Attached files
file | filename |
---|---|
EX-31.2 - EXHIBIT 31.2 - Sooner Holdings, Inc. | c24365exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - Sooner Holdings, Inc. | c24365exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - Sooner Holdings, Inc. | c24365exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - Sooner Holdings, Inc. | c24365exv32w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - Sooner Holdings, Inc. | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011.
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 001-34490
SYNTROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 73-1565725 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
5416 S. Yale Suite 400
Tulsa, Oklahoma 74135
(Address of principal executive offices) (Zip Code)
Tulsa, Oklahoma 74135
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (918) 592-7900
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every interactive data file required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and small reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer o | Accelerated filer þ | Smaller reporting company o | Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
At November 1, 2011, the number of outstanding shares of the issuers common stock was
97,948,327.
SYNTROLEUM CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, as well as historical facts. These
forward-looking statements include statements relating to the Fischer-Tropsch (FT) process,
Syntroleum® Process, Synfining® Process, and related technologies including, gas-to-liquids
(GTL), coal-to-liquids (CTL) and biomass-to-liquids (BTL), our renewable fuels Bio-Synfining
Technology, plants based on the Syntroleum® Process and/or Bio-Synfining, anticipated costs to
design, construct and operate these plants, the timing of commencement and completion of the design
and construction of these plants, expected production of fuel, obtaining required financing for
these plants and our other activities, the economic construction and operation of Fischer-Tropsch
(FT) and/or Bio-Synfining plants, the value and markets for products, testing, certification,
characteristics and use of plant products, the continued development of the Syntroleum® Process
and Bio-Synfining Technology and the anticipated capital expenditures, expense reductions, cash
outflows, expenses, use of proceeds from our equity offerings, anticipated revenues, availability
of catalyst, our support of and relationship with our licensees, and any other forward-looking
statements including future growth, cash needs, capital availability, operations, business plans
and financial results. When used in this document, the words anticipate, believe, estimate,
expect, intend, may, plan, project, should and similar expressions are intended to be
among the statements that identify forward-looking statements. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, these kinds of
statements involve risks and uncertainties. Actual results may not be consistent with these
forward-looking statements. Syntroleum undertakes no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events
or changes to future operating results over time. Important factors that could cause actual
results to differ from these forward-looking statements are described under Item 1A. Risk Factors
and elsewhere in our 2010 Annual Report on Form 10-K.
As used in this Quarterly Report on Form 10-Q, the terms Syntroleum, we, our or us
mean Syntroleum Corporation, a Delaware corporation, and its predecessors and subsidiaries, unless
the context indicates otherwise.
Table of Contents
Item 1. | Financial Statements. |
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 28,430 | $ | 12,513 | ||||
Restricted cash |
671 | 484 | ||||||
Accounts receivable |
105 | 556 | ||||||
Accounts receivable from Dynamic Fuels, LLC |
2,178 | 729 | ||||||
Other current assets |
299 | 361 | ||||||
Total current assets |
31,683 | 14,643 | ||||||
PROPERTY AND EQUIPMENT at cost, net |
88 | 97 | ||||||
INVESTMENT IN AND LOANS TO DYNAMIC FUELS, LLC |
35,737 | 43,523 | ||||||
OTHER ASSETS, net |
1,122 | 1,133 | ||||||
$ | 68,630 | $ | 59,396 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 111 | $ | 1,090 | ||||
Accrued employee costs |
586 | 119 | ||||||
Deposits |
671 | 484 | ||||||
Total current liabilities |
1,368 | 1,693 | ||||||
NONCURRENT LIABILITIES OF DISCONTINUED OPERATIONS |
603 | 603 | ||||||
DEFERRED REVENUE |
23,741 | 24,300 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
STOCKHOLDERS EQUITY: |
||||||||
Preferred
stock, $0.01 par value, 5,000 shares authorized, no shares issued |
| | ||||||
Common stock, $0.01 par value, 150,000 shares authorized, 97,903 and
81,683 shares issued and outstanding at September 30, 2011 and
December 31, 2010, respectively |
979 | 817 | ||||||
Additional paid-in capital |
398,335 | 374,397 | ||||||
Accumulated deficit |
(356,396 | ) | (342,414 | ) | ||||
Total stockholders equity |
42,918 | 32,800 | ||||||
$ | 68,630 | $ | 59,396 | |||||
The accompanying notes are an integral part of these unaudited consolidated statements.
1
Table of Contents
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Three months | For the Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
REVENUES: |
||||||||||||||||
Technology |
$ | 150 | $ | 150 | $ | 450 | $ | 3,450 | ||||||||
Technical services |
430 | 651 | 1,314 | 2,064 | ||||||||||||
Technical services from Dynamic Fuels, LLC |
286 | 461 | 800 | 1,276 | ||||||||||||
Royalties from Dynamic Fuels, LLC plant production |
310 | | 649 | | ||||||||||||
Total revenues |
1,176 | 1,262 | 3,213 | 6,790 | ||||||||||||
COSTS AND EXPENSES: |
||||||||||||||||
Engineering |
562 | 828 | 1,706 | 1,952 | ||||||||||||
Depreciation and amortization |
49 | 50 | 148 | 166 | ||||||||||||
General, administrative and other (including non-cash equity
compensation of $69 and $273 for the three months ended
September 30, 2011 and 2010, respectively, and $528 and $1,299
for the nine months ended September 30, 2011 and 2010,
respectively.) |
1,017 | 1,577 | 3,612 | 5,404 | ||||||||||||
OPERATING LOSS |
(452 | ) | (1,193 | ) | (2,253 | ) | (732 | ) | ||||||||
INVESTMENT AND INTEREST INCOME |
4 | 11 | 10 | 25 | ||||||||||||
LOSS IN EQUITY OF DYNAMIC FUELS, LLC |
(5,348 | ) | (980 | ) | (12,286 | ) | (2,845 | ) | ||||||||
OTHER EXPENSE, net |
2 | 4 | 6 | 66 | ||||||||||||
FOREIGN CURRENCY EXCHANGE |
1,206 | (1,701 | ) | 558 | (1,155 | ) | ||||||||||
LOSS FROM CONTINUING OPERATIONS |
(4,588 | ) | (3,859 | ) | (13,965 | ) | (4,641 | ) | ||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS |
(9 | ) | (24 | ) | (17 | ) | 136 | |||||||||
NET LOSS |
$ | (4,597 | ) | $ | (3,883 | ) | $ | (13,982 | ) | $ | (4,505 | ) | ||||
BASIC NET INCOME (LOSS) PER SHARE: |
||||||||||||||||
Loss from continuing operations |
$ | (0.05 | ) | $ | (0.05 | ) | $ | (0.16 | ) | $ | (0.06 | ) | ||||
Income (loss) from discontinued operations |
0.00 | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||||
Net loss |
$ | (0.05 | ) | $ | (0.05 | ) | $ | (0.16 | ) | $ | (0.06 | ) | ||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
||||||||||||||||
Basic |
91,843 | 78,222 | 87,020 | 77,205 | ||||||||||||
Diluted |
91,843 | 78,222 | 87,020 | 77,205 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated statements.
2
Table of Contents
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(in thousands)
Common Stock | Total | |||||||||||||||||||
Number | Additional | Accumulated | Stockholders | |||||||||||||||||
of Shares | Amount | Paid-In Capital | Deficit | Equity | ||||||||||||||||
Balance, December 31, 2010 |
81,683 | $ | 817 | $ | 374,397 | $ | (342,414 | ) | $ | 32,800 | ||||||||||
Stock options exercised |
53 | 1 | 34 | | 35 | |||||||||||||||
Issuance of shares under public offering |
15,900 | 159 | 23,379 | 23,538 | ||||||||||||||||
Vesting of awards granted |
15 | | 74 | | 74 | |||||||||||||||
Stock-based bonuses and match to 401(k) Plan |
252 | 2 | 451 | | 453 | |||||||||||||||
Net loss |
| | | (13,982 | ) | (13,982 | ) | |||||||||||||
Balance, September 30, 2011 |
97,903 | $ | 979 | $ | 398,335 | $ | (356,396 | ) | $ | 42,918 | ||||||||||
The accompanying notes are an integral part of these unaudited consolidated statements.
3
Table of Contents
SYNTROLEUM CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (13,982 | ) | $ | (4,505 | ) | ||
Income (loss) from discontinued operations |
(17 | ) | 136 | |||||
Net loss from continuing operations |
(13,965 | ) | (4,641 | ) | ||||
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |
||||||||
Depreciation and amortization |
148 | 166 | ||||||
Abandoned patent write-off |
| 466 | ||||||
Foreign currency exchange |
(558 | ) | 1,155 | |||||
Non-cash compensation expense |
528 | 1,299 | ||||||
Non-cash loss in equity method investee |
12,286 | 2,845 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
451 | 2,899 | ||||||
Accounts receivable from Dynamic Fuels, LLC |
(1,449 | ) | (48 | ) | ||||
Other assets |
(30 | ) | 106 | |||||
Accounts payable |
(979 | ) | (18 | ) | ||||
Accrued liabilities and other |
467 | 212 | ||||||
Deferred revenue |
| (3,217 | ) | |||||
Net cash provided by (used in) continuing operations |
(3,101 | ) | 1,224 | |||||
Net cash used in discontinued operations |
(18 | ) | (281 | ) | ||||
Net cash provided by (used in) operating activities |
(3,119 | ) | 943 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Purchase of property and equipment |
(37 | ) | (14 | ) | ||||
Investment in and loans to Dynamic Fuels, LLC |
(4,500 | ) | (10,000 | ) | ||||
Net cash used in investing activities |
(4,537 | ) | (10,014 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from sale of common stock, warrants and option exercises |
35 | 191 | ||||||
Proceeds from sale of common stock |
23,538 | | ||||||
Proceeds from common stock purchase agreement |
| 4,695 | ||||||
Net cash provided by financing activities |
23,573 | 4,886 | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
15,917 | (4,185 | ) | |||||
CASH AND CASH EQUIVALENTS, beginning of period |
12,513 | 25,012 | ||||||
CASH AND CASH EQUIVALENTS, end of period |
$ | 28,430 | $ | 20,827 | ||||
The accompanying notes are an integral part of these unaudited consolidated statements.
4
Table of Contents
SYNTROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
1. Basis of Reporting
The focus of Syntroleum Corporation and subsidiaries is the commercialization of our
technologies to produce synthetic liquid hydrocarbons. Operations to date have consisted of
activities related to the commercialization of a proprietary process (the Syntroleum® Process)
and previously consisted of research and development of the Syntroleum® Process designed to convert
carbonaceous material (biomass, coal, natural gas and petroleum coke) into synthetic liquid
hydrocarbons. Synthetic hydrocarbons produced by the Syntroleum® Process can be further processed
using the Syntroleum Synfining® Process into high quality liquid fuels, such as diesel, jet fuel,
kerosene, naphtha, propane and other renewable chemical products.
Our Bio-Synfining Technology is a renewable fuels application of our Synfining® Technology.
This technology is applied commercially via our Dynamic Fuels, LLC joint venture with Tyson Foods,
Inc (Tyson). The technology processes renewable triglycerides and/or fatty acids to make
renewable synthetic products.
The consolidated financial statements include the accounts of Syntroleum Corporation and our
majority-owned subsidiaries. All significant inter-company accounts and transactions have been
eliminated. Companies in which we own a 20 percent to 50 percent interest, but in which we do not
have a controlling interest are accounted for by the equity method. We own 50 percent and have a
non-controlling interest in Dynamic Fuels, LLC (Dynamic Fuels). The entity is accounted for under
the equity method and is not required to be consolidated in our financial statements; however, our
share of the Dynamic Fuels results of operations is reflected in the Consolidated Statements of
Operations and the subsidiarys summarized financial information is reported in Note 5, Investment
in and Loans to Dynamic Fuels, LLC. The carrying value of our investment in Dynamic Fuels is
reflected in Investment in and Loans to Dynamic Fuels, LLC in our Consolidated Balance Sheets.
The consolidated financial statements included in this report have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Accordingly, these statements reflect all adjustments (consisting of normal
recurring entries), which are, in the opinion of management, necessary for a fair statement of the
financial results for the interim periods presented. These financial statements should be read
together with the financial statements and the notes thereto included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2010 filed with the SEC under the Securities
Exchange Act of 1934.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Our financial position and results of operations are
materially affected by Dynamic Fuels financial position and results of operations as of and for
the nine months ended June 30, 2011. During this period, the plant was commencing initial
operations while its operating and financial controls were undergoing late-stage development. As a
result the financial statements may be more significantly impacted by managements estimates and
assumptions than they will be when operations stabilize and the accounting processes mature.
Actual results could differ from those estimates.
2. Operations and Liquidity
In the past we have sustained recurring losses and negative cash flows from operations. As of
September 30, 2011, we had approximately $28.4 million of cash and cash equivalents and $2.3
million of accounts receivable available to fund operations and investing activities. We review
cash flow forecasts and budgets periodically. Based on production levels and gross margins from
the sale of finished goods and upon working capital and capital expenditures requirements for the
Dynamic Fuels plant, we expect to receive partner distributions from Dynamic Fuels at some
indeterminate time in the future.
On November 2, 2011 the Company received a Nasdaq Staff Deficiency Letter, indicating the
Companys common stock has closed below the minimum $1.00 per share requirement for continued
inclusion under the Marketplace Rule 5500(a)(2), The Company is provided 180 calendar days, or
until April 30, 2012, to regain compliance. During this 180 day period the Companys shares will
continue to trade on the Nasdaq Capital Market. The Nasdaq Capital Market has indicated that if at
any time before April 30, 2012, the bid price of the Companys common stock closes at $1.00 per
share or more for a minimum of 10 consecutive business days; the Nasdaq Staff will provide written
notification that the Company has achieved compliance with the rule. In the event the Company does
not regain compliance, the Company may be eligible for additional time. To qualify, the Company
will be required to meet the continued listing requirement for market value of publicly held shares
and all other initial listing standards for the Nasdaq Capital Market, with the exception of the
bid price requirement, and will need to provide written notice of its intention to cure the
deficiency during the second compliance period, by effecting a reverse stock split, if necessary.
If the Company meets these requirements, the Nasdaq Capital Market will inform the Company that it
has been granted an additional 180 calendar days.
3. Restricted Cash
Restricted cash consists of cash held in an escrow account for the prepayment of operations
and invoices for an ongoing contractual project. The account has also been recorded as a liability
in current deposits on the Consolidated Balance Sheets at September 30, 2011 and December 31, 2010.
5
Table of Contents
4. Reclassifications
Certain reclassifications have been made to the September 30, 2010 statements of cash flows to
conform to the September 30, 2011
presentation. These reclassifications had no impact on net income.
5. Investment in and Loans to Dynamic Fuels, LLC
On June 22, 2007, we entered into definitive agreements with Tyson to form Dynamic Fuels, to
construct and operate facilities in the United States using our Bio-Synfining Technology. Dynamic
Fuels is organized and operated pursuant to the provisions of its Limited Liability Company
Agreement between the Company and Tyson (the LLC Agreement).
The LLC Agreement provides for management and control of Dynamic Fuels to be exercised jointly
by representatives of the Company and Tyson equally with no LLC member exercising control. This
entity is accounted for under the equity method and is not required to be consolidated in our
financial statements; however, our share of the Dynamic Fuels net income or loss is reflected in
the Consolidated Statements of Operations. Dynamic Fuels has a different fiscal year than us. The
Dynamic Fuels fiscal year ends on September 30 and we report our share of Dynamic Fuels results of
operations on a three month lag. Our carrying value in Dynamic Fuels is reflected in Investment
in and Loans to Dynamic Fuels, LLC in our Consolidated Balance Sheets. As of September 30, 2011,
Syntroleums total estimate of maximum exposure to loss as a result of its relationships with this
entity was approximately $37,915,000, which represents our equity investment in and loans to this
entity in the amount of $35,737,000 and accounts receivable from this entity in the amount of
$2,178,000, which fluctuates from time to time with certain operating activities.
Dynamic Fuels, LLC Quarter Ended June 30, 2011 Unaudited Financials (in thousands):
June 30, | ||||
Balance Sheet | 2011 | |||
Cash and Receivables |
$ | 11,654 | ||
Inventory |
18,430 | |||
Property, Plant and Equipment and Other Assets |
150,014 | |||
Total Assets |
$ | 180,098 | ||
Current Liabilities |
$ | 9,285 | ||
Notes and Accounts Payable to Related Parties |
35,781 | |||
Long-Term Liabilities |
100,038 | |||
Total Liabilities |
145,104 | |||
Total Members Equity |
34,994 | |||
Total Liabilities and Members Equity |
$ | 180,098 | ||
For the Quarter | For the Nine | |||||||
Ended June 30, | Months Ended | |||||||
Statement of Operations | 2011 | June 30, 2011 | ||||||
Revenue |
$ | 35,003 | $ | 63,101 | ||||
Operating Expenses |
45,622 | 86,087 | ||||||
Loss from Operations |
(10,619 | ) | (22,986 | ) | ||||
Other Income (Expense) |
(730 | ) | (2.034 | ) | ||||
Net Loss |
$ | (11,349 | ) | $ | (25,020 | ) | ||
The losses generated by Dynamic Fuels during their nine months ended June 30, 2011, relate to
plant commissioning with limited production, of approximately 14.0 million
gallons or approximately 25% of plant design, and additional expenses for materials and labor to
address mechanical reliability issues with key pieces of equipment. Approximately 13.0 million
gallons of renewable products were sold during the nine months ended June 30, 2011.
Dynamic Fuels began commercial operations in November of 2010 and produced over approximately
29.4 million gallons of products by the end of October, 2011. Specifically, plant production was
approximately 14.0 million gallons from the start of plant operations in October 2010 through June
2011 and 5.4, 4.6, 1.9 and 3.4 million gallons in July, August, September and October,
respectively. The plants design production rate is 75 million gallons per year or 6.25 million
gallons per month.
Over the past year since start-up began in October 2010, stable production has been
interrupted by mechanical reliability issues with certain key pieces of rotating equipment and
third party supply of hydrogen, electricity and feedstock. In July, August and September the plant
continued to demonstrate improved reliability with all five major pieces of rotating equipment,
pumps and compressors. On October 24th, the plant experienced failure on a critical
pump due to excessive vibration. The pump has been removed for repair and the plant was in hot
standby for the remainder of October.
6
Table of Contents
In September, the plant was taken down for a 14 day turnaround focused on servicing the
plants HDO reactors. Turnaround service is scheduled for these reactors to change out catalyst
and catalyst related materials and to remove the buildup of particulates and contaminants, as is
typical industry practice for process reactors such as these. Subsequent to the turnaround, the
plant experienced three separate events in October causing production to be decreased. First, the
plant experienced excessive amounts of solids in a large batch of feedstock, causing decreased
production due to additional filtering of the feedstock. The plant has a system of strainers and
filters designed to remove solids. The plant has ongoing feedstock qualification with suppliers.
Second, the plant experienced a failure in an acid injection pump. Third, the plant experienced
excessive vibration with the solvent recycle pump, a critical piece of equipment for plant
production. The pump was disassembled and taken to the vendor for a new rotor assembly and is
expected to be reinstalled in November. As a result of these events in October, the members will
be required to make an additional $1.0 million working capital loan each in November.
During the nine months ended September 30, 2011 and 2010, we recognized revenue associated
with our technical services agreement between us and Dynamic Fuels in the amount of $1,449,000 and
$1,276,000 respectively. This revenue is reported in Technical services from Dynamic Fuels, LLC
and Royalties from Dynamic Fuels Plant Production in the Consolidated Statement of Operations.
We had a receivable from Dynamic Fuels of $2,178,000 and $729,000 as of September 30, 2011 and
December 31, 2010, respectively. For the nine months ended September 30, 2011, Syntroleum and
Tyson each contributed an additional $4,500,000 in the form of working capital loans to the entity.
We provided $2,500,000 in the form of a working capital loan in October. The total amount of
working capital loans of $12,000,000 each will be repaid to each member upon Dynamic Fuels
generating sufficient working capital from fuel sales in excess of required capital projects.
6. Earnings Per Share
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands, except per share | (in thousands, except per share | |||||||||||||||
amounts) | amounts) | |||||||||||||||
Basic weighted-average shares |
91,843 | 78,222 | 87,020 | 77,205 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Unvested restricted stock units |
| | | | ||||||||||||
Stock options |
| | | | ||||||||||||
Diluted weighted-average shares |
91,843 | 78,222 | 87,020 | 77,205 | ||||||||||||
The table below includes information related to stock options, warrants and restricted stock
that were outstanding at September 30 of each respective year but have been excluded from the
computation of weighted-average stock options due to the option exercise price exceeding the first
quarter weighted-average market price of our common shares or their inclusion would have been
anti-dilutive to our income (loss) per share.
September 30, | September 30, | |||||||
2011 | 2010 | |||||||
Options, warrants and restricted stock excluded (in thousands) |
26,062 | 19,102 | ||||||
Weighted-average exercise prices of options, warrants and restricted
stock excluded |
$ | 2.49 | $ | 1.65 | ||||
Nine month weighted average market price |
$ | 1.62 | $ | 2.07 |
7. Stock-Based Compensation
Our share-based incentive plans permit us to grant restricted stock units, restricted stock,
incentive or non-qualified stock options, and certain other instruments to employees, directors,
consultants and advisors of the Company. Certain stock options and restricted stock units vest in
accordance with the achievement of specific Company objectives. The exercise price of options
granted under the plan must be at least equal to the fair market value of our common stock on the
date of grant. All options granted vest at a rate determined by the Nominating and Compensation
Committee of our Board of Directors and are exercisable for varying periods, not to exceed ten
years. Shares issued under the plans upon option exercise or stock unit conversion are generally
issued from authorized, but previously unissued shares.
As of September 30, 2011, 4,575,032 shares of common stock were available for grant under our
current plan. We are authorized to issue up to 12,684,667 plan equivalent shares of common stock
in relation to stock options or restricted shares outstanding or available for grant under the
plans.
7
Table of Contents
Stock Options
The number and weighted average exercise price of stock options outstanding are as follows:
Shares | Weighted | |||||||
Under | Average Price | |||||||
Stock Options | Per Share | |||||||
OUTSTANDING AT DECEMBER 31, 2010 |
8,283,586 | $ | 2.94 | |||||
Granted at market price |
50,000 | $ | 1.41 | |||||
Exercised |
(52,500 | ) | $ | 0.66 | ||||
Expired or forfeited |
(184,163 | ) | $ | 7.41 | ||||
OUTSTANDING AT SEPTEMBER 30, 2011 |
8,096,923 | $ | 1.83 | |||||
The following table summarizes information about stock options outstanding at September 30,
2011:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted | ||||||||||||||||||||
Weighted | Weighted Average | Average Exercise | ||||||||||||||||||
Range of | Options | Average Exercise | Remaining | Options | Price | |||||||||||||||
Exercise Price | Outstanding | Price | Contractual Life | Exercisable | Per Share | |||||||||||||||
$0.66 $0.66 |
4,865,881 | $ | 0.66 | 6.81 | 1,300,181 | $ | 0.66 | |||||||||||||
$1.41 $1.55 |
1,060,666 | 1.54 | 1.42 | 1,010,666 | 1.55 | |||||||||||||||
$1.62 $2.89 |
1,140,195 | 2.33 | 2.96 | 1,140,195 | 2.33 | |||||||||||||||
$3.19 $6.88 |
764,277 | 6.33 | 2.74 | 764,277 | 6.33 | |||||||||||||||
$7.10 $9.67 |
240,904 | 9.28 | 3.88 | 240,904 | 9.28 | |||||||||||||||
$10.51 $10.51 |
25,000 | 10.51 | 3.84 | 25,000 | 10.51 | |||||||||||||||
8,096,923 | $ | 1.83 | 4,481,223 | $ | 2.77 | |||||||||||||||
A
total of 3,615,700 stock options with a weighted average exercise price of $0.67 were
outstanding at September 30, 2011 and had not vested. There were 50,000 stock options granted
during the nine months ended September 30, 2011. There were no stock options granted during the
nine months ended September 30, 2010.
The total intrinsic value of options exercised (i.e., the difference between the market price
on the exercise date and the exercise price on the relevant date during the nine months ended
September 30, 2011 and 2010 was $76,000 and $400,000, respectively. The total amount of cash
received in 2011 and 2010 by the Company from the exercise of these options was $35,000 and
$191,000, respectively. As of September 30, 2011, stock options that were fully vested or were
expected to vest had a total intrisic value of $949,000. The remaining weighted average
contractual term for options exercisable is approximately 3.77 years. In addition, as of September
30, 2011 unrecognized compensation cost related to non-vested stock options was $76,000, which will
be fully amortized using the straight-line basis over the remaining vesting period of the options,
which will be fully amortized upon vesting of the options, which is expected to occur in 2011.
Non-cash compensation cost related to stock and stock options and restricted stock recognized
during the nine months ended September 30, 2011 and 2010 was $528,000 and $1,299,000, respectively.
Restricted Stock
We also grant common stock and restricted common stock units to employees. These awards are
recorded at their fair values on the date of grant and compensation cost is recorded using graded
vesting over the expected term. The weighted average grant date fair value of common stock and
restricted stock units granted during the nine months ended September 30, 2011 and 2010 was $2.21
and $2.59 per share (total grant date fair value of $436,000 and $379,000), respectively. As of
September 30, 2011, the aggregrate intrinsic value of restricted stock units that are expected to
vest was approximately $856,000. In addition, as of September 30, 2011, unrecognized compensation
cost related to non-vested restricted stock units was $22,000, which is expected to be recognized
in 2011. The total fair value of restricted stock units vested during the nine months ended
September 30, 2011 and 2010 was $499,000 and $1,360,000, respectively.
8
Table of Contents
The following table reflects restricted stock unit activity for the nine months ended
September 30, 2011.
Weighted-Average | ||||||||
Grant Date Fair | ||||||||
Shares / Units | Value | |||||||
NONVESTED AT DECEMBER 31, 2010 |
1,055,212 | $ | 0.41 | |||||
Granted |
196,977 | $ | 2.21 | |||||
Vested |
(204,477 | ) | $ | 2.44 | ||||
Forfeited |
| $ | | |||||
NONVESTED AT SEPTEMBER 30, 2011 |
1,047,712 | $ | 0.35 | |||||
8. Common Stock and Warrant Sale
On July 6, 2011 the Company closed the issuance and sale of 15,900,000 shares of its common
stock and accompanying warrants to purchase a total of 7,950,000 shares of common stock. A
combination of one share of common stock and a five year warrant to purchase 0.5 shares of common
stock was sold in the offering for a combined public offering price of $1.58 per share, less
underwriting discounts and commissions payable by the Company. The black scholes valuation of the
warrants granted is $11,614,000. The underwriter, JMP Securities LLC, purchased the common stock
and warrants at a discounted price of $1.49 per combination, representing a 5.7% discount to the
public offering price. Cash proceeds received by the Company, after the payment of underwriter
commission and expenses and offering expenses, were approximately $23,575,000.
9. Commitments and Contingencies
We have entered into employment agreements, which provide severance benefits to several key
employees. Commitments under these agreements totaled approximately $2,139,000 at September 30,
2011. Expense is not recognized until an employee is severed.
We, as licensor, entered into a Bio-Synfining Master License Agreement on June 22, 2007 with
Dynamic Fuels, LLC. Under this license agreement, we at the request of the licensee must execute a
Site License Agreement in favor of licensee for licensees use of our Bio-Synfining Technology.
The form of the Site License Agreement is included in the agreement as Exhibit B. The form of the
Site License Agreement includes process guarantees if the plant fails to pass a performance test as
defined in the Site License Agreement. If the plant fails to meet the Process Guarantee during the
Performance Test and such failure is due in whole or in part to the Process Design Package, then we
and Dynamic Fuels shall mutually agree whether or not remedial measures are reasonably likely to
cause the plant to satisfy the Process Guarantee. The actual cost of the remedial measures will be
reimbursed to licensee through application of any future royalties owed to us, not to exceed
$9,800,000. If the remedial measures are not effective, we shall pay to Dynamic Fuels an
additional amount for liquidated damages in an amount not to exceed $9,800,000. As of the date of
this filing the Site License Agreement has not been executed by Dynamic Fuels and we cannot be
certain the document that will be executed will have this same language and amounts.
9
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
You should read the following information together with the information presented elsewhere in
this Quarterly Report on Form 10-Q and with the information presented in our Annual Report on Form
10-K for the year ended December 31, 2010 (including our audited financial statements and the
accompanying notes).
Overview
Our focus is the commercialization of our technologies to produce synthetic liquid
hydrocarbons. Operations to date have consisted of activities related to the commercialization of
a proprietary process (the Syntroleum® Process) and previously consisted of research and
development of the Syntroleum® Process designed to convert carbonaceous material (biomass, coal,
natural gas and petroleum coke) into synthetic liquid hydrocarbons. Synthetic hydrocarbons
produced by the Syntroleum® Process can be further processed using the Syntroleum Synfining®
Process into high quality liquid fuels, such as diesel, jet fuel, kerosene, naphtha, propane and
other renewable chemical products.
Our Bio-Synfining Technology is a renewable fuels application of our Synfining® Technology.
This technology is applied commercially via our Dynamic Fuels, LLC (Dynamic Fuels) joint venture
with Tyson Foods, Inc (Tyson). The technology processes renewable feedstocks such as
triglycerides and/or fatty acids to make renewable synthetic products.
Commercial and Licensee Projects
On June 22, 2007, we entered into definitive agreements with Tyson to form Dynamic Fuels, to
construct and operate facilities in the United States using our Bio-Synfining Technology. Dynamic
Fuels is organized and operated pursuant to the provisions of its Limited Liability Company
Agreement between the Company and Tyson (the LLC Agreement).
The LLC Agreement provides for management and control of Dynamic Fuels to be exercised jointly
by representatives of the Company and Tyson equally with no LLC member exercising control. This
entity is accounted for under the equity method and is not required to be consolidated in our
financial statements; however, our share of the Dynamic Fuels net income or loss is reflected in
the Consolidated Statements of Operations. Dynamic Fuels has a different fiscal year than us. The
Dynamic Fuels fiscal year ends on September 30 and we report our share of Dynamic Fuels results of
operations on a three month lag. Our carrying value in Dynamic Fuels is reflected in Investment
in and Loans to Dynamic Fuels, LLC in our Consolidated Balance Sheets. As of September 30, 2011,
Syntroleums total estimate of maximum exposure to loss as a result of its relationships with this
entity was approximately $37,915,000, which represents our equity investment in and loans to this
entity in the amount of $35,737,000 and accounts receivable from this entity in the amount of
$2,178,000, which fluctuates from time to time with certain operating activities. Each member
has contributed $40.5 million in capital contributions and an additional $9.5 million in the form
of a working capital loans to the entity as of September 30, 2011. An additional $2.5 million
working capital loan was made to the entity in October, 2011. The $12.0 million loans each will be
repaid to each member upon Dynamic Fuels generating sufficient working capital from fuel sales.
Diesel is quality tested and meets ASTM D975 standards for diesel. The renewable products
have low emissions and nearly no aromatics. Our jet fuel meets all petroleum based jet fuel
specifications of ASTM D7566. The production of our fuel is eligible for the $1.00 tax credit per
gallon of renewable diesel and $0.50 per gallon of renewable naphtha under the Energy Independence
Act and Energy Policy Act of 2005. Our fuel also generates 1.7 Renewable Identification
Numbers, (RIN) per gallon. As of September 30, 2011, RIN prices were $1.54 per gallon and
therefore worth $2.62 per gallon with the 1.7 multiplier. Our fuel can be sold with the RIN
premium included in our price of fuel. In November, we received approval for registration of our
neat renewable diesel from the Environmental Protection Agency. The registration of the neat
renewable diesel allows combustion in regular on-road engines up to 100 percent renewable fuel,
which means no blending of petroleum based diesel is required (prior we had registration approval
for blends up to 20 percent renewable diesel). This allows the entity to market its fuel directly
to third party fuel end-users, such as operators of on-road fleet vehicles.
On October 28th, Dynamic Fuels sold an additional 75,000 gallons of renewable jet
fuel to SkyNRG. This is the second such sale to SkyNRG. Alaska Airlines will be conducting the
first commercial airline flights in the United States to use renewable jet fuel produced by Dynamic
Fuels. These flights build on the entitys involvement in the worlds first commercial flights
using renewable jet fuel conducted earlier this year by several European airlines. Alaska
Airlines has scheduled 75 flights to be flown on Dynamic Fuels renewable jet fuel in order to raise
awareness of alternative commercial aviation fuel. The renewable jet fuel is chemically identical
to traditional jet fuel but offers the benefits of higher energy content; better cold flow
properties, enabling it to function effectively in cold weather; and reduced carbon dioxide
emissions.
Dynamic Fuels began commercial operations in November of 2010 and produced over approximately
29.4 million gallons of products by the end of October, 2011. Specifically, plant production was
approximately 14.0 million gallons from the start of plant operations in October 2010 through June
2011 and 5.4, 4.6, 1.9 and 3.4 million gallons in July, August, September and October,
respectively. The plants design production rate is 75 million gallons per year or 6.25 million
gallons per month.
Over the past year since start-up began in October 2010, stable production has been
interrupted by mechanical reliability issues with certain key pieces of rotating equipment and
third party supply of hydrogen, electricity and feedstock. In July, August and September the plant
continued to demonstrate improved reliability with all five major pieces of rotating equipment,
pumps and compressors. On October 24th, the plant experienced failure on a critical
pump due to excessive vibration. The pump has been removed for repair and the plant was in hot
standby for the remainder of October.
10
Table of Contents
In September, the plant was taken down for a 14 day turnaround focused on servicing the
plants HDO reactors. Turnaround service is scheduled for these reactors to change out catalyst
and catalyst related materials and to remove the buildup of particulates and contaminants, as is
typical industry practice for process reactors such as these. Subsequent to the turnaround, the
plant experienced three separate events in October
causing production to be decreased. First, the plant experienced excessive amounts of solids
in a large batch of feedstock, causing decreased production due to additional filtering of the
feedstock. The plant has a system of strainers and filters designed to remove solids. The plant
has ongoing feedstock qualification with suppliers. Second, the plant experienced a failure in an
acid injection pump. Third, the plant experienced excessive vibration with the solvent recycle
pump, a critical piece of equipment for plant production. The pump was disassembled and taken to
the vendor for a new rotor assembly and is expected to be reinstalled in November. As a result of
these events in October, the members will be required to make an additional $1.0 million working
capital loan each in November.
The losses generated by Dynamic Fuels during their nine months ended June 30, 2011, relate to
plant commissioning with limited production, of approximately 14.0 million
gallons or approximately 25% of plant design, and additional expenses for materials and labor to
address mechanical reliability issues with key pieces of equipment. 13.0 million gallons of
renewable products were sold during the nine months ended June 30, 2011. Dynamic Fuels summarized
financial information is reported in Note 5, Investment in and Loans to Dynamic Fuels, LLC.
On October 21, 2008, Dynamic Fuels issued tax exempt bonds through the Louisiana Public
Facilities Authority in the amount of $100 million at an initial interest rate of 1.3% to fund
construction of the plant. The Bonds required a letter of credit in the amount of $100 million as
collateral for Dynamic Fuels obligations under the Bonds. Tyson agreed, under the terms of the
Warrant Agreement, to provide credit support for the entire $100 million Bond issue. The interest
rate for the Bonds is a daily floating interest rate and may change significantly from this amount.
In the fourth quarter of 2008, Dynamic Fuels entered into an interest rate swap, which had the
effect of locking in the interest rate at 2.19% for a period of 5 years with declining swap
coverage. This debt funding is in addition to the equity contributions and loans provided by each
member. Currently, 50% of the $100 million balance is subject to the swap and 50% is subject to
prevailing interest rates.
Results of Operations
Consolidated Unaudited Results for the Three Months and Nine Months Ended,
Three Months Ended | Nine Months Ended | ||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
Revenues | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
(In Thousands) | |||||||||||||||||||
Technology |
$ | 150 | $ | 150 | $ | 450 | $ | 3,450 | |||||||||||
Technical Services |
430 | 651 | 1,314 | 2,064 | |||||||||||||||
Technical Services from
Dynamic Fuels, LLC |
286 | 461 | 800 | 1,276 | |||||||||||||||
Royalties from Dynamic Fuels,
LLC Plant Production |
310 | | 649 | | |||||||||||||||
$ | 1,176 | $ | 1,262 | $ | 3,213 | $ | 6,790 | ||||||||||||
Technology Revenue. Technology Revenue was $450,000 and $3,450,000 for the nine months ended
September 30, 2011 and 2010, respectively with the difference primarily due to the delivery of
technology equipment related to our transfer of technology sale that occurred in 2010.
Technology Agreements will be unique to individual customers. Revenue recognition will be
determined on an individual contract basis. We are actively pursuing other agreements. Due to the
complexity and due diligence requirements of these agreements, the business development
requirements typically span current year timing.
Technical Services Revenue. Revenues from engineering services for technical services contracts
related to certain Technology Revenue Agreements and continued work on the engineering design and
project management of Dynamic Fuels were $2,114,000 and $3,340,000 for the nine months ended
September 30, 2011 and 2010, respectively. Revenue from Dynamic Fuels decreased in 2011 as the
initial engineering design work on the plant is completed. We expect to continue to earn revenues
for engineering services to other clients on an individual contract basis in 2011.
Royalty Revenue. Revenues from royalties of renewable fuel production at the Dynamic Fuels plant
is recognized from production of renewable products from the date of commercial operations to
September 30, 2011. We will continue to recognize royalties from actual plant production of
renewable products quarterly.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
Operating Costs and Expenses | 2011 | 2010 | 2011 | 2010 | ||||||||||||
(In Thousands) | ||||||||||||||||
Engineering |
$ | 562 | $ | 828 | $ | 1,706 | $ | 1,952 | ||||||||
Depreciation and amortization |
49 | 50 | 148 | 166 | ||||||||||||
Non-cash equity compensation |
69 | 273 | 528 | 1,299 | ||||||||||||
General, administrative and other |
948 | 1,304 | 3,084 | 4,105 | ||||||||||||
$ | 1,628 | $ | 2,455 | $ | 5,466 | $ | 7,522 | |||||||||
11
Table of Contents
Engineering. Expenses from engineering activities were $1,706,000 for the nine months ended
September 30, 2011 compared to $1,952,000 during the same period in 2010. Engineering activities
were increased for the same period in 2010 due to increases in outside analytical costs related to
client projects.
Non-cash Equity Compensation. Non-cash equity compensation for the nine months ended September 30,
2011 was $528,000 compared to $1,299,000 for the same period in 2010. The decreased expense
primarily relates to the vesting schedule of performance based awards granted to all employees in
2008. The vesting of these awards is based on achieving certain milestones associated with the
Bio-Synfining Technology project. A majority of the expense associated with these awards was
recognized in 2009 and 2010.
General, Administrative and Other. General and administrative expenses for the nine months ended
September 30, 2011 were $3,084,000 compared to $4,105,000 during the same period in 2010. The
decrease in general and administrative expenses primarily relates to decreased legal fees due to
settlement of litigation in early 2011.
Loss from Dynamic Investment. The losses generated by Dynamic Fuels during the nine months ended
June 30, 2011, relate to plant commissioning with limited
production, of
approximately 14.0 million gallons or approximately 25% of plant design, and additional expenses
for materials and labor to address mechanical reliability issues with key pieces of equipment.
Loss from our investment in Dynamic was $5,348,000 and $12,286,000 for the quarter and nine months
ended June 30, 2011, respectively. This compares to a loss of $980,000 and $2,845,000 for the same
periods in 2010. Dynamic Fuels revenues were $63,101,000 with operating expenditures of
$86,087,000 and other expense of $2,034,000 for the nine months ended June 30, 2011. We report our
50 percent share of Dynamic Fuels results of operations on a three month lag basis.
Liquidity and Capital Resources
General
As of September 30, 2011, we had approximately $28,430,000 in cash and cash equivalents and
$671,000 in restricted cash. At September 30, 2011, we had $2,283,000 in accounts receivable
outstanding relating to our Technical Services Revenue provided to Dynamic Fuels and other clients
and other payments provided to Dynamic Fuels. We believe that all of the receivables currently
outstanding will be collected and have not established a reserve for bad debts.
Our current liabilities totaled $1,368,000 as of September 30, 2011.
On July 6, 2011 the Company closed the issuance and sale of 15,900,000 shares of its common
stock and accompanying warrants to purchase a total of 7,950,000 shares of common stock. A
combination of one share of common stock and a five year warrant to purchase 0.5 shares of common
stock was sold in the offering for a combined public offering price of $1.58 per share, less
underwriting discounts and commissions payable by the Company. The underwriter, JMP Securities
LLC, purchased the common stock and warrants at a discounted price of $1.49 per combination,
representing a 5.7% discount to the public offering price. Cash proceeds received by the Company,
after the payment of underwriter commission and expenses and offering expenses, were approximately
$23,575,000.
Our business plan over the next several years includes potential investments in additional
plants and we will need to raise capital to accomplish this plan. If we obtain additional funds by
issuing equity, dilution to stockholders may occur. In addition, preferred stock could be issued
without stockholder approval, and the terms of our preferred stock could include dividend,
liquidation, conversion, voting and other rights that are more favorable than the rights of the
holders of our common stock. There can be no assurance as to the availability or terms upon which
such financing might be available. If we are unable to generate funds from operations, our need to
obtain funds through financing activities will be increased.
Cash Flows
Cash flows used in operations was $3,119,000 during the nine months ended September 30, 2011,
compared to cash flows provided by operations of $943,000 during the nine months ended September
30, 2010. The decrease in cash flows provided by operations primarily results from the collection
of revenues from technology deployment agreements of $3,000,000 in 2010 compared to $0 in 2011 and
the untimely collection of receivables from Dynamic Fuels, LLC in 2011.
Cash flows used in investing activities were $4,537,000 during the nine months ended September
30, 2011 compared to $10,014,000 during the nine months ended September 30, 2010. We funded
$4,500,000 into Dynamic Fuels as a working capital loan during the nine months ended September,
2010. We provided an additional $2,500,000 in working capital loans in October 2011 and may provide
additional working capital loans to the plant if additional cash is needed.
Cash flows provided by financing activities during the nine months ended September 30, 2011
was $23,573,000 compared to $4,886,000 provided during the nine months ended September 30, 2010.
The cash provided by financing activities in 2011 relates to the public offering in July of
15,900,000 shares of our common stock and accompanying warrants resulting in net proceeds of
$23,575,000. The cash provided by financing activities during 2010 is primarily due to net
proceeds received from our Stock Purchase Agreement with Fletcher. Fletcher purchased 1,135,374
shares of our common stock at a stock price of approximately $2.64 in April of 2010.
12
Table of Contents
Contractual Obligations
Our operating leases include leases for corporate headquarters, copiers and software.
We have entered into employment agreements, which provide severance cash benefits to several
key employees. Commitments under these agreements totaled approximately $2,139,000 at September
30, 2011. Expense is not recognized until an employee is severed.
We, as licensor, entered into a Bio-Synfining Master License Agreement on June 22, 2007 with
Dynamic Fuels, LLC. Under this license agreement, we at the request of the licensee must execute a
Site License Agreement in favor of licensee for licensees use of our Bio-Synfining Technology.
The form of the Site License Agreement is included in the agreement as Exhibit B. The form of the
Site License Agreement includes process guarantees if the plant fails to pass a performance test as
defined in the Site License Agreement. If the plant fails to meet the Process Guarantee during the
Performance Test and such failure is due in whole or in part to the Process Design Package, then we
and Dynamic Fuels shall mutually agree whether or not remedial measures are reasonably likely to
cause the plant to satisfy the Process Guarantee. The actual cost of the remedial measures will be
reimbursed to licensee through application of any future royalties owed to us, not to exceed
$9,800,000. If the remedial measures are not effective, we shall pay to Dynamic Fuels an
additional amount for liquidated damages in an amount not to exceed $9,800,000. As of the date of
this filing the Site License Agreement has not been executed by Dynamic Fuels and we cannot be
certain the document that will be executed will have this same language and amounts.
We may need to fund future short-term working capital needs of Dynamic Fuels on an as needed
basis.
New Accounting Pronouncements
No new accounting standards have been adopted since the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2010 was filed.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk. |
There have been no material changes to the Quantitative and Qualitative Disclosures about
Market Risk described in our annual report on Form 10-K for the year ended December 31, 2010.
Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures. In accordance with Exchange Act Rules
13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation
of management, including our Principal Executive Officer and Principal Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this
report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer
concluded that our disclosure controls and procedures were effective as of September 30, 2011 to
provide reasonable assurance that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms.
Changes in Internal Control over Financial Reporting. There has been no change in our
internal controls over financial reporting that occurred during the three months ended September
30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
PART II OTHER INFORMATION
Item 1. | Legal Proceedings. |
None.
Item 1A. | Risk Factors |
There have been no material changes to the risk factors described in our annual report on Form
10-K for the year ended December 31, 2010.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Recent Sales of Unregistered Securities.
None.
13
Table of Contents
Use of Proceeds.
Pursuant to our Registration Statement on Form S-3 (No. 333-157879) the Company closed the
issuance and sale of 15,900,000 shares of its common stock and accompanying warrants to purchase a
total of 7,950,000 shares of common stock. A combination of one share of common stock and a five
year warrant to purchase 0.5 shares of common stock was sold in the offering for a combined public
offering price of $1.58 per share, less underwriting discounts and commissions payable by the
Company. The underwriter, JMP Securities LLC, purchased the common stock
and warrants at a discounted price of $1.49 per combination, representing a 5.7% discount to the
public offering price. Cash proceeds received by the Company, after the payment of underwriter
commission and expenses and offering expenses, were approximately $23,575,000. The terms of the
offering were described in our Prospectus Supplement on Form 424B2 filed with the Commission on
June 29, 2011 and June 30, 2011 and in Current Reports on Form 8-K filed with the Commission on
June 30, 2011, and July 7, 2011 the terms of which are incorporated herein by reference.
The net proceeds received, after underwriter commission and other offering expenses, from the
sale of common stock have been and are expected to be used for general corporate purposes, working
capital for Dynamic Fuels, LLC investment and initial natural gas to liquids project development.
Purchases of Equity Securities by the Issuer and Affiliated Purchases.
None.
Item 3. | Defaults Upon Senior Securities. |
None.
Item 4. | Reserved |
Item 5. | Other Information. |
None.
Item 6. | Exhibits. |
31.1 | Section 302 Certification of Edward G. Roth |
|||
31.2 | Section 302 Certification of Karen L. Power |
|||
32.1 | Section 906 Certification of Edward G. Roth |
|||
32.2 | Section 906 Certification of Karen L. Power |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SYNTROLEUM CORPORATION, a Delaware corporation (Registrant) |
||||
Date: November 8, 2011 | By: | /s/ Edward G. Roth | ||
Edward G. Roth | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
Date: November 8, 2011 | By: | /s/ Karen L. Power | ||
Karen L. Power | ||||
Senior Vice President and Principal Financial Officer (Principal Financial Officer) |
14
Table of Contents