UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549


FORM 10-KSB


S
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2006

£
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________________ to ________________


 
SYNTHENOL INC.
 
 
(Exact name of registrant as specified in its charter)
 


Florida
 
000-29219
 
98-0199508
(State or other jurisdiction of incorporation or organization)
 
(Commission File Number)
 
(IRS Employer Identification No.)


Suite 206, 388 Drake
Vancouver, British Columbia, Canada
 
V6B 6A8
(Address of principal executive offices)
 
(Zip Code)



Issuer’s telephone number
 
(604) 648-2090
(including area code)
   



LegalPlay Entertainment INC.
Address
201-1166 Alberni Street Vancouver, British Columbia, Canada
 
V6E 3Z3
(Former name, former address and former fiscal year, if changed since last report)
 
(Zip Code)
 
 


 
Securities registered pursuant to Section 12(b) of the Act:
None
 
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
 
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes S
No £
 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-B is not contained herein, and no disclosure will be contained, to the best of the 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.

Yes S
No £
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £
No S
 


Revenues for the year ended December 31, 2006 were $0.00.

The aggregate value of the issuer’s common stock held by non-affiliates (assuming that the issuer’s only affiliates are its’ directors, officers and 10% or greater stockholders) of the issuer as of December 31, 2006 was $149,555 based upon the closing bid price of $0.625 per share of common stock on that date as reported by the NASD OTC Bulletin Board under the symbol “STHL”.

REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS

Not applicable.


(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date:

March 5, 2007 – 731,522 Common Shares.


DOCUMENTS INCORPORATED BY REFERENCE

A description of “Documents Incorporated by Reference” is contained in Item 13 of this Report.

Transitional Small Business Disclosure Format
Yes S
No £


 
NOTE REGARDING FORWARD LOOKING STATEMENTS

This annual report on Form 10-KSB ("Report") contains statements that may contain forward-looking statements, concerning our future operations and planned future acquisitions and other matters and we intend that such forward-looking statements be subject to the safe harbors for such statements.  Any statements that involve discussions with respect to predictions, expectations, belief, plans, projections, objectives, assumptions or future events or performance (often, but not always, using phrases such as "expects", or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "estimates" or "intends", or stating that certain actions, events or results "may", "could", "might", or "will" be taken to occur or be achieved) are not statements of historical fact and may be "forward looking statements".  These forward-looking statements include statements relating to, among other things, our ability to continue to successfully compete in our markets.

We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  Such forward-looking statements are based on our beliefs and estimates of management as well as on assumptions made by and information currently available to the registrant at the time such statements were made.  Forward looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward looking statements, including, without limitation, the failure to obtain adequate financing on a timely basis and other risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements, either as a result of the matters set forth or incorporated in this Report generally and certain economic and business factors, some of which may be beyond our control.

These factors include, among others, the risk factors discussed in the section entitled "risk factors." We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.



SYNTHENOL INC.
(the “Company”)

FORM 10-KSB
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PART I

Description of Business

Business Development

We were incorporated in Florida on May 3, 1989 as Sparta Ventures Corp. In 1998 we entered into an agreement with Thermal Ablation Technologies Canada Inc., which had developed a thermal balloon ablation system to eliminate dysfunctional uterine bleeding. Our obligation was to raise $3 million to pursue the development of a prototype unit. As a result of this agreement, we changed our name to Thermal Ablation Technology Corporation on October 8, 1998. We raised $150,000 on a private placement basis, which was invested into the development of the prototype but we were unable to raise any further capital and as a result, the deal collapsed. After several months of unsuccessful operations, Thermal was abandoned and we were reclassified as a development stage enterprise in 1998. We retained a 6% interest in Thermal Ablation Technologies Canada Inc. with no further obligation.

In June 1999, our directors undertook to restructure the company by agreeing in principal to sublicense the URL, www.poker.com, from Uninet Technology Inc. (“Uninet”), and undertook the development of an on-line Internet gaming marketing company. Uninet was in the process of negotiating a license of the URL from Ala Corp. on the basis that the rights to the URL would be sub-licensed to us immediately. We appointed one of Uninet's directors to our board and on July 9, 1999, we entered into a sub-license Agreement with Uninet and began our research in to the acquisition of a casino and/or poker software license.

The terms of our agreement with Uninet included paying to Ala Corp. $100,000 and issuing to it 750,000 shares of our common stock as an initial fee plus pay an on-going royalty of 4 % of our gross revenue to Ala Corp. Half of the 750,000 shares referred to above were issued to two of our directors, one of whom was, at the time, also a director of Uninet. Pursuant to our sub-license agreement with Uninet, we acquired the exclusive worldwide rights to market the www.poker.com URL until the year 2098. In addition, the title to the URL transfers to us free and clear of all encumbrances when the cumulative on-going royalties paid to Ala Corp. exceeds $1 million.

In August 1999, we entered into a one-year non-exclusive license agreement with ASF Software Inc. (“ASF”) of Belize. ASF agreed to license to us certain multi-player poker software with the specific provision that we would then sub-license the software to third parties. The terms of the license with ASF included payment of $135,000 plus an on-going royalty of 20% of the rake. The agreement was automatically renewed for one-year periods and either party could terminate the agreement with 90 days notice to the other party. In addition, ASF's associated company would provide credit card processing for a fee of 5.75%.

On August 10, 1999, we changed our name to Poker.com, Inc. and on August 19, 1999, our common stock became quoted on the NASD OTC Bulletin Board under the symbol 'PKER'.

As our business was to market and resell gaming licenses (as opposed to operating casinos or card rooms), in August 1999, we entered into an agreement with Antico Holdings S.A. ("Antico") a Costa Rican company whereby we granted Antico exclusive worldwide rights to use the URL wwe.poker.com for operating casino and/or card rooms, in consideration of $200,000. We retained all other rights to the URL for developing the web site as a portal, for advertising, marketing the Antico card-room, marketing casinos, marketing card rooms and other gaming software.

Pursuant to our agreement with Antico, we earned a marketing fee of 20% of all deposits made to Antico's poker card room by players who log in to play poker and use their credit cards or send wire transfers to deposit funds to play poker.

In September 1999, we raised $500,000 on a private placement basis to fund the development of our business model, namely creating www.poker.com as a gaming portal, selling software program sub-licenses and casino links for online gaming, marketing and selling banner advertising on our portal.

- 1 -


On November 29, 1999, our subsidiary, Casino Marketing S.A., purchased a Master Sub-License Agreement from Gamingtech Corporation (“Gamingtech “ a subsidiary of Chartwell Technologies Inc., which developed a suite of 18 casino games). We paid Gamingtech $100,000 for the non-exclusive worldwide rights to sell Gamingtech's casino software program licenses. Our agreement with Gamingtech enabled us to:

 
a)
sell independent casino software program sub-licenses for up to $75,000 plus a gross royalty fee of up to 35% of monthly net operating profit. This independent sub-license will enable the purchaser to use the licensor's proprietary software; and,

 
b)
sell dependant sub-license casino 'links' for up to $35,000 plus a gross royalty fee of between 35% and up to 65% of the sub-licensees net monthly revenue. In this situation the dependant sub-licensee is linked into an independent sub-licensees proprietary software and does not have its own proprietary software

In December 1999, we raised a further $360,000 on a private placement basis for general working capital.

On January 10, 2000, we sold one of Gamingtech's independent casino sub-licenses to Antico for $50,000 with the understanding that Antico would assist us in providing technical and administrative services from Costa Rica to our casino sub-licensees. Antico would pay us 35% of the net profits generated from their casino, known as Visual Casino. Antico will earn from web masters who purchase links to Visual Casino from us, a 3% administration fee. Visual Casino will provide the webmaster virtual time statistics on who is playing, how much has been deposited and how much has been won by the players.

We realized by late December 1999 that the ASF software was outdated and ASF was refusing to update the software. We decided to find a new provider and in February 2000, we entered into a contract with TransNet International S.A. (“TransNet”) with a view to providing us with a new generation poker software license for a term of 50 years. We paid $30,000 to TransNet and an on-going royalty payment of 20% of the rake from the use of the software plus a fee of $50,000 for every master license we sold. The software was delivered to us in August of 2000 and since that time we sold master card room licenses and sub-licenses.  Antico agreed to accept the new software program in place of the ASF software despite the problems in change over.

After notice was given to ASF of cancellation of the master license agreement, ASF instructed Credit Card Processing of Belize to hold back payments which resulted in Antico not being paid the 15% hold backs and its’ inability to pay us royalty payments. Antico agreed to assign the withholding payments to ensure that we receive the outstanding royalty fees due.

By mid 2000, we realized that the Gamingtech software was badly constructed and Gamingtech was unable to upgrade it’s system. As a result, on September 14, 2000, the Company purchased a casino software license from Starnet Systems International Inc. (“Starnet”) in return for $100,000 in advertising and monthly fees based on a percentage of net monthly revenue.  We then cancelled our agreement with Gamingtech.

By December 2000, we had launched two Starnet Casino websites.

In July 2001, we launched a poker affiliate software program, which enabled sub-licensees to offer webmasters the ability to earn fees by directing traffic to a poker.com poker room. Features of the affiliate program included no investment and no risk to the webmasters, real-time statistics, accumulated bad beat jackpot, and 24/7 technical and customer support.

We offered alternative casino software to our customers in July 2001 when we entered into a strategic relationship with Trimon Software Systems Inc. (“Trimon”).Trimon offered: baccarat, black jack, craps, Caribbean poker, let-it-ride poker, pai-gow poker, American roulette, slot machine and video poker. The Trimon software enabled our casino owner/operators to extend their poker and casino games into the wireless and closed circuit areas through WAP (wireless application protocol), casino-on-tv and casino kiosk.

In September 2001 we sold a Poker master license to Microgaming Systems Ltd. (“Microgaming “a South African/UK Company and one of the largest casino licensors on the Internet) to market on-line multi-player poker software sublicenses. Microgaming's intention was to provide all their casino licensees with a poker card room sublicense. We would earn a licensing fee for each sublicense sold plus a monthly royalty fee.

- 2 -


In November 2001, we entered into an agreement with Focusnet Capital Inc. and Pyramid Casino to provide a master poker card room.

On November 30, 2001, our subsidiary, Casino Marketing S.A. (“Casino Marketing”), amended its original agreement with TransNet whereby the fee payable was reduced as follows:

 
(i)
a $50,000 license fee was payable provided Casino Marketing sold a master license for $100,000 or more;

 
(ii)
if sold for under $100,000 the fee would be reduced to 40%.

TransNet also agreed to provide Casino Marketing with a new software program to enable Casino Marketing to sell sub-licenses for not less than $50,000. TransNet was to receive a fee of $20,000 for each sub-license sold. It was further agreed that the royalty fee payable to TransNet would be reduced to 50% of the royalties that Casino Marketing received from sub-licensees rather than 20% of the rake.

Our strategy in 2002 was to continue to acquire master licenses from software developers to resell their software programs to earn licensing fees and royalty fees as opposed to developing our own proprietary software, which requires substantial capital and human resources. Our experience determined that some software developers lack the marketing expertise to take advantage of the market potential for selling sub-licenses. The software developers themselves also recognized the fact that the more licenses they sell, directly or indirectly, the greater their royalty revenue.  We were able to acquire master sub-licensing contracts from software developers and offered software development from Trimon Software System Inc.; Starnet Systems International Inc. and TransNet International Gaming S.A.

During 2002 we continued marketing casino and poker licenses. In or about mid-2002, we recognized some major shortcomings of our marketing efforts. Our costs of sales were extraordinarily high and did not justify the overhead expenses. A second fundamental issue was that sales were being made to unqualified buyers, which resulted in buyer dissatisfaction and eventual cancellation, which impacted our credibility and financial performance. Because our licensees who acquired the software from us were unqualified to operate on-line games, we would receive a licensing fee but the operator was destined to fail. As a result, we restructured our selling activities and reduced the number of our employees.

Also during 2002, legislation was introduced to the United States Congress to prohibit on-line gaming. We felt it would be prudent to focus the resources of our business on developing an on-line skill based poker system. In early 2003, we were able to acquire the rights to a provisional patent for the method of determining skill in a tournament setting and undertook to realize the technology in an on-line environment.

On February 12, 2003 we acquired the rights, title and interest in a skill-based method of playing poker online known as Skill Poker. Skill Poker was invented by Randy Peterson, a retired Vancouver police detective who sold it to Blue Diamond International Capital (“Blue Diamond”). The provisional patent application covering the method of playing Skill Poker was acquired by us from Blue Diamond for $50,000 in cash and through the issuance of 3,000,000 common shares issued in accordance with Regulation S of the Securities Act of 1933 (based on the closing market price of $0.035 on the date of issue for a total cost of $105,000). On-going consideration payable to Blue Diamond included a monthly minimum payment of $3,500 or 4% of the gross revenue earned through the operation of Skill Poker, whichever was the greater. In the event that we further licensed the technology to a third party, Blue Diamond would also receive 20% of any initial license fee and 4% of the gross revenue of any such licensee. The provisional patent application, the related trademarks and the operations of Skill Poker were conducted through a wholly owned Washington State subsidiary, Skill Poker.com Inc., which was incorporated in February of 2003.

- 3 -


In March 2004, SkillPoker and Blue Diamond entered into an Addendum to the original Agreement, whereby they agreed to amend the minimum monthly payment from SkillPoker to Blue Diamond from US$3,500 to US$2,500 per month, for a period of six months commencing on March 1 2004.

In consideration for the reduction of the monthly payment, the Company agreed to pay Blue Diamond US$6,000 in common stock, issued in accordance with Rule 144 based on a 30 day trading average price from the date of the Addendum.

Skill Poker is a skill-based method of playing poker online which removes the elements of chance. The legality as a skill-based game was opined upon by I. Nelson Rose, a professor of law at Whittier University in California. Dr. Rose has represented the U.S and Canadian governments in addition to state and provincial governments and many commercial gaming operators. Skill Poker.com Inc. earns its’ revenue through the operation of skill based poker tournaments online whereby players enter tournaments paying a buy in and a tournament fee. Skill Poker.com Inc. earns only the tournament fee and does not participate in the buy in. The legality or illegality of the Skill Poker system with respect to U.S or Canadian gaming regulations can not be determined considering the fact that the system has not been challenged in a court of law. It is, however, widely considered that games of skill are different from games of chance and therefore are not considered gambling by regulatory bodies.

In order to create the system online, we required poker software and on March 31, 2003 acquired a license to the source code of proprietary software owned by Pokersoft Corporation A.V.V. (“PokerSoft”) The license included the development of the Skill Poker system incorporating the claims as set forth in the provisional patent application. The system, which has been developed, is proprietary to Skill Poker and cannot be used by any third parties without prior consent or license from Skill Poker.com Inc., which includes both the software operating Skill Poker and the provisional patent application. Consideration payable to Pokersoft included $30,000 in cash and the issuance of 3,000,000 shares issued in accordance with Regulation S of the Securities Act of 1933 (based on the closing market price of $0.018 on the date of issue for a total cost of $54,000). Ongoing consideration payable to Pokersoft includes a monthly minimum of $3,000 or 15% of the gross tournament fees earned by Skill Poker, whichever the greater. The development cost of the system will be paid in addition to the above.

On September 17, 2003, our wholly owned subsidiary, SkillPoker.com, Inc. officially launched a beta for SkillPoker tournaments on www.SkillPoker.com, the first skill based poker site in North America.  On November 15, 2003, our wholly owned subsidiary, SkillPoker.com officially released the real money, pay-for-play version for SkillPoker tournaments on www.SkillPoker.com. In 2003, we generated marginal revenues from the patent pending SkillPoker system.  It became apparent that even though the Skill Poker was a legal way of playing Poker on line  there was no incentive for players that were playing on “illegal” sites to change over to skill poker. LegalPlay came to the conclusion that the business model would not succeed until the U.S Government outlawed all on-line gaming which is logistically almost impossible to achieve.

On September 15 2003, we changed our name to LegalPlay Entertainment, Inc. in accordance with shareholder approval received at the Annual General Meeting held September 9, 2003. On September 17, 2003, our common stock symbol changed to 'LPLE' on the NASD OTC Bulletin Board.

On January 6, 2004, we issued 605,000 options under the terms of the 1998 Combined Incentive and Nonqualified Stock Option Plan to employees, officers and directors. These stock options have no vesting provision, with the exercise price at $0.11 and will expire in two years from the date of issue. On the date of the grant, the market price of the stock was equal to the exercise price.

On January 23, 2004, we entered into a letter of intent with GamblingVision Group Inc. (“GamblingVision”) whereby GamblingVision will, subject to the conditions of closing, merge with a subsidiary corporation of LegalPlay.

Following our due diligence period, we announced on March 31, 2004 that we would not be completing the transaction to acquire GamblingVision due to our findings that the technology was too premature and was not an immediate fit with our core business of gaming relating products which do not contravene gaming regulations.

- 4 -


On June 1, 2004, PokerSoft sent a demand letter to SkillPoker regarding the lack of payment of the May 2004 invoice in the amount of $3,000. The outstanding payment was not made to PokerSoft within the ten days stipulated in their demand letter. On June 15, 2004, SkillPoker received a subsequent letter from PokerSoft giving them notice that, effective immediately, they were terminating the License Agreement, as per Clause 7(a) of the contract.

On February 16, 2005, the Company made the necessary regulatory filings with the U.S. Securities and Exchange Commission in regards to their change in auditor.

The company filed a Form 15-12(g) with the United States Securities and Exchange Commission (“SEC”) on March 18, 2005, terminating their obligations as a reporting issuer. At that time, the Company did not have the financial resources to pay the accounting or legal fees which were necessary to complete the regulatory filings for the SEC. As a result of this filing, the company was no longer listed on the OTC-BB and became listed on the Pink Sheets under the trading symbol, LPLE.PK.

In April 2005, the Company and SkillPoker were in default under the terms and conditions of the Blue Diamond Agreement who gave written notice to cancel the Agreement and take back the assignment of the inventions.

On April 14, 2005, the parties entered into an Assignment Agreement, where in consideration of the sum of $1.00, SkillPoker assigned to Blue Diamond the inventions and patents known as:

Country
Serial Number
Filing Date
United States
60/393,736
July 8, 2002
United States
10/614,752
July 8, 2003

In October, 2001, the Company’s wholly-owned subsidiary, Casino Marketing S.A. entered an agreement with Genius Goods Inc. for the exclusive marketing and licensing rights to the Poker.cc domain name. In November 2003, as a result of the Company's primary focus on the operation of the patent pending Skill Poker system, the agreement was amended such that in consideration for the domain name Poker.cc, Genius Goods would accept a Skill Poker sub license.  Poker.cc never launched a SkillPoker website and it was later agreed to transfer the URL, poker.cc, back to Genius Goods Inc.  The transfer took place on April 22, 2005 and all dealings between the two companies has been subsequently terminated.

On April 25, 2005, the Company reached a Settlement Agreement with Ala Corp. regarding the dispute over the Poker.com URL/domain name and trademark dispute. The Settlement Agreement outlined the following terms:

 
·
Communication Services Inc. will pay to the counsel for Uninet and LegalPlay, Kornfeld Mackoff Silber, in trust, $435,000 for distribution to both Uninet and LegalPlay.

 
·
Ala Corp., and associated parties, agree to transfer to LegalPlay, or as they may direct, all of their right, title and interest in their 2,403,400 common shares of LegalPlay Entertainment.

As a result of the Assignment Agreement that the Company entered into with Uninet (who agreed to finance the legal fees for a share of the URL) on December 29, 2004, assigning 90% of any settlement with Communication Services Inc. or Ala Corp. to Uninet, the Company received a cash settlement of $42,000 and 250,000 common shares of LegalPlay.

As a result of the URL/domain name dispute between the Company and Ala Corp., Antico Holdings S.A. (“Antico”) was unable to continue using the poker.com URL and suffered substantial damages. As a result, Antico had refused to pay the Company the amount of $591,048 until the URL had been reinstated and had demanded restitution of the URL or damages

The parties agreed that the damages that Antico suffered substantially exceeded the amount that was owing to LegalPlay. Antico agreed that they would not commence legal action for damages on the condition that LegalPlay write-off the debt of $591,048.

- 5 -


As a result of the $43,000 cash settlement that the Company negotiated as part of the Settlement Agreement with Ala Corp., they had the financial resources to pay the accounting and legal fees incurred in completing regulatory filings for the SEC. On June 17, 2005, the Company filed an amendment to the Form 15-12(g) previously filed with the SEC on March 18, 2005. The amendment stated that the Company wished to withdraw their request to terminate their obligations as a reporting issuer.

On July 15, 2005, the Company issued 900,000 common shares, representing 2.71%, of LegalPlay to the directors of the Company, as settlement for outstanding directors’ fees totaling $9,000.  The debt was settled at an exchange price per common share of $0.01 and the shares were issued under the conditions of Rule 144 and contain the appropriate restrictive legend.

We continued to operate through our three subsidiary companies: Casino Marketing S.A., a Costa Rican registered company; 564448 BC Ltd., a British Columbia registered company; and Skill Poker.com Inc., a Washington state registered company incorporated January 29, 2003 however, it has been decided to dissolve these three companies as they are no longer needed by the Company.

On March 1, 2006, the Company agreed to sell all of the issued and outstanding shares of their wholly-owned subsidiary Skill Poker.com Inc. to Randy Peterson (or his nominee) for $1. Mr. Peterson (or his nominee) also agreed to assume all of the liabilities of Skill Poker.com Inc. The Company has applied to dissolve Casino Marketing S.A. and 564448 BC Ltd. as they are no longer needed by the Company.

On October 31, 2006, the Company's Board of Directors authorized the adopted of the fifty–for-one stock rollback whereby the record owners of the Company's Common Stock shall own one share of Common Stock ("New Common Stock") for every fifty shares of Common Stock held by them. The Company will maintain the number of authorized post split shares of common stock at 100,000,000 common shares and 5,000,000 shares of preferred stock both with a par value of $0.01 per share. On the same date, the Company's Board of Directors authorized to change the name of the company from LEGALPLAY ENTERTAINMENT INC. to SYNTHENOL INC. The stock rollback and corporate name change came to effect on December 18, 2006. Our current business strategy is to acquire new Poker software and market the software to on-line gaming sites worldwide.

We are in immediate need of further working capital and are considering options with respect to financing in the form of related party advances, debt, equity or a combination thereof. Management is considering a reverse split in order to increase the share price and reduce the number of issued and outstanding shares.

Competition

The on-line gaming market is rapidly evolving and intensely competitive and we expect that competition will further intensify in the future. Barriers to entry are high.

Many of our competitors have longer operating histories, larger customer bases, greater brand recognition and greater financial, marketing and other resources than us. We are aware that certain of our competitors have and may continue to adopt aggressive policies and devote substantially more resources to website and systems development than us. Increased competition may result in reduced operating margins, loss of market share and a diminished brand franchise.

There can be no assurance that we will be able to compete successfully against current and future competitors. New technologies and the expansion of existing technologies may increase the competitive pressures on us.

Internet Gaming Companies

Our research shows that there are a number of public and private companies competing for market share in the Internet Poker gaming world. We anticipate being able to provide updated and upgraded software at a highly competitive level.

- 6 -


Government Regulation of the Internet

We may be subject, both directly and indirectly, to various laws and regulations relating to our business, although there are few laws or regulations directly applicable to selling on-line gaming software on the Internet. However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to gaming on the Internet. Such laws and regulations may cover issues such as user privacy, pricing, content, copyrights, distribution and characteristics and quality of products and services.

Furthermore, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online. The enactment of any additional laws or regulations may impede the growth of gaming on the Internet which could, in turn decrease the demand for our products and services and increase our cost of doing business, or otherwise have an adverse effect on us.

Risk Factors

An investment in our common stock involves a high degree of risk. You should read the following risk factors carefully before purchasing our common stock. The risks and uncertainties described below are not the only ones we face. Other risks and uncertainties, including those that we do not currently consider material, may impair our business. If any of the risks discussed below actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. This could cause the trading price of our common stock to decline. The terms "we", "our" and "us" refer to the Company.

Limited Operating History

We have a short operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets such as online commerce. Such risks include, but are not limited to, possible inability to respond promptly to changes in a rapidly evolving and unpredictable business environment and the risk of inability to manage growth. To address these risks, we must, among other things, develop and expand our customer base, successfully implement our business and marketing strategies, continue to develop and upgrade website and transaction- processing systems, provide superior customer service, respond to competitive developments, and attract and retain qualified personnel. If we are not successful in addressing such risks, we may be materially adversely affected.

Dependence on Continued Growth of Online Commerce

Our long-term viability is substantially dependent upon the widespread consumer acceptance and use of the Internet as a medium of commerce. Use of the Internet as a means of effecting monetary transactions is at an early stage of development, and demand and market acceptance for recently introduced services and products over the Internet remains uncertain. We cannot predict the extent to which consumers will be willing to shift their gaming habits to online casinos.

The Internet may not become a viable commercial marketplace for a number of reasons, including potentially inadequate development of the necessary network infrastructure, delayed development of enabling technologies and inadequate performance improvements. In addition, the Internet's viability as a commercial marketplace could be adversely affected by delays in the development of services or by increased government regulation. Changes in or insufficient availability of telecommunications services to support the Internet also could result in slower response times and adversely affect usage of the Internet generally and us in particular. Moreover, adverse publicity and consumer concern about the security of transactions conducted on the Internet and the privacy of users may also inhibit the growth of commerce on the Internet. If the use of the Internet does not continue to grow or grows more slowly than expected, or if the infrastructure for the Internet does not effectively support growth that may occur, we would be materially adversely affected.

- 7 -


Need for Additional Funds

Our capital requirements depend on several factors, including the rate of market acceptance, the ability to develop new software, the cost of website development and upgrades, and other factors. We are in immediate need of further working capital and are considering options with respect to financing in the form of debt, equity or a combination thereof. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. If equity securities are issued in connection with a financing, dilution to our shareholders may result, and if additional funds are raised through the incurrence of debt, we may become subject to restrictions on its operations and finances.

Rapid Technological Change

To become and remain competitive, we intend to develop, enhance and improve the responsiveness, functionality and features of proposed sites and develop new features to meet customer needs. The Internet is characterized by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions and the emergence of new industry standards and practices that could render our proposed websites, technology and systems obsolete. Our success will depend, in part, on its ability to license leading technologies useful in its business, enhance its proposed services, develop new services and technology that address the needs of its proposed customers, and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. If we are unable to use new technologies effectively or develop and adapt its websites, proprietary technology and transaction-processing systems to customer requirements or emerging industry standards, it would be materially adversely affected.

Dependence on the Communications Infrastructure of the Internet for Transmitting Information

Our future success will depend, in significant part, upon the maintenance and growth of this infrastructure and any failure or interruption may have a material adverse effect on our business. To the extent that this infrastructure continues to experience an increased numbers of users, increased frequency of use and increased bandwidth requirements of users, we cannot be certain that this infrastructure will be able to support the demands placed on it or that the performance or reliability of this infrastructure will not be adversely affected. Outages and delays in sending or receiving data as a result of damage to portions of this infrastructure could also affect our ability to transmit information.

Online Security Risks

If our Poker software and controls are unable to handle online security risks, its business will be adversely affected. These systems use packet filters, firewalls, and proxy servers, which are all designed to control and filter the data. However, advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may make it easier for someone to compromise or breach the technology used by us and our sub-licensees to protect subscribers' transaction data. If such a breach of security were to occur, we could cause interruptions in services and loss of data or cessation in service. This may also allow someone to introduce a "virus", or other harmful component causing an interruption or malfunction.

To the extent that our activities involve the storage and transmission of information such as credit card numbers, security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability.

Dividends

For the foreseeable future, we do not intend to pay any dividends on our common stock. Any future decision with respect to dividends will depend upon our future earnings, future capital needs and operating and financial condition, among other factors.

Broker-dealers may be discouraged from effecting transactions in our shares because they are considered penny stocks and are subject to the penny stock rules.

- 8 -


Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended, impose sales practice and disclosure requirements on NASD broker-dealers who make a market in "a penny stock". A penny stock generally includes any non-NASDAQ equity security that has a market price of less than $5.00 per share. Our shares were quoted on the NASD OTC Bulletin Board, and the price of our shares ranged from $0.35 (low) to $1.20 (high) during the year ended December 31, 2006. The closing price of our shares on December, 31, 2006 was $0.625. Purchases and sales of our shares are generally facilitated by NASD broker-dealers who act as market makers for our shares. The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our shares, which could severely limit the market liquidity of the shares and impede the sale of our shares in the secondary market.

Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt.

In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.

Other Information

Neither the Company nor any of its subsidiaries engaged in any research and development activities during 2006. We do not manufacture any products or engage in any activity that requires compliance with environmental laws.


Description of Property

In 2004, we occupied 1,145 square feet of commercial space at #630-1188 West Georgia Street in Vancouver, British Columbia, Canada. This facility housed all of our operations including technical, marketing and administration for all of our subsidiaries. The annual cost of the space at the West Georgia location was
approximately $13,400. On January 1, 2005, we relocated our offices to Suite 201, 1166 Alberni Street, Vancouver, British Columbia, Canada. The cost of the space at the Alberni Street location was approximately $2,400 per annum. In order to save costs we have subsequently moved our offices to #206-388 Drake Street, Vancouver where we share offices provided by one of our shareholders.


Legal Proceedings

On December 6, 2002, the domain www.poker.com was re-directed without our consent or knowledge by Ala Corp., a company registered under the laws of Antigua and whose principal is Ms. Liz Bryce of Vancouver, British Columbia, Canada. The domain was originally licensed from Ala Corp. to Uninet Technologies Inc. (“Uninet”) in 1999.  Uninet immediately sub-licensed the domain to us. In turn, we sub-licensed the domain to Antico Holdings S.A. of Costa Rica for the operating casino and/or card rooms. We retained all other rights to the domain name including developing the web site as a portal, marketing casinos and card rooms and other gaming software.

Ms. Bryce, through Ala Corp., owned 1,297,900 shares, or 3.81%, of our issued and outstanding common stock. In addition, Ms. Bryce's parents collectively owned 1,105,500 shares, or 3.24%, of our common stock. As of December 31, 2004, Ms. Bryce, together with her parents, owned directly and indirectly, a total of 2,403,400 shares or 7.05% of our common stock. In August 2005, these common shares were transferred from Ms. Bryce and her parents to LegalPlay and Uninet, as part of the Settlement Agreement.

- 9 -


Although contemplated in the agreements between Ala Corp. and Uninet and between Uninet and us, Ala Corp. failed to provide Uninet or us with any notice that it was redirecting the domain. As such, we were unaware of any allegations of contractual breach and management is of the opinion that all obligations, as set forth by the terms and conditions of the agreements, have been fulfilled and we are not aware of any reason for this dispute.

We agreed with Uninet (who would be entitled to 50% of the URL if they co-joined an action) to jointly pursue all legal avenues available to retain the exclusive right to use www.poker.com and to enforce the provisions of the agreement between Ala Corp. and Uninet.

After the domain was redirected, Ala Corp. transferred the registered owner of the domain to Communications Services Inc. (“CSI”), a company registered in Western Samoa and the registrar was changed from California-based Verisign Inc. to Australia-based Fabulous.com.

Together with Uninet, we applied to The Internet Corporation for Assigned Names and Numbers (ICANN), a governing body which oversees domain registration and use issues, for the purpose of obtaining a decision on the basis of the wrongful redirection of www.poker.com.  ICANN, however, ruled on January 21, 2003 that since the domain is now registered in the name of Communication Services Inc., it could only decide on a dispute between Ala Corp., the previous registered owner of the domain and CSI. Together with Uninet, we did not have any standing to apply for relief with ICANN since neither of us were ever the registered owner of the domain name.

On February 28, 2003, together with Uninet, we sued CSI in the Supreme Court of British Columbia, Canada for a declaration that as a successor and assignee of Ala Corp., CSI is a trustee of the domain name for the benefit of Uninet and us:

 
·
an accounting for profits earned by CSI through the wrongful use of the domain name
 
·
a declaration that Ala and Communication are bound by the License Agreement between Ala and Uninet
 
·
a declaration that Uninet and us are entitled to the exclusive use of the domain name.

On November 3, 2003, we received notice from the Supreme Court of British Columbia that we were successful in establishing a substantial connection between the claims CSI was making and the jurisdiction in British Columbia. LegalPlay Entertainment Inc. can therefore pursue its case against CSI in British Columbia in connection with the litigation regarding the URL www.poker.com. Parallel arbitration proceedings against Ala Corp. remain under way.

In 2004, together with Uninet, we proceeded to arbitration (in accordance with the terms and conditions of the agreement) with ALA Corp. in Vancouver, British Columbia, Canada to assert Uninet and our rights under the agreements.  We selected the mutually acceptable arbitrator, Fasken Martineau DuMoulin LLP.

In the meantime, together with Uninet, we requested that the current registrar, Fabulous.com impose a lock on the domain name, www.poker.com, pending the outcome of the Supreme Court action and the arbitration, which means the domain cannot be transferred to either another owner or to another registrar.

As mentioned above, we sub-licensed the domain name to Antico Holdings S.A. (“Antico”) of Costa Rica to use the domain for operating casinos and/or card rooms. Antico notified us that it had ceased all payments of royalties payable to us pending resolution to the dispute over the right to use the domain. It is anticipated that Antico will allege that we are responsible for damages incurred by Antico as a result of the dispute. We intend to defend any claims and will appropriately claim similarly against Uninet Technologies Inc., ALA Corp. and CSI.

In April 2005, we reached an agreement with Antico confirming that the damages that Antico suffered substantially exceeded the amount that was owing to LegalPlay in unpaid royalties. Antico agreed that they would not commence legal action for damages on the condition that LegalPlay write off the outstanding debt.
On April 25, 2005, the Company reached a Settlement Agreement with Ala Corp. regarding the dispute over the URL/domain name and trademark dispute.

- 10 -


As at December 31, 2006, no federal, state or local governmental agency is presently contemplating any proceedings against us. Other than as described above, no director, executive officer or affiliate thereof or owner of record or beneficially of more than five percent of our common stock is a party adverse to or has a material interest adverse to us in any proceeding.


Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the year of 2006

- 11 -


PART II

Market for Common Equity and Related Stockholders Matters

Market Information

There is no "established trading market" for shares of our common stock. As of December 31, 2006 common stock was quoted on the NASD OTC Bulletin Board under the symbol "STHL". No assurance can be given that any "established trading market" for our common stock will develop or be maintained.

The range of high and low closing bid quotations for our common stock during each quarter of the calendar years ended December 31 2006, 2005, and 2004 is shown below, as quoted by Reuters. Prices are inter-dealer quotations, without retail mark-up, markdown or commissions and may not represent actual transactions.

Stock Quotations
Quarter Ended
High Bid
Low Bid
March 31 2005
1.900
0.125
June 30 2005
2.300
0.125
September 30 2005
1.300
0.200
December 31 2005
$0.625
$0.200
March 31 2006
1.000
0.200
June 30 2006
1.000
0.500
September 2006
0.600
0.400
December 2006
0.625
0.350


The future sale of our presently outstanding "unregistered" and "restricted" common stock by present members of management and persons who own more than five percent of our outstanding voting securities may have an adverse effect on any "established trading market" that may develop in the shares of our common stock.

Holders

As of December 31, 2006, we had 47 shareholders of record of common stock, including shares held by brokerage clearing houses, depositories or otherwise in unregistered form. We do not know the beneficial owners of such shares.

Management's Discussion and Analysis of Plan of Operations

You should read the following discussion and analysis in conjunction with the audited consolidated financial statements and notes thereto appearing elsewhere in this annual report on Form 10-KSB.

Results of Operations

Year ended December 31, 2006 Compared to Year ended December 31, 2005

General Description
Our current business strategy is to develop our own Poker software and market the software to on-line gaming sites worldwide.

- 12 -


Revenue
We had continuing revenue of $nil and discontinued operations revenue of $nil for the twelve months ended December 31, 2006 and 2005.

General and Administrative Operating Expenses
Our total general and administrative operating expenses were $66,281 in fiscal 2006, compared to $59,413 in fiscal 2005. The increase is due to higher office supplies and services in relation to SEC filings. Company was able to cut back on management/consulting fees, professional fees, and rent during the period ended December 31, 2006.

The following are general and administrative expenses categories decreased significantly during the year ended December 31, 2006 compared to the same period in 2005:


General and Administrative Operating Expenses
2006
2005
Management and consulting fees
17,723
19,063
Office supplies and services
16,305
 4,737
Professional Fees
31,340
32,998
Rent
367
2,568


Net loss
Net loss for fiscal 2006 was $36,575 compared to net loss of $54,416 in fiscal 2005. The change is due to increase of $29,684 from sale of discontinued operations and $11,568 decrease from office supplies and services for increasing filing and auditing fees. We had basic net loss of $0.05 per share in 2006 compared to loss of $0.08 per share in 2005.

Liquidity and Capital Resources

On December 31, 2006, our working capital deficit was $212,546 compared to $201,534 at December 31, 2005. At December 31, 2006, the Company had cash and cash equivalents totaling $13,462 compared to $9,015 at December 31, 2005.  We are in immediate need of further working capital and are considering options with respect to financing in the form of debt, equity or a combination thereof.

Net cash increase for the year ended December 31, 2006 was $6,697.  The increase in cash was mainly due to $24,500 provided by financing activities for operating expenses.

Net cash used for investing activities for the year ended December 31, 2005 was $1.

The Company's ability to continue as a going concern and fund operations in 2007 is contingent upon its ability to raise funds through equity or debt financing.

- 13 -


Financial Statements and Supplementary Data




SYNTHENOL INC.

(Formerly Legalplay Entertainment Inc.)
 (A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

- 14 -

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and Board of Directors of
Synthenol Inc. (formerly LegalPlay Entertainment Inc.)

We have audited the accompanying consolidated balance sheet of Synthenol Inc. (formerly LegalPlay Entertainment Inc.), a development stage company, as of December 31, 2006 and the consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended and the cumulative period from January 1, 2004 (inception) to December 31, 2006.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.  The consolidated financial statements as of December 31, 2005 and for the period from January 1, 2004 (inception) to December 31, 2005 were audited by other auditors whose report dated March 1, 2006, on those statements included an explanatory paragraph that described the Company’s working capital deficiency with no established source of revenue and its dependence on its ability to raise capital from shareholders or other sources to sustain operations, discussed in Note 1 to the financial statements.. The consolidated financial statements for the period January 1, 2004 (inception) to December 31, 2005 reflect a total net loss of $831,739 of the related cumulative totals.  Our opinion, insofar as it relates to amounts included for such prior periods, is based solely on the reports of such other auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, these consolidated financial statements present fairly, in all material respects, the financial position of Synthenol Inc. as of December 31, 2006 and the results of its operations and its cash flows for the year then ended and for the period from January 1, 2004 (inception) to December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, to date the Company has reported losses since inception from operations and requires additional funds to meet its obligations and fund the costs of its operations.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in this regard are described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

“DMCL”

DALE MATHESON CARR-HILTON LABONTE LLP
Chartered Accountants

Vancouver, Canada
March 20, 2007

Vancouver
Suite 1500-1140 West Pender Street, Vancouver, B.C., Canada V6E 4G1, Tel: 604 687 4747 Ÿ Fax: 604 689 2778 - Main Reception
South Surrey
Suite 301 - 1656 Martin Drive, White Rock, B.C., Canada V4A 6E7, Tel: 604 531 1154 Ÿ Fax 604 538 2613
Port Coquitlam
Suite 700 - 2755 Lougheed Highway, Pork Coquitlam, B.C., Canada V3B 5Y9, Tel: 604 941 8266 Ÿ Fax: 604941 0971
 
- 15 -


SYNTHENOL INC.
(Formerly Legalplay Entertainment Inc.)
 (A Development Stage Company)
CONSOLIDATED BALANCE SHEETS

 
ASSETS
 
December 31,
2006
   
December 31,
2005
 
             
Current
           
Cash
  $
13,462
    $
6,765
 
Amounts receivable
   
-
     
2,250
 
                 
    $
13,462
    $
9,015
 
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
Current
               
Accounts payable and accrued liabilities (Note 4)
  $
118,577
    $
102,943
 
Current liabilities of discontinued operations
   
-
     
30,768
 
Notes payable (Note 3)
   
107,431
     
76,838
 
                 
     
226,008
     
210,549
 
                 
Commitments and Contingency (Notes 1 and 3)
               
                 
Capital stock
               
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding
               
Common stock and paid-in capital (Note 5) 100,000,000 shares authorized with a par value of $0.01 731,521 (December 31, 2005: 681,521) shares issued and outstanding
   
7,315
     
6,815
 
Treasury stock, at cost, 540 shares (December 31, 2005: 540)
    (270 )     (270 )
Additional paid-in capital
   
1,953,614
     
1,929,114
 
Other comprehensive income
   
18,604
     
18,041
 
Deficit
    (1,305,454 )     (1,305,454 )
Deficit accumulated during the development stage
    (886,355 )     (849,780 )
                 
      (212,546 )     (201,534 )
                 
    $
13,462
    $
9,015
 
 
SEE ACCOMPANYING NOTES
 
- 16 -


SYNTHENOL INC.
(Formerly Legalplay Entertainment Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS

   
Years ended
December 31,
   
January 1,
2004 (Date of
inception of
development
stage) to
December 31,
 
   
2006
   
2005
   
2006
 
                   
General and Administrative Expenses
                 
Amortization
  $
-
    $
-
    $
27,077
 
Bad debt
   
478
     
47
     
525
 
Corporation promotion
   
68
     
-
     
13,920
 
Insurance
   
-
     
-
     
15,901
 
Management and consulting fees
   
17,723
     
19,063
     
114,858
 
Office supplies and services
   
16,305
     
4,737
     
47,410
 
Professional fees
   
31,340
     
32,998
     
207,719
 
Rent
   
367
     
2,568
     
16,311
 
Wages
   
-
     
-
     
84,258
 
                         
Loss before other items
    (66,281 )     (59,413 )     (527,979 )
                         
Other items
                       
Loss on disposition of equipment
   
-
     
-
      (15,028 )
Write-down of intangible assets
   
-
      (3 )     (50,001 )
Write-off of notes payable
   
-
     
-
     
14,823
 
Gain on settlement of lawsuit
   
-
     
-
     
44,445
 
                         
Loss from continuing operations
    (66,281 )     (59,416 )     (533,740 )
                         
Operating income (loss) from discontinued operations (Schedule 1)
   
22
     
5,000
      (382,299 )
                         
Gain on sale of discontinued operations(Schedule 1 and Note 6)
   
29,684
     
-
     
29,684
 
                         
Net loss
  $ (36,575 )   $ (54,416 )   $ (886,355 )
                         
Basic and diluted loss per share
  $ (0.05 )   $ (0.08 )        
                         
Weighted average number of shares outstanding
   
728,087
     
671,905
         
 
SEE ACCOMPANYING NOTES
 
- 17 -


SYNTHENOL INC.
(Formerly Legalplay Entertainment Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Years ended
December 31,
   
January 1, 2004 (Date
of Inception of
Development
Stage) to
December 31,
 
   
2006
   
2005
   
2006
 
Cash Flows from Operating Activities
                 
Loss from continuing operations
  $ (66,281 )   $ (54,416 )   $ (533,740 )
Add (deduct) items not affecting cash:
                       
Amortization
   
-
     
-
     
27,077
 
Issuance of common stock for services
   
-
     
-
     
1,000
 
Stock-based compensation
   
-
     
-
     
4,460
 
Loss on disposition of equipment
   
-
     
-
     
225,184
 
Write-down of intangible assets
   
-
     
3
     
360,001
 
Write-off of notes payable
   
-
     
-
      (18,729 )
Gain on settlement of lawsuit
   
-
     
-
      (44,445 )
Changes in non-cash working capital items:
                       
Amounts receivable
   
2,250
     
42,566
     
-
 
Accounts payable and accrued liabilities
   
15,634
      (31,634 )    
118,577
 
Accrued interest on notes payable
   
5,593
     
-
     
5,593
 
Prepaid expenses and deposits
   
-
     
3,074
     
-
 
                         
Cash provided by (used in) continuing operations
    (42,804 )     (40,407 )    
144,978
 
Discontinued operations
    (1,063 )    
-
      (553,150 )
                         
Net cash used in operating activities
    (43,867 )     (40,407 )     (408,172 )
                         
Cash Flows from Investing Activities
                       
Proceeds from sale of subsidiary (Note 6)
   
1
     
-
     
1
 
Proceeds from assets disposition
   
-
     
-
     
5,458
 
Purchase of equipment
   
-
     
-
      (5,808 )
Net cash provided by (used in) investing activities
   
1
     
-
      (349 )
                         
Cash Flows from Financing Activities
                       
Proceeds from notes payable
   
50,000
     
47,796
     
213,614
 
Proceeds from issuance of common stock
   
-
     
-
     
1,000
 
                         
Net cash provided by financing activities
   
50,000
     
47,796
     
214,614
 
                         
Effect of exchange rate changes on cash
   
563
      (702 )     (2,148 )
                         
Net increase (decrease) in cash from continuing operations
   
6,697
     
6,687
      (196,055 )
                         
Cash, beginning
   
6,765
     
78
     
209,517
 
                         
Cash, ending
  $
13,462
    $
6,765
    $
13,462
 
 
SEE ACCOMPANYING NOTES
 
- 18 -


SYNTHENOL INC.
(Formerly Legalplay Entertainment Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
 
   
Years ended
December 31,
   
January 1, 2004 (Date
of Inception of
Development
Stage) to
December 31,
 
   
2006
   
2005
   
2006
 
                   
                   
Supplemental Disclosure of Cash Flow Information and Non-cash Investing and Financing Activities:
                 
Cash paid for:
                 
Interest
  $
-
    $
-
    $
-
 
Income taxes (recovery)
  $
-
    $
-
    $ (3,934 )
                         
Common shares issued to settle notes payable
  $
25,000
    $
-
    $
25,000
 
 
SEE ACCOMPANYING NOTES
 
- 19 -


SYNTHENOL INC.
(Formerly Legalplay Entertainment Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

   
Common Shares
   
Treasury
   
Additional
Paid-in
   
Subscriptions
   
Accumulated
Other
Comprehensive
         
Deficit
Accumulated
During the
Development
       
   
Number
   
Amount
   
Stock
   
Capital
   
Received
   
Income
   
Deficit
   
Stage
   
Total
 
May 3, 1989 ( Inception) through December 31, 1997
   
60,021
    $
600
    $
-
    $
9,400
    $
-
    $
-
    $ (10,000 )   $
-
    $
-
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
      (148,931 )    
-
      (148,931 )
Shares issued for cash
   
180,000
     
1,800
     
-
     
148,200
     
2,000
     
-
     
-
     
-
     
152,000
 
Balance at December 31, 1998
   
240,021
     
2,400
     
-
     
157,600
     
2,000
     
-
      (158,931 )    
-
     
3,069
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
      (511,587 )    
-
      (511,587 )
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
      (14,130 )    
-
     
-
      (14,130 )
Share issued for services
   
15,000
     
150
     
-
     
124,850
     
-
     
-
     
-
     
-
     
125,000
 
Subscription receivable
   
12,000
     
120
     
-
     
99,880
     
8,000
     
-
     
-
     
-
     
108,000
 
Share issued for intangible assets
   
15,000
     
150
     
-
     
124,850
     
-
     
-
     
-
     
-
     
125,000
 
Balance at December 31, 1999
   
282,021
     
2,820
     
-
     
507,180
     
10,000
      (14,130 )     (670,518 )    
-
      (164,648 )
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
      (339,063 )    
-
      (339,063 )
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
18,885
     
-
     
-
     
18,885
 
Shares issued for cash
   
21,600
     
216
     
-
     
259,784
     
-
     
-
     
-
     
-
     
260,000
 
Shares issued for settlement of debt
   
4,500
     
45
     
-
     
174,955
     
-
     
-
     
-
     
-
     
175,000
 
Subscription receivable
   
600
     
6
     
-
     
9,994
      (200 )    
-
     
-
     
-
     
9,800
 
Subscription received
   
30,000
     
300
     
-
     
499,700
      (9,350 )    
-
     
-
     
-
     
490,650
 
Stock option benefit
   
-
     
-
     
-
     
14,235
     
-
     
-
     
-
     
-
     
14,235
 
Balance at December 31, 2000
   
338,721
     
3,387
     
-
     
1,465,848
     
450
     
4,755
      (1,009,581 )    
-
     
464,859
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
375,621
     
-
     
375,621
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
13,629
     
-
     
-
     
13,629
 
Shares issued for cash
   
300
     
3
     
-
     
2,247
     
-
     
-
     
-
     
-
     
2,250
 
Subscription received
   
-
     
-
     
-
     
-
     
200
     
-
     
-
     
-
     
200
 
Stock option benefit
   
-
     
-
     
-
     
118,920
     
-
     
-
     
-
     
-
     
118,920
 
Repurchase of common stock for treasury
   
-
     
-
      (270 )     (6,611 )    
-
     
-
     
-
     
-
      (6,881 )
Balance at December 31, 2001
   
339,021
     
3,390
      (270 )    
1,580,404
     
650
     
18,384
      (633,960 )    
-
     
968,598
 
Net loss
   
-
     
-
     
-
     
-
     
-
              (63,864 )    
-
      (63,864 )
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
              (1,155 )            
-
      (1,155 )
Shares issued for cash
   
4,500
     
45
     
-
     
33,705
     
-
     
-
     
-
     
-
     
33,750
 
Balance at December 31, 2002
   
343,521
     
3,435
      (270 )    
1,614,109
     
650
     
17,229
      (697,824 )    
-
     
937,329
 
 
SEE ACCOMPANYING NOTES
 
- 20 -


SYNTHENOL INC.
(Formerly Legalplay Entertainment Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT (continued)

   
Common Shares
   
Treasury
   
Additional
Paid-in
   
Subscriptions
   
Accumulated
Other
Comprehensive
         
Deficit
Accumulated
During the
Development
       
   
Number
   
Amount
   
Stock
   
Capital
   
Received
   
Income
   
Deficit
   
Stage
   
Total
 
Balance at December 31, 2002
   
343,521
     
3,435
      (270 )    
1,614,109
     
650
     
17,229
      (697,824 )    
-
     
937,329
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
      (607,630 )    
-
      (607,630 )
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
1,752
     
-
     
-
     
1,752
 
Stock option benefit
   
-
     
-
     
-
     
11,800
             
-
     
-
     
-
     
11,800
 
Cancellation of agreement
   
-
     
-
     
-
              (650 )    
-
     
-
     
-
      (650 )
Share issues for cash on exercise of options
   
12,000
     
120
     
-
     
11,880
     
-
     
-
     
-
     
-
     
12,000
 
Share issues for consulting services
   
45,000
     
450
     
-
     
49,675
     
-
     
-
     
-
     
-
     
50,125
 
Share issues for intangible assets
   
60,000
     
600
     
-
     
104,400
     
-
     
-
     
-
     
-
     
105,000
 
Share issued for software
   
60,000
     
600
     
-
     
53,400
     
-
     
-
     
-
     
-
     
54,000
 
Balance at December 31, 2003
   
520,521
     
5,205
      (270 )    
1,845,264
     
-
     
18,981
      (1,305,454 )    
-
     
563,726
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
      (795,364 )     (795,364 )
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
      (238 )    
-
     
-
      (238 )
Stock-based compensation
   
-
     
-
     
-
     
4,460
     
-
     
-
     
-
     
-
     
4,460
 
Shares issued for cash on exercise of options
   
1,000
     
10
     
-
     
990
     
-
     
-
     
-
     
-
     
1,000
 
Share issued for debt
   
140,000
     
1,400
     
-
     
68,600
     
-
     
-
     
-
     
-
     
70,000
 
Share issued for consulting services
   
2,000
     
20
     
-
     
980
     
-
     
-
     
-
     
-
     
1,000
 
Balance at December 31, 2004
   
663,521
     
6,635
      (270 )    
1920,294
     
-
     
18,743
      (1,305,454 )     (795,364 )     (155,416 )
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
      (54,416 )     (54,416 )
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
      (702 )    
-
     
-
      (702 )
Share issues for consulting services
   
18,000
     
180
     
-
     
8,820
     
-
     
-
     
-
     
-
     
9,000
 
Balance at December 31, 2005
   
681,521
     
6,815
      (270 )    
1,929,114
     
-
     
18,041
      (1,305,454 )     (849,780 )     (201,534 )
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
      (36,575 )     (36,575 )
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
563
     
-
     
-
     
563
 
Share issues for debt
   
50,000
     
500
     
-
     
24,500
     
-
     
-
     
-
     
-
     
25,000
 
Balance at December 31, 2006
   
731,521
    $
7,315
    $ (270 )   $
1,953,614
    $
-
    $
18,604
    $ (1,305,454 )   $ (886,355 )   $ (212,546 )

SEE ACCOMPANYING NOTES
 
- 21 -


Schedule 1
SYNTHENOL INC.
(Formerly Legalplay Entertainment Inc.)
(A Development Stage Company)
STATEMENT OF OPERATIONS FROM DISCONTINUED OPERATIONS

   
Years ended
December 31,
   
January 1, 2004
(Date of
Inception of
Development
Stage) to
December 31,
 
   
2006
   
2005
   
2006
 
                   
Amortization
  $
-
    $
-
    $
57,051
 
Management and consulting fees
   
-
     
-
     
165
 
Professional fees
   
-
     
-
     
5,606
 
Office supplies and services
    (22 )    
-
     
2,975
 
Royalty, software and advertising
   
-
     
-
     
69,251
 
                         
      (22 )    
-
      (135,048 )
                         
Write-down of intangible assets
   
-
     
-
      (155,000 )
Forgiveness of debts
   
-
     
-
     
1,953
 
Loss on disposition of equipment
   
-
     
-
      (105,078 )
Incidental revenue
   
-
     
5,000
     
10,874
 
                         
     
-
     
5,000
      (247,251 )
                         
Operating income (loss) from discontinued operations
   
22
     
5,000
      (382,299 )
                         
Gain on disposition of subsidiary – Note 6
   
29,684