SES earns more with Hai Hua plant

Synthesis Energy Systems, Inc. announced results for the quarter ended December 31, 2009. 

"I am pleased to report that revenue from product sales at our Hai Hua joint venture plant increased by almost a million dollars during the second quarter of fiscal 2010 compared to the first quarter. Additionally, our U-GAS(R) technology continues to perform very well, achieving high availability while consistently meeting Hai Hua's syngas quality requirements," said Robert Rigdon, President and CEO of the Company. 

"Our technology licensing business continues to move ahead. We believe sales related to technology licensing and equipment components will be a near-term revenue generator and long-term value driver for us. Our recent strategic alliance with Coalworks and our collaboration with East China Engineering Corporation, both announced in December 2009, are significant achievements as we build out this business segment," Rigdon added. 

"As we have previously disclosed, we have been seeking additional partners who would invest in and bring debt guarantees for our Golden Concord joint venture methanol and DME production project. Based on what we have learned from this effort, combined with the growing interest in our capability to gasify the lignite coals of this region, we have now refocused our efforts with the parties who have expressed interest in moving forward with us and have a broader goal of value creation from Inner Mongolia lignite into high value products such as SNG or olefins. As a result, during the second quarter we determined that the joint venture's assets including the original engineering design and initial construction work were impaired. This decision resulted in a non-cash asset impairment loss of $6.6 million. We continue to believe that this site holds promise due to its close proximity to very low cost lignite fuels, and we are actively engaged with these interested parties to align around a path forward for the development of a project on a larger scale and with a focus on energy or chemical products such as SNG or olefins," stated Rigdon. 

Second Quarter Financial Results (Unaudited) 

For the quarter ended December 31, 2009, the Company reported total revenue of $2.6 million. These results included revenue for product sales at the Hai Hua joint venture plant of $2.4 million, which is an increase of $0.8 million from the prior quarter. Product revenues have increased at the plant due to the plant's increased syngas volume offtake by its customer, Hai Hua, and increased byproduct sales, including sales of the Company's excess oxygen to Hai Hua under its ASU cost-sharing arrangement, which began in September 2009. Additionally, the Company reported other revenues of $0.2 million for the quarter ended December 31, 2009, which was generated primarily from a sponsorship grant related to lignite testing at the Hai Hua joint venture plant. 

Cost of product sales and plant operating expenses were $2.6 million for the quarter ended December 31, 2009, an increase of $0.9 million from the prior quarter. The plant's operating costs, including coal, power and other materials' consumption, increased due to a 40% increase in syngas production compared to the prior quarter. 

General and administrative expenses were $2.9 million during the quarter ended December 31, 2009, a decrease of $0.2 million from the prior quarter. 

Project and technical development expenses were $0.5 million for the quarter ended December 31, 2009 and were related to U-GAS(R) technology development and product feasibility studies for a possible expansion of the Hai Hua joint venture plant. 

The Company's operating loss for the quarter, which included $7.7 million of non-cash expenses comprised of the impairment loss, stock-based compensation expense and depreciation and amortization, was $11.1 million, compared to an operating loss of $4.9 million for the first quarter of fiscal 2010, which included $1.3 million of non-cash expenses. 

Net loss attributable to noncontrolling interests was $2.3 million for the quarter ended December 31, 2009 and related to the remaining noncontrolling interest balance of the Company's joint venture partner in its Golden Concord joint venture. Golden Concord's equity contributions of $3.1 million were previously reduced by its 49% share of the operating losses of the Golden Concord joint venture to date. 

At December 31, 2009, the Company had cash and cash equivalents of $50.9 million and working capital of $45.2 million.



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