $                    212,794
       Accrued expenses                                                                  74,744                        85,437
       Notes payable (Note 6)                                                         2,250,000                             -
       Accrued interest on notes (Note 6)                                               368,182                             -
                                                                    ---------------------------  ----------------------------
       TOTAL CURRENT LIABILITIES                                                      3,711,575                       298,231

LONG TERM LIABILITIES
       Notes payable (Note 7)                                                           135,223                     2,250,000
       Notes payable - related parties                                                        -                     1,000,000
       Accrued interest on notes                                                              -                       134,086
       Investment in joint venture (Note 3)                                              97,490                             -
                                                                    ---------------------------  ----------------------------
       Total Liabilities                                                              3,944,288                     3,682,317

STOCKHOLDERS' EQUITY
       Common stock, $0.002 par value, 50,000,000 shares
       authorized, 34,176,343 Shares issued and outstanding                              69,333                        60,077
       Additional paid in capital                                                    49,633,286                    45,786,313
       Deferred compensation                                                           (13,879)                      (89,770)
       Deficit accumulated during development stage                                (47,442,947)                   (9,030,456)
                                                                    ---------------------------  ----------------------------
TOTAL STOCKHOLDERS' EQUITY                                                            2,245,793                    36,726,164
                                                                    ===========================  ============================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $                 6,190,081  $                 40,408,481
                                                                    ===========================  ============================
     Uncertainty about the Company's Ability to Continue as a
     Going Concern (Note 2)
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                             FINANCIAL STATEMENTS.

                                      F-4
<PAGE>

                        SYNERGY TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                                 CUMULATIVE
                                                                                                                PERIOD FROM
                                                                                    FOR THE YEARS ENDED      FEBRUARY 10, 1997
                                                                                         DECEMBER 31              (DATE OF
                                                                                                                INCEPTION) TO
                                                                                    2001           2000        DEC. 31, 2001
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>                <C>
OTHER INCOME
           Interest income                                                          4,365             31,443             35,808
           Consulting income                                                            -                  -              8,927
--------------------------------------------------------------------------------------------------------------------------------
                                                                                    4,365             31,443             44,735
EXPENSES
           General and administrative                                           2,662,442          1,768,642          5,832,021
           Stock option compensation                                               92,391            891,560            983,951
           Compensation related to warrants                                             -            343,744            343,744
           Technology development                                                 715,445          1,403,047          2,962,657
           Dry well expenses                                                            -                  -            722,210
--------------------------------------------------------------------------------------------------------------------------------

TOTAL EXPENSES                                                                  3,470,278          4,406,993         10,844,583
--------------------------------------------------------------------------------------------------------------------------------

LOSS BEFORE THE FOLLOWING                                                     (3,465,913)        (4,375,550)       (10,799,848)

OTHER EXPENSES
           Amortization of debt discount and offering costs                             -        (2,250,000)        (2,250,000)
           Accrued interest on notes payable                                    (234,096)          (134,086)          (368,182)
           Share of expenses incurred by joint venture                          (298,881)                  -          (298,881)
           Write-down of Syngen technology                                   (34,528,244)                  -       (34,528,244)
           Gain on disposition                                                    114,643            687,565            802,208
--------------------------------------------------------------------------------------------------------------------------------
                                                                             (34,946,578)        (1,696,521)       (36,643,099)
--------------------------------------------------------------------------------------------------------------------------------

NET LOSS BEFORE TAXES                                                        (38,412,491)        (6,072,071)       (47,442,947)
--------------------------------------------------------------------------------------------------------------------------------

PROVISION FOR INCOME TAX                                                                -                  -                  -
--------------------------------------------------------------------------------------------------------------------------------

NET LOSS                                                                $    (38,412,491) $      (6,072,071) $     (47,442,947)
================================================================================================================================

BASIC AND DILUTED LOSS PER COMMON SHARE                                 $          (1.19) $           (0.31) $           (2.83)
================================================================================================================================

WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN CALCULATION                   32,326,988         19,622,578         16,747,215
================================================================================================================================
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                             FINANCIAL STATEMENTS.

                                      F-5
<PAGE>

                SYNERGY TECHNOLOGIES CORPORATION AND SUBSIDARIES
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
                                                                                                             Cumulative
                                                                                For the Years Ended          period from
                                                                                     December 31             February 10,
                                                                                                            1997 (Date of
                                                                                                             Inception)
                                                                                 2001          2000       to Dec. 31, 2001
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>             <C>
CASH FROM OPERATING ACTIVITIES
Net loss                                                                    (38,412,491)      (6,072,071)     (47,442,947)
Adjustments to reconcile net loss to net cash from operations
          Dry well expense                                                             -                -          722,210
          Depreciation, amortization and write downs                          34,657,482        3,160,418       37,818,495
          Accrued interest on notes payable                                      234,096          134,086          368,182
          Issuance of shares for services                                        963,729          397,829        1,361,558
          Issuance of warrants for services                                            -          343,744          343,744
          Re-issue of founders shares                                            106,500                -          106,500
          Investment in joint ventures                                            16,720                -           16,720
          Exchange rate loss                                                      27,353           30,891           62,330
          Loss on disposition of assets                                            1,993        (687,565)        (684,239)
  Changes in assets and liabilities
          Accounts receivable                                                     46,199         (63,475)         (38,560)
          Prepaid expenses and deposits                                           33,986         (49,803)         (39,743)
          Accounts receivable - related parties                                    2,843           29,225                -
          Accounts payable                                                       435,859        (232,037)        1,336,627
          Accounts payable - related parties                                     153,088                -          153,088
          Accrued expenses                                                      (10,695)           52,604           74,742
---------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES                                     (1,743,338)      (2,956,153)      (5,841,293)
CASH USED IN INVESTING ACTIVITIES
          Acquisition of property and equipment                                 (18,257)         (97,374)        (119,405)
          Other                                                                        -                -        (788,188)
---------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES                                        (18,257)         (97,374)        (907,593)
CASH FROM FINANCING ACTIVITIES
          Proceeds from (payments to) notes payable - related parties           (26,983)         (13,143)          531,933
          Proceeds from (payments to) notes payable                                9,118          492,040          823,519
          Net proceeds from convertible debt                                           -        2,137,500        2,137,500
          Sales of common stock                                                1,769,500          540,999        2,954,510
           Other                                                                       -                -          402,500
                                                                        --------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES                                       1,751,635        3,157,396        6,849,962
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                         (27,353)         (30,891)         (62,330)
NET CHANGE IN CASH                                                              (37,313)           72,977           38,746
CASH AT BEGINNING OF PERIOD                                                       76,059            3,082                -
                                                                        --------------------------------------------------

CASH AT END OF PERIOD                                                          $  38,746   $       76,059  $        38,746
===========================================================================================================================
</TABLE>


              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                             FINANCIAL STATEMENTS.

                                      F-6

<PAGE>

                        SYNERGY TECHNOLOGIES CORPORATION
                                AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                        --------------------------------------------------------------------------------------------
                                                                                      DEFICIT
                                                                    ADDITIONAL      ACCUMULATED       UNEARNED           TOTAL
                                           SHARES       AMOUNT       PAID IN          DURING        COMPENSATION     STOCK-HOLDERS'
                                                                     CAPITAL        DEVELOPMENT                     EQUITY (DEFICIT)
                                                                                       STAGE
                                        --------------------------------------------------------------------------------------------
<S>                                        <C>           <C>         <C>          <C>                    <C>              <C>
INCEPTION TO DECEMBER 31, 1999
Shares issued in recapitalization           2,549,500      5,099         (5,099)               -                -                  -
Issuance of shares for services             4,740,963      9,482         547,456               -                -            556,938
Issuance of shares for cash                 4,090,007      8,180         635,830               -                -            644,010
Other                                         608,857      1,219         306,268               -                -            307,487
Losses                                              -          -               -      (2,958,385)               -        (2,958,385)
                                        --------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 1999               11,989,327    $23,980      $1,484,455    $ (2,958,385)                       $(1,449,950)

Cancellation of founders shares             (496,736)          -               -               -                -                  -
Issuance of shares for cash                   710,000      1,420         353,580               -                -            355,000
Issuance of shares for royalty                500,000      1,000       1,061,500               -                -          1,062,500
Issuance of stock options                           -          -         981,330               -                -            981,330
Issuance of warrants for services                   -          -         343,744               -                -            343,744
Issuance of convertible debt                        -          -       2,137,500               -                -          2,137,500
Issuance of shares from escrow             14,943,510     29,887      37,998,357               -                -         38,028,244
Warrants for stock                            431,000        862         430,138               -                -            431,000
Issuance of shares for services             1,359,063      2,718         890,919               -                -            893,637
Options exercised                             105,000        210         104,790               -                -            105,000
Unearned compensation                               -          -               -               -          (89,770)          (89,770)
Net loss for the year                               -          -               -      (6,072,071)               -        (6,072,071)
                                        --------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2000            29,541,164      $ 60,077  $ 45,786,313       $(9,030,456)       $ (89,770)      $ 36,726,164

Units for stock - debenture                 1,000,000      2,000         998,000               -                 -         1,000,000
Units for stock - cash                        264,000        528         263,472               -                 -           264,000
Options exercised                               5,500         11           5,489               -                 -             5,500
Re-issue of founders shares                   157,143        300         106,200               -                 -           106,500
Issuance of stock options                           -          -         120,000               -                 -           120,000
Shares for services                           893,154      1,786         858,443               -                 -           860,229
Issuance of shares for cash                 2,315,382      4,631       1,495,369               -                 -         1,500,000
Unearned compensation                               -          -               -               -            75,891            75,891
Net loss for the year                               -          -               -     (38,412,491)                -      (38,412,491)
                                        --------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001               34,176,343    $69,333     $49,633,286    $(47,442,947)         $(13,879)       $2,245,793
                                        ============================================================================================
</TABLE>


              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                             FINANCIAL STATEMENTS.




                                      F-7
<PAGE>

                SYNERGY TECHNOLOGIES CORPORATION AND SUBSIDARIES
                          (A DEVELOPMENT STAGE COMPANY)
               NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Financial Instruments - The amounts reported as cash, receivables, accounts
payable, and accrued liabilities are considered to be reasonable approximations
of their fair values. The fair value estimates presented herein were based on
market information available to management at the time of preparation of the
financial statements. For the purpose of the statement of cash flows, cash and
cash equivalents are defined as demand deposits as well as other funds with
original maturities of three months or less.

Foreign Currency Translation - Exchange gains and losses from holding foreign
currencies and having liabilities paid in foreign currencies are included in the
results of operations.

Property and Equipment - Property and equipment are reported at cost. Minor
repairs, enhancements, and maintenance costs are expensed when incurred.
Depreciation is computed using the straight-line and accelerated methods over
the estimated useful lives of the assets. Major categories of property and
equipment and estimated useful lives are as follows:


Estimated Useful Life
---------------------

Furniture and fixtures              3-5 years

Computer equipment                  2 years


Intangibles - Intangible assets will be amortized over the estimated useful life
of the asset which will be determined at the time of commencement of their
commercial application. Each respective technology has patents in effect for a
17-19 year period. No amortization expense has been recorded on these amounts
for 2001 or prior periods.

Basic and Diluted Loss Per Share - Basic loss per common share is computed by
dividing net loss by the weighted average number of common shares outstanding
during the period. Diluted loss per share is calculated to give effect to
potentially issuable common shares except during loss periods when those
potentially issuable common shares would decrease the loss per share.

NOTE 2 - UNCERTAINTY ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN

The Company is in the development stage and has not realized any revenues, has
incurred losses and had negative cash flows from operations in 2001 and each
year since its inception. The Company's efforts have been focused on the
development of its technologies and raising capital necessary to finance its
development and administrative activities. To date, a substantial portion of its
activities have been paid for by the issuance of common shares, options and
warrants.

Synergy's business is the development and licensing of technologies related to
the oil and gas industry. Synergy's efforts are directed to the commercial
application of technologies in two areas:

     1.  technologies for the conversion of stranded natural gas into synthetic
         naphtha and diesel ( GTL), including Syngen, a cold plasma technology
         to produce hydrogen rich streams from natural gas, PLG, gasoline and
         diesel; and
     2.  technologies for the upgrading of heavy oil to lighter oils (CPJ).

                                      F-8
<PAGE>

Syngen and GTL technologies

The Company acquired the remaining interest in a subsidiary owning the Syngen
technology and other associated assets during 2000 through the issue of shares
with an ascribed value of $38,028,244. The Company is pursuing several
initiatives to complete the commercial application of the Syngen technology. In
particular, through Drake Synergy Petroleum Limited, a joint venture in Nigeria,
the Company is pursing opportunities to participate in a plant utilizing some of
its GTL technologies including Syngen. The construction or other participation
in a plant to utilize the GTL technologies would require considerable additional
financing. The Company and its joint venture partner are in the process of
negotiating various operating and construction agreements. The Company believes
that the successful completion of these agreements is necessary before it would
be possible to obtain the financing necessary to construct or otherwise
participate in a plant. The completion of licensing or other arrangements may
also require additional capital and may take considerable time to complete. The
Company's ability to recover the amounts recorded for the Syngen technology are
dependent on its ability to construct or otherwise participate in a plant using
the technology, or to enter into licensing or other arrangements for the use of
the technology. As at December 31, 2001 the Company determined that the cash
flows expected to be received through the construction of a plant, licensing or
other arrangements cannot be supported by sufficient objectively verifiable
information to satisfy the requirements of the applicable asset impairment
tests. Accordingly, the net book value of the Syngen technology and other
associated assets has been written down to $3.5 million representing the value
of the associated pilot plants, fuel cells, catalysts and associated patents.
The Company continues to actively pursue the initiatives related to Syngen
technology.

CPJ

The Company's efforts to further develop its CPJ technology have been conducted
primarily through its 50% owned joint venture, Carbon Resources Limited
(Carbon). Subsequent to December 31, 2001 the Company acquired the remaining 50%
interest in Carbon. The Company currently owns a test facility and is in
discussions with oil and gas producers to construct a commercial scale facility
utilizing the CPJ technology. The Company's ability to recover its investment in
the CPJ technology and Carbon are dependent on its ability to enter into
arrangements for the construction of commercial scale facility, the licensing of
the technology or other arrangements, each of which may require the raising of
additional capital and may take considerable time to complete.

Uncertainty Regarding Future Operations
---------------------------------------

The conditions described above raise substantial doubt about the ability of the
Company to continue as a going concern. These financial statements have been
prepared on the going concern basis, which assumes that the Company will be able
to realize its assets and discharge its liabilities in the normal course, which
would require the raising of additional capital sufficient to finance its
development activities and administrative costs. However, there can be no
assurance that the Company will be able to raise the necessary additional
capital or successfully complete the development of its technologies. If these
assumptions were determined to no longer be appropriate and the going concern
basis would no longer be appropriate and the assets and liabilities would be
adjusted to their liquidation values.


NOTE 3 - INVESTMENTS, ACQUISITIONS AND TECHNOLOGY DEVELOPMENT

Investments reported on the Consolidated Balance Sheet of the Company include
the following:

<TABLE>
<CAPTION>
                                                                            December 31,          December 31,
                                                                                   2001                  2000
                                                                    --------------------  --------------------
<S>                                                                 <C>                   <C>
Investment in SynGen Technology and associated assets
(See Note 3(a) below)                                               $          3,500,000  $         38,028,244

Investment in CPJ Technology and associated assets
(See Note 3(b) below)                                                          1,432,500             1,062,500

Investment in private U.S. corporation                                         1,000,000             1,000,000
                                                                    --------------------  --------------------

                                                                    $          5,932,500  $         40,090,744
                                                                    ====================  ====================
</TABLE>

                                      F-9
<PAGE>

(a) SynGen: During 2000, the Company completed the acquisition of the shares of
the company holding the Syngen technology and associated assets for
consideration including the issue and release from escrow of 14,943,510 common
shares of Synergy to Laxarco Holdings Limited ("Laxarco"). The shares were
ascribed a value of $2.5448 per share on the basis of the five-day average
closing price of the Company's shares. The aggregate value of the shares issued,
$38,028,244, was allocated to the Syngen technology rights and associated
assets.

As at December 31, 2001 the Company determined that the cash flows expected to
be received through the construction of a plant, licensing or other arrangements
had not been achieved. Accordingly, the net book value of the Syngen technology
and other associated assets has been written down to $3,500,000 representing the
value of the associated pilot plants, fuel cells, catalysts and associated
patents. The Company continues to actively pursue the initiatives related to
Syngen technology as indicated above.

Upon the completion of the acquisition of the Syngen technology and associated
assets in 2000, the Company moved to complete the divesture of its interest in
Stone Canyon Resources Inc. to Stone Canyon Resources Limited, a related party.
On October 19, 2000 the Company agreed to transfer its interest in Stone Canyon
Resources Inc. and to issue a promissory note to Stone Canyon Resources Ltd.
with a principal amount of $1,000,000 bearing interest at the Bank of America's
prime lending rate less 1% due and payable three years from the date of issue.
The shares of Stone Canyon Resources Inc. were transferred to Stone Canyon
Resources Ltd. This series of transactions resulted in a loss on disposition of
$945,194 being recorded in 2000.

(b) CPJ: During the fiscal year ended December 31, 2000, the Company and
technology development partner Texas T Petroleum Ltd. renegotiated the royalty
agreement with the Inventor of the CPJ technology, Dr. Pierre Jorgensen which
resulted in the execution of an Amended and Restated Technology Transfer
Agreement on September 25, 2000 by the Company, Carbon, Jorgensen and Capital
Reserve Corporation, an affiliate of Texas T Petroleum Ltd. Under the terms of
this amended and restated agreement Dr. Jorgensen agreed to reduce his royalty
to five percent of the net proceeds realized from the licensing and/or
sublicensing of the CPJ technology and was issued 500,000 shares of common stock
of the Company and 500,000 shares of common stock of Capital Reserve
Corporation. The 500,000 shares of the Company issued to Dr. Jorgensen in
respect of the royalty reduction were recorded on the balance sheet as an
investment in the amount of $1,062,500 which amount represents a fair market
value for the issued shares of $2.125 per share, which was the closing price on
the Company's common shares traded on the Over the Counter Bulletin Board on the
date of the agreement.

During the year ended December 31, 2001, the Company recorded a liability of
$370,000 to the inventor, Dr. Jorgensen, based on the amended royalty agreement
signed in fiscal 2000, whereby, Dr. Jorgensen was to receive proceeds of not
less than $250,000 from the sale of 100,000 shares of Synergy Technologies
Corporation by February 28, 2001 and an additional $250,000 from the sale of a
further 100,000 shares by February 28, 2002. As of December 31, 2001, Dr.
Jorgensen had not sold any of the shares and therefore, based on the closing
stock price of $0.65 per share, the difference in net proceeds is $370,000.

(c) Joint Ventures: The company has a 50% interest in two corporate joint
ventures, each of which is accounted for by the equity method of accounting,
except that the financial statements of Carbon were consolidated up to November
1, 2000.

On October 20, 2000, Texas T Petroleum Ltd. fulfilled the terms of an agreement
and acquired a 50% interest in Carbon and thereby a 50% interest in the CPJ
technology. In accordance with the terms of the June 26, 1999 agreement, Synergy
transferred a 50% interest in Carbon to Texas T Petroleum Ltd. effective
November 1, 2000 and Texas T Petroleum Ltd. issued a total of 2,000,000 Units of
its common stock to Synergy. The 2,000,000 Units of Texas T Petroleum Ltd.
issued to Synergy represent a 9% interest in Texas T Petroleum Ltd. The proceeds
of $1,000,000 (2,000,000 Units of Texas T Petroleum Ltd.), received on the
disposition of the 50% interest in Carbon exceeded the carrying value of the
associated net liabilities by $1,747,402. Only the portion of the gain in excess
of the remaining carrying value in Carbon was included in income at the time of
the disposition. The amount of the deferred gain was subsequently reduced by the
amount of the Company's 50% interest in the post disposition losses of Carbon of
$51,662 during 2000 and $494,503 during 2001 (Synergy's portion - $25,831 and
$247,252 respectively).

                                      F-10
<PAGE>

Investment in Carbon as at December 31, 2001:

<TABLE>
<CAPTION>
                                                                                   2001                        2000
   --------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                       <C>
       o  Shares of Carbon
            o  2,500 shares valued at Cyprus 1.00 per share               $          5,029                     5,029
       o  Advances to Carbon                                                       712,937                   677,818
       o  50% of net liabilities of Carbon                                        (815,456)                 (568,204)
       o  Deferred gain in disposition of shares                                         -                  (114,643)
                                                                          ---------------------------------------------------
                                                                          $        (97,490)         $              -
   --------------------------------------------------------------------------------------------------------------------------
</TABLE>


On February 7, 2001, Synergy and Drake Oil Limited entered into a joint venture
in Nigeria, Africa to carry on in Nigeria and other parts of Africa all such
acts and things incidental to the adaptability and application of the
proprietary process known as GlidArc, which converts associated natural gas into
synthetic gas, together with Fischer-Tropsch technology used for the conversion
of synthetic gas into liquid hydrocarbons, and also to utilize any other
gas-to-liquids conversion technology.

Investment in Drake Synergy Petroleum as at December 31, 2001:

<TABLE>
<CAPTION>
                                                                                  2001
   ----------------------------------------------------------------------------------------
<S>                                                                    <C>
       o  Shares of Drake Synergy Petroleum Ltd.
             o  2,500,000 shares valued at Naira 1.00 per share
                                                                       $          22,104
       o  Advances to Drake Synergy Petroleum                                    110,294
       o  50% of net liabilities of Drake Synergy Petroleum                     (51,630)
                                                                       --------------------
                                                                       $         80,768
   ----------------------------------------------------------------------------------------
</TABLE>

NOTE 4 - RELATED PARTY TRANSACTIONS


     (a) During the year ended December 31, 2001, the Company and its
         subsidiaries were charged a total of $196,210 (2000: $146,919) in
         consulting fees by Glidarc Technologies Inc. (a Texas corporation) for
         process management services and technical personnel. Mr. Thomas Cooley,
         an officer of Glidarc Technologies, is also the Company's Chief
         Executive Officer and a member of the Board of Directors. Mr. Cooley
         also serves on the Board of Directors of Syngen Technologies Limited, a
         wholly owned subsidiary of the Company, and Carbon, the Company's 50%
         joint venture. At December 31, 2001 an amount of $30,783 (2000:
         $23,515) relating to services provided by Glidarc Technologies remained
         due and payable to Glidarc.

     (b) During the year ended December 31, 2001, the Company was charged
         $138,674 (2000: $15,083) for consulting services and reimbursement of
         actual expenses by Huntingtown Associates LLC (a Connecticut
         corporation) of which Mr. Baumert is the sole proprietor. Mr. Baumert
         is a member of the Company's Board of Directors. Huntingtown Associates
         charges consulting services provided by Mr. Baumert at a rate of $1,500
         per day plus expenses. At December 31, 2001 an amount of $25,631 (2000:
         $7,230) remained due and payable to Huntingtown Associates.

     (c) Under terms of an agreement, dated October 19, 2000, between Synergy
         and Stone Canyon Resources Ltd. (SCRL) where SCRL acquired a 100%
         interest in Stone Canyon Resources Inc., Synergy issued a $1,000,000
         promissory note to SCRL which remained due at December 31, 2000. During
         the year ended December 31, 2001, the Company converted the promissory
         note issued to Stone Canyon Resources Ltd. in the amount of $1,000,000
         into units of Synergy stock and warrants (Note 9(a)). Stone Canyon
         Resources Ltd. shared a common Director, Jacqueline Danforth until her
         resignation on June 15, 2001.

     (d) During the year ended December 31, 2001, various officers and directors
         subscribed to the private placement offering as described in Note 9(g)
         in the amount of $114,415 for 176,023 units.



                                      F-11
<PAGE>



NOTE 5- RECEIVABLES

Certain expenses for services rendered and supplies acquired in Canada are
subject to a federal Goods and Services Tax of 7% which is refundable to the
Company at fiscal year end. This amount is refundable to the Company in Canadian
Dollars upon filing of a GST return. Total receivables of $38,560 include a GST
refund due to the Company of $5,873, as well as certain other receivables
totaling $32,687.

NOTE 6 - CURRENT  LIABILITIES

     (a) Notes payable include $2,250,000 resulting from the private placement
         of convertible promissory notes commenced on May 25, 2000. The notes
         carry a term of five (5) years, bearing interest at a rate of 10% per
         annum, and are convertible into units of Synergy at $3.00 per Unit,
         each promissory note unit consisting of one share of common stock, a
         warrant to purchase one share of common stock at $4.00 per share and
         another warrant to purchase an additional share of common stock at
         $8.00 per share. During the first two years from the date of issuance
         interest on the Notes compounds annually on the principal amount of the
         loan and continues for each year thereafter. During the initial
         two-year period the interest on the Notes accrues but is not payable
         until the fifteenth day following each two-year period. After the
         initial two year period, interest shall accrue on a quarterly basis and
         be payable on the fifteenth day following the end of each calendar
         quarter. Terms of the notes further state that any and all interest
         accrued on any notes converted within two years from the date of
         issuance will be forgiven.

     (b) Convertible promissory note's interest in the amount of $368,182 has
         been accrued to December 31, 2001 and included on the Consolidated
         Balance Sheet as Accrued interest on notes.

NOTE 7 - LONG TERM LIABILITIES

     (a) Notes payable include $135,223 representing cash advances from Stone
         Canyon Resources Ltd. in respect of general operations. This amount has
         no set terms of repayment.

NOTE 8 - INCOME TAXES

The Company did not have a current or deferred provision for income taxes for
the years ended December 31, 2001 and 2000. Deferred tax assets comprise of the
following at December 31, 2001 and 2000.



                                             2001                   2000
                                   --------------------------------------------

Operating loss carry forwards       $         3,279,671  $           2,098,521
Organizational costs                                  -                      -
Less: Valuation allowance                    (3,279,671)            (2,098,521)
                                   --------------------------------------------
Net Deferred Tax Asset              $                 -  $                   -
                                   ============================================



The following is a reconciliation of the amount of benefit that would result
from applying the federal statutory rate to pretax loss with the provision for
income taxes for the years ended December 31:



                                              2001                  2000
                                    -------------------------------------------

Tax benefit at statutory rate (34%)  $      (13,060,247)  $        (2,064,504)
Non-deductible expenses                           69,641             1,154,306
State taxes, net of federal benefit          (1,260,853)              (88,343)
Offshore rate differential                    13,070,309                     -
Deferred tax asset valuation change            1,181,150               998,541
                                    -------------------------------------------
Total Income Tax Benefit             $                 -  $                  -
                                    ===========================================



                                      F-12
<PAGE>

NOTE 9 - COMMON STOCK

     (a) During the fiscal year ended December 31, 2000, the Company offered to
         certain subscribers under a previous Rule 504 private placement the
         option of canceling the warrant portion of the subscribed for 504 Units
         and participating in an offering of New Units, with each New Unit
         consisting of a share of common stock and a warrant to purchase an
         additional share for $3.50, exercisable at any time two years from the
         time of subscription. The price of these New Units is $1.00, which is
         the same price as the share purchase warrants that have been canceled.
         Prior to the expiration date, 1,264,000 units were converted by the way
         of cash for $264,000 and the conversion of the outstanding promissory
         note to Stone Canyon Resources Ltd. in the amount of $1,000,000 (Note
         4(c)).

     (b) In August 2000, the Company canceled a total of 1,642,858 shares
         originally issued to certain founding shareholders of the Company due
         to the fact that the Company believed adequate consideration had not
         been given for such shares at the time of issue. As a result of claims
         by the founding shareholders and associated negotiations, the Company
         entered into agreements with certain founding shareholders effective
         October 31, 2000 whereunder a total of 1,146,122 shares were
         reinstated. Of a total of 1,146,122 shares reinstated, 179,016 shares
         were reinstated to Stone Canyon Resources Inc., its employees and
         related entities, to provide compensation for development and
         exploration investments lost as a result of certain undisclosed lease
         expiration dates.


         During 2001, an additional 150,000 of the 263,910 Knight's and Duncan's
         shares were re-issued with a value of $106,500 based on the average
         trading value of the stock from the date of issuance. An additional
         103,650 shares were issued in the year 2002. (See Note 11-Knights and
         Duncans.)

     (c) During 2001, 88,010 shares were issued to a certain investment firm for
         financial advisory services. The shares are recorded in the
         Consolidated Statement of Operations under the General and
         administrative category at the average trading value of the stock prior
         to the date of execution of the agreement. A value of $75,000 is
         recorded in the Statement of Operations relating to these transactions.

     (d) During 2001, 370,144 shares were issued pursuant to an S-8 registration
         under the 2001 Employee Stock Option and Award Plan for fees related to
         various employees and consultants for services rendered. The shares
         were issued at an average trading value of $0.90.

     (e) During 2001, 375,000 shares were issued to a certain investment firm
         for investor relation and promotional support. The shares are recorded
         in the Consolidated Statement of Operations under the General and
         administrative category at the value of the stock on the date of
         execution of the agreement. A value of $397,500 is recorded in the
         Statement of Operations relating to these transactions.

     (f) During 2001, 60,000 shares were issued to a third party for assignment
         of patents related to the Syngen technology. The shares are recorded
         under Technology with a value of $54,600 based on an average share
         price of $0.91 per share.

     (g) During 2001, Cash proceeds of $1,500,000 were received on the issue of
         2,215,382 Units at $0.65 per Unit and 100,000 Units at $0.60 per Unit
         pursuant to an offering commenced during the second quarter of 2001.
         Each Unit consists of a share of common stock and a warrant to purchase
         an additional share for $1.30, exercisable at any time two years from
         the time of subscription.

     (h) In December 1999, the Company commenced a private placement of its
         common stock, each Unit consisting of one share of common stock and one
         warrant exercisable for a period of one year from the date of issuance
         at $1.00 per share. A total of 53,000 Units were sold to the end of
         December 31, 1999. In January 2000, an additional 10,000 Units under
         this offering were sold for total proceeds of $5,000, and the offering
         was closed. As at December 31, 2001 all share purchase warrants, which
         remained unexercised, had expired.

     (i) On January 14, 2000, a Financing and Security Agreement was entered
         into by and among Stone Canyon Resources Ltd., and the Company
         (collectively the "Borrowers") and James E. Nielson and Wood River
         Trust and Caribbean Overseas Investments Ltd. (collectively the
         "Lenders"), in regard to a loan to Stone

                                      F-13
<PAGE>

         Canyon Resources Ltd. in the amount of $350,000 for allocation towards
         development of the 4 bbl per day SynGen demonstration plant. Stone
         Canyon Resources Ltd. agreed to hold in trust an equal amount of funds
         receivable by way of a refund from Natural Resources Canada as
         collateral for a period of ninety days following the initial start up
         of the SynGen demonstration plant, at which time the Lenders may choose
         either (i) to convert the loaned amount into 700,000 Units of Synergy,
         at which time an amount of $350,000 would be due to Synergy from the
         Stone Canyon Resources Ltd. as consideration for the units; or (ii) a
         release of the funds held in trust in an amount equal to the principal
         balance and all accrued interest therein, with any additional trust
         funds to be released to Stone Canyon Resources Ltd. Each Unit consisted
         of one share of common stock of Synergy and one warrant to purchase an
         additional share of common stock for $1.00 per share. During the year
         2000, the lenders advised the Company of their election to convert the
         loaned amounts to Synergy Units. As a result 700,000 shares of common
         stock were issued during the year ended December 31, 2000, along with
         warrants to purchase an additional 700,000 shares. As of December 31,
         2001 the warrants remained outstanding.

     (j) On May 25, 2000, the Company commenced a private placement of up to
         $2,250,000 of its convertible promissory notes (the "Notes"). The Notes
         are convertible into Promissory Note Units of the Company, with each
         promissory note unit comprised of one share of common stock, a warrant
         to purchase one share of common stock at $4.00 per share and another
         warrant to purchase an additional share of common stock at $8.00 per
         share, at the price of $3.00 per Promissory Note Unit. As of July 26,
         2000 the private placement was fully subscribed and closed. The net
         proceeds were allocated between the beneficial conversion feature (ie.
         the warrant) and the promissory notes based on their relative fair
         values. The fair value of the Promissory Note Units was determined
         using the fair value of the underlying common stock and the warrants on
         the commitment date. The fair value of the warrants was determined
         using the Black-Scholes option pricing model with the following
         assumptions: dividend yield of 0%, volatility of 169%, risk-free
         interest rate of 6.38% and estimated life of two years. The beneficial
         conversion feature was allocated all of the net proceeds resulting in a
         discount on the Notes of $2,250,000. Since the Notes are convertible
         upon issuance, the discount was immediately amortized and resulted in
         amortization expense of $2,250,000. The Company used the services of
         Belle Haven Investments L.P. as selling agent for the private
         placement. Belle Haven received a cash commission of five percent (5%)
         of every Note sold. Belle Haven also received a warrant to purchase up
         to 52,666 Promissory Note Units at the exercise price of $3.00 per
         Unit. The Company also issued warrants for 32,000 Promissory Note Units
         to other individuals for finders' fees in completing this private
         placement.

     The following table summarizes the warrants issued, exercised and expired
     during the two year period ended December 31, 2001:

<TABLE>
<CAPTION>
<S>                                                                                       <C>
Balance at December 31, 1999                                                              1,863,000
Warrants issued during the period
        At $1.00 per share                                                                  710,000
        At $3.00 per Unit                                                                    84,666
Warrants exercised during the period, $1.00 per share                                     (431,000)
Warrants cancelled during the period, $1.00 per share                                   (1,264,000)
Warrants expired unexercised during the period, $1.00 per share                            (48,000)
                                                                                --------------------
                                                                                --------------------
Warrants to purchase common shares, balance at December 31, 2000                            914,666
Warrants issued during the period
        At $1.30 per share  (Note 9(g))                                                   2,315,382
        At $3.50 per share (Note 9(a))                                                    1,264,000
Warrants expired unexercised during the period, $1.00 per share                           (130,000)
                                                                                --------------------

Warrants to purchase common shares, balance at December 31, 2001                          4,364,048
                                                                                ====================
</TABLE>

STOCK OPTIONS

The Company has five stock option plans as follows:

o   1998 Directors and Employees Stock Option Plan (Plan "A");

                                      F-14
<PAGE>

o   1999 Directors and Employees Stock Option Plan (Plan "B");
o   1999 Directors and Advisory Board Members Stock Option Plan (Plan "C");
o   2000 Employees Stock Option and Stock Award Plan (Plan "D"); and,
o   2001 Employees Stock Option and Stock Award Plan (Plan "E")

The following table will summarize options and awards granted, and options and
awards available for grant for the year ended December 31, 2001:

<TABLE>
<CAPTION>
                                                  Plan A        Plan B          Plan C         Plan D        Plan E
                                                   1998          1999            1999           2000          2001
                                               ------------- -------------- -------------- -------------- --------------
<S>                                            <C>            <C>           <C>            <C>            <C>
Total shares authorized under plan:                 900,000      1,000,000      1,100,000      1,500,000      1,000,000
Options/awards granted:
      Employees                                     250,000        340,000              -        131,573         30,907
      Directors                                     400,000        425,000        400,000         36,315        106,674
      Non-employees, consultants                    250,000        200,000              -      1,316,175        232,563
      Advisory Board members                              -              -        500,000              -              -
                                               ------------- -------------- -------------- -------------- --------------
Total options granted                               900,000        965,000        900,000      1,484,063        370,144
Expired or cancelled (a)                                  -         35,000        200,000         15,937              -
                                               ------------- -------------- -------------- -------------- --------------
Available for grant at December 31, 2001                  -              -              -              -        629,856
                                               ============= ============== ============== ============== ==============
</TABLE>


(a)     Employees:


         (i)  35,000 employee stock options granted to various employees, under
              the 1999 Directors and Employees Option Plan, expired or were
              cancelled.

         (ii) 200,000 stock options issued to Mr. Gradek were cancelled upon
              settlement of his legal claim.

         (iii) 15,000 options granted under the 2000 Employees Stock Option and
              Stock award Plan expired and an additional 937 were cancelled.


(b)     Non-employees and consultants:


         (i)  During 2001, 100,000 options were granted to the Company's new
              legal counsel, Burg Simpson Eldredge Hersh Jardine PC, 50,000
              options were granted to a member of the advisory board for
              consulting services; 407,658 options were granted to Huntingtown
              Associates LLC (a Connecticut corporation) of which Mr. Baumert is
              the sole proprietor. Mr. Baumert is a member of the Company's
              Board of Directors; 235,000 options were granted to a third party
              investment firm for services to be provided over the next two
              years. All of these grants were issued outside of all Company
              stock option plans and have a strike price of $1.00.

         (ii) The options granted to non-employees and advisory board members
              are accounted for by the fair value method. The aggregate fair
              value of options granted and shares issued during the year ended
              December 31, 2001 was $120,000, of which $109,475 was charged to
              earnings in the current year. The remaining $10,525 was deferred
              until future periods. The fair value of the options was determined
              by using the Black-Scholes option-pricing model with the following
              assumptions: dividend yield of 0.0%, weighted average expected
              volatility of 18.16%, weighted average risk-free interest rate of
              4.25% and expected life of 2 years.




                                      F-15
<PAGE>



The following table summarizes the status of the Company's stock options
(excluding stock awards) and changes thereto during the year ended December 31,
2001:

<TABLE>
<CAPTION>
                                                                                         WEIGHTED AVERAGE
                                                                 SHARES                   EXERCISE PRICE
                                                        -------------------------     -----------------------
<S>                                                     <C>                           <C>

Balance at December 31, 1999                                                   -                           -
    Granted during year                                                3,035,000                        1.10
    Canceled during year                                               (135,000)                        2.03
    Exercised during year                                              (105,000)                        1.00
                                                        -------------------------     -----------------------
Outstanding at end of year, December 31, 2000                          2,795,000         $              1.05
                                                        -------------------------     -----------------------
    Granted during period                                                325,000                        1.31
    Cancelled during period                                            (335,000)                        1.10
    Exercised during period                                              (5,500)                        1.00
                                                        -------------------------     -----------------------
Outstanding at end of year, December 31, 2001                          2,779,500         $              1.08
                                                        =========================     =======================
Options exercisable at end of year                                     2,505,998                        1.06
  Weighted average fair value of options                                                 $              0.63
  Weighted remaining contractual life                                                             5.57 years
  Range of exercise prices                                                               $       1.00 - 1.56

</TABLE>



The Company measures compensation to employees under stock-based options and
plans using the intrinsic value method prescribed in Accounting Principles Board
Opinion 25, Accounting for Stock Issued to Employees, and related
interpretations. Compensation for options to outside directors is measured using
the fair value method set forth under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation. Had compensation
cost for the Company's options granted to employees been determined based on the
fair value at the grant dates consistent with the alternative method set forth
under Statement of Financial Accounting Standards No. 123, net loss and loss per
share would have increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                FOR THE FISCAL YEARS ENDED      CUMULATIVE FROM (DATE OF
                                                       DECEMBER 31,                   INCEPTION) THROUGH
                                                    2001            2000               DECEMBER 31, 2001
                                              -----------------------------------------------------------
<S>                                           <C>                   <C>              <C>
NET LOSS:
AS REPORTED                                   $   38,412,491    $ 6,072,071          $      47,442,947
PRO FORMA                                     $   38,616,741    $ 6,650,691          $      48,225,817
BASIC AND DILUTED LOSS PER SHARE:
AS REPORTED                                   $        1.19     $      1.31          $            2.83
PRO FORMA                                     $        1.19     $      1.34          $            2.88
                                              ===========================================================
</TABLE>


NOTE 10 - COMMITMENTS AND CONTINGENCIES


(a) Operating Lease - Effective September 1, 2000, the Company entered into a
five-year non-cancelable lease which provided for monthly lease payments,
including operating costs, of $19,171. A portion of the lease payments are
invoiced monthly to Carbon Limited, a 50% owned subsidiary of the Company, for
use of laboratory and office space. Minimum future rental payments under this
lease with remaining terms in excess of one year are as follows:

2002     230,052
2003     230,052
2004     230,052
2005     153,368


                                      F-16
<PAGE>


There are no outstanding legal matters as of the date of filing of this
document. Refer to Note 11.

NOTE 11 - OTHER EVENTS

Mr. Barry Coffey

Effective January 1, 2002, the Board of Directors approved the appointment of
Mr. Barry Coffey to the position of Chief Executive Officer. Mr. Coffey replaces
acting CEO Thomas T. Cooley who has now returned to his primary focus as Chief
Technology Officer.

Mr. John Gradek

On January 2, 2002 an agreement was made between the Company and Mr. Gradek in
relation to the claim filed with the American Arbitration Association. As a
result, Mr. Gradek will receive cash consideration in the amount of $100,000
payable in two installments of $50,000 each payable on February 14, 2002 and May
1, 2002 as well as 150,000 shares of common stock of Synergy issued in
increments of 15,000 shares each on the first of each month effective February
1, 2002 until November, 2002. A value of $208,000 has been recorded under
Accounts Payable on the Consolidated Balance Sheet representing the fair value
of the stock at December 31, 2001 of $0.72 per share for $108,000 plus cash
consideration of $100,000.


Knights and Duncans

On January 11, 2002 an agreement between the Company and Richard and Anita
Knight and Tedd and Mary Duncan was settled. The Company agreed to issue a total
of 395,865 shares of Synergy common stock. Of the total shares issuable, 53,650
shares will be issued from treasury and the remaining shares will be contributed
from founding shareholders based on the original agreement with founding
shareholders. In addition to this, a cash payment of $11,451 was made for legal
fees.

Carbon Resources Ltd.

On December 20, 2001, Synergy entered into an agreement with Texas T Petroleum
Ltd., Capital Reserve Corporation, Pierre Jorgensen and Carbon Resources Limited
to purchase the remaining 50% of Carbon Resources Limited from Texas T Petroleum
Ltd. The agreement was subject to various regulatory approvals that were
received in the early part of 2002. As of December 31, 2001 the Company's
investment remained recorded under the currently applied Equity Accounting
Method. The details of the agreement are as follows:

         1)   Texas T will transfer to Synergy all of its right, title and
              interest in and to the Carbon stock.

         2)   Synergy will issue to Texas T 400,000 shares common stock of
              Synergy.

         3)   Synergy will also issue in the name of Texas T 1,900,000 common
              shares of Synergy and deliver the stock to an escrow agent to be
              held pursuant to an escrow agreement.

This transaction was finalized on March 4, 2002.

Dr. Pierre Jorgensen


On March 4, 2002, Synergy entered into a new agreement with Pierre Jorgensen
upon the successful closing of the purchase and sale of Carbon Resources Limited
with Texas T Petroleum Ltd. This agreement replaces the Amended and Restated
Technology Transfer Agreement dated September 25, 2000. The following is a list
of items related to this agreement:

         1)   Synergy will issue to Mr. Jorgensen 500,000 shares of Synergy
              common stock to replace the 500,000 shares of Capital Reserve
              shares that were returned to Texas T Petroleum Ltd.

         2)   Synergy will issue 1,491,334 shares of Synergy common stock to Mr.
              Jorgensen with a value of $0.60 per share in order to fulfill the
              payment obligation to the amount of $1,000,000, resulting from the
              Amended and Restated Technology Transfer agreement dated September
              25, 2000 of which $500,000 is recorded in the



                                      F-17
<PAGE>


financial statements as of December 31, 2001 and the additional $500,000 is
based on the revised agreement dated March 4, 2002 whereby Synergy assumes the
obligations of Texas T Petroleum Ltd. This amount of shares has been reduced
based on the amount of cash and shares remaining in Mr. Jorgensen's account from
his initial 200,000 shares issued to him in September 2000.

         3)   An additional $100,000 will be paid to Mr. Jorgensen as
              recognition of late payment of his original $1,000,000 agreement.


Special Meeting

                  On February 18, 2002, Synergy held a special meeting of
           shareholders to consider and act upon (i) an amendment to Synergy's
           Articles of Incorporation to increase the number of shares it is
           authorized to issue from 50,000,000 shares of common stock to
           100,000,000 shares of common stock and (ii) adopt a stock option plan
           titled the 2002 Stock Option Plan. The meeting was held at Synergy's
           offices in Calgary, Alberta. There were 27,580,445 shares represented
           at the meeting either by shareholders attending in person or by
           proxy. The votes for each of the matters at this meeting were as
           follows:

<TABLE>
<CAPTION>

                    Item                                      Votes For         Votes Against    Votes Withheld
         <S>                                                  <C>               <C>              <C>
         1.  Amendment of Articles of Incorporation           26,970,478             285,180            324,787
         2.  Adoption of 2002 Stock Option Plan               21,021,366             391,895          6,167,184
</TABLE>



                                      F-18
<PAGE>




                                             INDEX OF EXHIBITS FILED HEREWITH
                                           REGULATION S-B NUMBEREXHIBITREFERENCE
<TABLE>
<CAPTION>
Exhibit No.       Description                                                          Location Reference
-----------       -----------                                                          ------------------
<S>               <C>                                                                   <C>

3(i)              Articles of Incorporation                                                   2

3(i)(a)           Amendment to Articles of Incorporation                                      5

3(ii)             By-Laws                                                                     2

4                 Specimen Stock Certificate                                                  2

4.1               2002 Stock Option Plan.                                                     5

10.1              Assignment of Technology Agreement by and between                           1
                  Laxarco Holding Limited and Carbon Resources Limited
                  dated May 1, 1998

10.2              Share Exchange Agreement by and among Laxarco Holding
                  Limited, Carbon Resources Limited, the Registrant and
                  Stone Canyon Resources Ltd. dated May 5, 1998                               1

10.3              Amended and Restated Escrow Agreement by and between the
                  Registrant and Laxarco Holding Limited dated June 25, 1999                  1

10.4              Option Letter Agreement by and between Laxarco Holding Ltd.,
                  Texas T. Petroleum Inc. and the Registrant dated June 25, 1999              2

10.5              Amendment No. 1 to the Assignment of Technology Agreement
                  by and   between Laxarco Holding Limited and Carbon Resources
                  Limited dated June 25, 1999                                                 1

10.6              Amendment No. 1 to the Share Exchange Agreement by and
                  among Laxarco Holding Limited, Carbon Resources Limited,
                  the Registrant and Stone Canyon Resources Ltd. dated
                  June 25, 1999                                                               1

10.7              Amendment No. 2 to the Share Exchange Agreement by and
                  among Laxarco Holding Limited, Carbon Resources Limited,
                  Synergy and Stone Canyon Resources Ltd. dated June 25, 1999                 3

10.8              Amendment No. 3 to the Share Exchange Agreement by and
                  among Laxarco Holding Limited, Carbon Resources Limited,
                  the Registrant and Stone Canyon Resources Ltd. dated October
                  31, 2000                                                                    3

</TABLE>




                                      F-19
<PAGE>


<TABLE>
<S>               <C>                                                                        <C>

10.9              Share Exchange Agreement by and among Laxarco Holding
                  Limited, Carbon Resources Limited and the Registrant dated
                  June 25, 1999                                                               1

10.10             Share Exchange Agreement by and between Texas T Petroleum
                  Inc. and the Registrant dated June 25, 1999                                 1

10.11             Amended and Restated Assignment of Technology Transfer
                  Agreement by and between Pierre Jorgensen, Synergy, Lanisco
                  Holdings Limited, a subsidiary of the Registrant, and Capital
                  Reserve Corporation, dated September 25, 2000                               2

10.12             Agreement by and between Pierre Jorgensen, Synergy, Lanisco
                  Holdings Limited, a subsidiary of the Registrant, and Capital
                  Reserve Corporation, dated September 25, 2000 relating to the
                  acquisition of shares of Carbon Resources Limited by Synergy                5

10.13             Employment Agreement between Synergy and Barry Coffey
                  dated as of January 1, 2002 and as amended on March __, 2002.               5

10.14             Lease between Synergy and T.W. Manufacturing dated
                  January 1, 2002.                                                            5

16                Letter on change in certifying accountant                                   4

21                List of Subsidiaries of the Registrant                                      3.
</TABLE>


Legend

1.       Incorporated by reference to such exhibit filed with Synergy's
         Registration Statement on Form 10-SB filed with the Commission on July
         15, 1999.

2.       Incorporated by reference to such exhibit filed with Synergy's
         Registration Statement on Form SB-2 filed with the Commission on
         October 13, 2000.

3.       Incorporated by reference to such exhibit filed with Synergy's Annual
         Report on Form 10-KSB for the fiscal year ended December 31, 2000 filed
         with the Commission April 1, 2001.

4.       Incorporated by reference to such exhibit filed with Synergy's Current
         Report on Form 8-K/A Filed on December 11, 2000.

5.       Filed as an Exhibit to the current filing.