##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2009
 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 number: 01-33522
 SYNTHESIS ENERGY SYSTEMS, INC.
  Delaware
(State or Other Jurisdiction of Incorporation or Organization)
    
    20-2110031
(I.R.S. Employer Identification No.)Three Riverway, Suite 300, Houston, Texas
(Address of Principal Executive Offices)
    
    77056
(Zip Code)
 (713) 579-0600
  Common Stock, $.01 par value
    
    NASDAQ Stock Market(Title of Class)
    
    (Name of Exchange on Which Registered)
 None
 Yes o No þ
 Yes o No þ
 Yes þ No o
 Yes o No o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 Yes o No þ
  DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



TABLE OF CONTENTS
 PagePART I
    
    
    1Item 1. Description of Business
    
    
    1Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    20Item 2. Description of Property
    
    
    20Item 3. Legal Proceedings
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20PART II
    
    
    21Item 5. Market for Registrants Common Equity and Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    21Item 6. Selected Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 7A. Quantitative and Qualitative Disclosure About Market Risk
    
    
    34Item 8. Financial Statements and Supplementary Data
    
    
    35Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    58Item 9A. Controls and Procedures
    
    
    58Item 9B. Other Information
    
    
    60PART III
    
    
    60Item 10. Directors, Executive Officers and Corporate Governance
    
    
    60Item 11. Executive Compensation
    
    
    60Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    60Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    60Item 14. Principal Accountant Fees and Services
    
    
    60Item 15. Exhibits and Financial Statement Schedules
    
    
    61Exhibit 21.1Exhibit 23.1Exhibit 23.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   i




---



##### Table of Contents



Forward-Looking Statements
     
 PART I
 
 Item 1.
    
    Description of Business
 ®
    1




---



##### Table of Contents



Overview of U-GAS ®
 ® ® ® ® ®
 ® ®
 
 ® ®
    GTI Agreements
 License Agreement
 ®
  2




---



##### Table of Contents



® ®
 ® ® ® ® ® ® ®
 ® ®
 Other Services
 ® ®
 Business Strategy
  
    
    Improve the profitability and cash flows of the HH Joint Venture plant.We are in the
process of implementing operational measures and evaluating strategies to reduce the HH
Joint Ventures losses and improve its financial performance, including the possible
expansion of the plant to produce other products and through the sharing of certain costs
with Hai Hua.
 
    
    Execute on projects in China currently under development.We intend to leverage our
success to date at the HH Joint Venture in our ongoing business development efforts. Our
projects under development are also expected to have a significant impact on our business
development efforts and financial results once they are completed and producing. We also
believe that our Yima Joint Venture will help to demonstrate our ability to expand into
increasingly larger projects and new product markets.
 
    
    Managing further project development in China based on available capital. Based on our
current focus on developing our projects in China, we plan to use our available cash for (i)
general and administrative expenses; (ii) working capital; (iii) debt service related to the
HH Joint Venture; (iv) project and technical development expenses; and (v) general corporate
purposes. However, we intend to minimize any further development on projects or move ahead
on any acquisitions until we have assurances that acceptable financing is available to
complete the project. Until the capital markets improve, our strategy will be to operate
using our current capital resources.
  3




---



##### Table of Contents




    
    Leverage our proprietary technology. We intend to place increased focus on development of
licensing arrangements for our proprietary U-GAS® technology on a global basis
with a focus on China, India, the U.S. and Australia due to their large low rank coal
resources. We anticipate that we can generate revenues through licensing fees and royalties
on products sold by our licensees that incorporate our proprietary technology without
incurring the significant capital costs required to develop a plant.
 
    
    Investigate acquisition opportunities.If we have the capital or financing is otherwise
available, we plan to evaluate acquisition opportunities, including existing plants,
facilities or coal mines, where we could enhance the economics with our U-GAS®
technology.
 
    
    Expand our relationships with our strong strategic partners and new products.China is
presently our primary market, where our efforts have been focused primarily on facilities
producing syngas, methanol and DME. We plan to expand our relationships with our current
partners, develop new relationships with strategic partners and develop new downstream
coal-to-chemicals and coal-to-energy products.
 
    
    Continue to develop and improve U-GAS®technology.We are continually seeking
to improve the overall plant availability, plant efficiency rates and fuel handling
capabilities of the existing U-GAS® gasification technology. To date, we have
filed eight patent applications relating to improvements to the U-GAS®
technology.
 
    
    Concentrate our efforts on opportunities where our U-GAS®technology provides
us with a clear competitive advantage.We believe that we have the greatest competitive
advantage using our U-GAS® technology in situations where there is a ready source
of low rank, low cost coal, coal waste or biomass to utilize as fuel.
 Target Markets
 China
 ®
 ®
 United States
 ®
  4




---



##### Table of Contents



Business Development, Engineering and Project Management Staff
 Business Development Staff
 ®
 Engineering and Project Management Staff
 ®
 Current Operations and Projects
 Hai Hua Joint Venture
 Joint Venture Agreement
 ®
    5




---



##### Table of Contents



Syngas Purchase and Sale Agreement
       6




---



##### Table of Contents



Yima Joint Ventures
         7




---



##### Table of Contents



Golden Concord Joint Venture
 ®
  ExxonMobil License Rights Agreement
  North American Coal
 ®
 Expiration of Development Agreement with CONSOL Energy
  U.S. Department of Energy
   8




---



##### Table of Contents



Business Concentration
  Competition
 ®
 Suppliers
  Research and Development
 ®
 Governmental and Environmental Regulation
  China
   9




---



##### Table of Contents



United States
     Employees
   10




---



##### Table of Contents



Item 1A.
    
    Risk Factors
 Risks Related to Our Business
 We will require substantial additional funding, and our failure to raise additional capital
necessary to support and expand our operations could reduce our ability to compete and could harm
our business.
  
    
    general and administrative expenses;
 
    
    working capital;
 
    
    debt service related to the HH Joint Venture;
 
    
    project and technical development expenses; and
 
    
    general corporate purposes.
    We are in an early stage of our development and our business strategies may not be accepted in
the marketplace and may not help us to achieve profitability.
 ®
 Our results of operations may fluctuate.
 ®
  11




---



##### Table of Contents



Limited continuing rights of prior licensees of U-GAS ® technology could limit the
exclusivity of our license and materially adversely affect our business and results of operations.
 ® ® ® ®
 We face the potential inability to protect our intellectual property rights which could have a
material adverse effect on our business.
 ® ® ® ®
  Continued disruption in U.S. and international economic conditions and in the commodity and
credit markets may adversely affect our business, financial condition and results of operation .
   12




---



##### Table of Contents



The U.S. governments current plans to address the financial crises may not be effective to
stabilize the financial markets or to increase the availability of credit.
  The termination of our license agreement with GTI or any of our joint venture agreements would
materially adversely affect our business and results of operations.
 ®
 We utilize a technology with a limited commercial history. If the U-GAS ® technology
fails to gain or loses market acceptance, our business will suffer.
 ® ® ® ® ®
 We are dependent on our relationships with our strategic partners for project development.
 ®
 We may never be able to reach agreements regarding the completion of future projects.
   13




---



##### Table of Contents



Our projects are subject to an extensive governmental approval process which could delay the
implementation of our business strategy.
  Joint ventures that we enter into present a number of challenges that could have a material
adverse effect on our business and results of operations.
    We or our joint venture partners will manage the design, procurement and construction of our
plants. If our management of these issues fails, our business and operating results could suffer.
 ®
 A portion of our revenues will be derived from the merchant sales of commodities and our
inability to obtain satisfactory prices could have a material adverse effect on our business.
   14




---



##### Table of Contents



We are dependent on the availability and cost of low rank coal and coal waste and our
inability to obtain a low cost source could have an impact on our business.
  We are dependent on key personnel who would be difficult to replace.
  Payment of severance benefits could strain our cash flow.
  Our success will depend in part on our ability to grow and diversify, which in turn will
require that we manage and control our growth effectively.
  We face intense competition. If we cannot gain market share among our competition, we may not
earn revenues and our business may be harmed.
   15




---



##### Table of Contents



In our areas of operation, the projects we intend to build are subject to rigorous
environmental regulations, review and approval. We cannot assure you that we will be able to obtain
such approvals, satisfy applicable requirements or maintain approvals once granted.
    We may incur substantial liabilities to comply with climate control legislation and regulatory
initiatives.
 ®
   16




---



##### Table of Contents



Our controls and procedures may fail or be circumvented.
  We are subject to the requirements of Section 404 of the Sarbanes-Oxley Act. If we are unable
to maintain compliance with Section 404 or if the costs related to compliance are significant, our
profitability, stock price and results of operations and financial condition could be materially
adversely affected.
    Risks Related to Our Chinese Operations
 Foreign laws may not afford us sufficient protections for our intellectual property, and we
may not be able to obtain patent protection outside of the United States.
  Our operations in China may be adversely affected by evolving economic, political and social
conditions.
   17




---



##### Table of Contents



Long term offtake agreements could be difficult to obtain and, if obtained, enforce because of
Chinas underdeveloped legal system.
  Our results of operations would be negatively affected by potential currency fluctuations in
exchange rates with foreign countries.
   Chinese regulations of loans and direct investment by offshore entities to Chinese entities
may delay or prevent us from utilizing proceeds of funds to make loans or additional capital
contributions to our operations in China, which could materially and adversely affect our liquidity
and our ability to fund and expand our business.
  Risks Related to our Common Stock
 We may have a contingent liability arising out of the issuance of shares by Tamborine.
    18




---



##### Table of Contents



Our historic stock price has been volatile and the future market price for our common stock is
likely to continue to be volatile.
  If we do not meet the NASDAQ continued listing requirements, our common stock may be delisted.
   Our common stock is thinly traded on The NASDAQ Stock Market.
  The market valuation of our business may fluctuate due to factors beyond our control and the
value of the investment of our stockholders may fluctuate correspondingly.
  
    
    Changes in securities analysts estimates of our financial performance;
 
    
    Fluctuations in stock market prices and volumes, particularly among securities of energy
companies;
 
    
    Changes in market valuations of similar companies;
 
    
    Announcements by us or our competitors of significant contracts, new technologies,
acquisitions, commercial relationships, joint ventures or capital commitments;
 
    
    Variations in our quarterly operating results;
 
    
    Fluctuations in coal, oil, natural gas, methanol and ammonia prices;
  19




---



##### Table of Contents




    
    Loss of a major customer of failure to complete significant commercial contracts;
 
    
    Loss of a relationship with a partner; and
 
    
    Additions or departures of key personnel.
  Investors should not look to dividends as a source of income.
  
 Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Description of Property
  
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
   20




---



##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases
of Equity Securities
 Market Price for Common Stock and Stockholders
   Sales PriceHigh
    
    
    LowYear Ending June 30, 2009:First Quarter
    
    $
    11.05
    
    
    $
    2.16Second Quarter
    
    $
    4.92
    
    
    $
    0.52Third Quarter
    
    $
    0.80
    
    
    $
    0.41Fourth Quarter
    
    $
    1.69
    
    
    $
    0.54Year Ending June 30, 2008:First Quarter
    
    $
    10.70
    
    
    $
    5.05Second Quarter
    
    $
    13.80
    
    
    $
    9.35Third Quarter
    
    $
    15.92
    
    
    $
    6.56Fourth Quarter
    
    $
    13.90
    
    
    $
    7.75
  Dividend Policy
  Securities Authorized For Issuance Under Equity Compensation Plans
  Equity Compensation Plan InformationNumber of securities to
be issued upon exercise
of outstanding options, warrants and rights
    
    
    Weighted average exercise
price of outstanding
options, warrants and rights
    
    
    Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders (1)
    
    
    5,099,538
    (2)
    
    $
    0.67
    
    
    
    2,695,912
    (2)Equity compensation
plans not approved by
security holders
    
    
    
    
    
    
    
    
    
    
    Total as of June 30, 2009
    
    
    5,099,538
    
    
    $
    0.67
    
    
    
    2,695,912
 (1)
    
    Consists of the Amended and Restated 2005 Incentive Plan, as amended, or the Plan.(2)
    
    Of the total 8,000,000 shares under the Plan, options to acquire 5,099,538 shares of commons
stock were outstanding at June 30, 2009 and 5,800 shares of restricted stock had been granted
under the Plan. The shares issued for the restricted stock grants were vested immediately upon
grant.  21




---



##### Table of Contents



Performance Graph
 The following performance graph and related information shall not be deemed soliciting
material or to be filed with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the Securities Act of 1933 or Securities
Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by
reference into such filing.
  
 
   22




---



##### Table of Contents



Item 6.
    
    Selected Financial Data
  Statements of Operations Data
 November 4, 2003Years Ended June 30,
    
    
    (inception)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    to June 30, 2009Revenue:Product sales
    
    $
    1,852
    
    
    $
    203
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,055Project development fees
    
    
    250
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375Total revenue
    
    
    2,102
    
    
    
    328
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,430Costs and Expenses:Costs of sales and plant operating expenses
    
    
    7,449
    
    
    
    2,396
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,845General and administrative expenses
    
    
    16,395
    
    
    
    13,147
    
    
    
    5,644
    
    
    
    1,018
    
    
    
    237
    
    
    
    36,431Project and technical development expenses
    
    
    3,546
    
    
    
    5,615
    
    
    
    1,136
    
    
    
    1,245
    
    
    
    132
    
    
    
    11,682Stock-based compensation expense
    
    
    1,869
    
    
    
    6,029
    
    
    
    6,640
    
    
    
    3,043
    
    
    
    
    
    
    
    17,581Depreciation and amortization
    
    
    2,905
    
    
    
    1,202
    
    
    
    222
    
    
    
    5
    
    
    
    
    
    
    
    4,337Total costs and expenses
    
    
    32,164
    
    
    
    28,389
    
    
    
    13,642
    
    
    
    5,311
    
    
    
    369
    
    
    
    79,876Operating loss
    
    
    (30,062
    )
    
    
    (28,061
    )
    
    
    (13,642
    )
    
    
    (5,311
    )
    
    
    (369
    )
    
    
    (77,446
    )Non-operating (income) expense:Interest income
    
    
    (1,742
    )
    
    
    (397
    )
    
    
    (463
    )
    
    
    (129
    )
    
    
    (13
    )
    
    
    (2,744
    )Interest expense
    
    
    959
    
    
    
    388
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1,349Net loss before minority interest
    
    
    (29,279
    )
    
    
    (28,052
    )
    
    
    (13,179
    )
    
    
    (5,182
    )
    
    
    (358
    )
    
    
    (76,051
    )Minority interest
    
    
    703
    
    
    
    610
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    1,350Net loss
    
    $
    (28,576
    )
    
    $
    (27,442
    )
    
    $
    (13,142
    )
    
    $
    (5,182
    )
    
    $
    (358
    )
    
    $
    (74,701
    )Net loss per share:Basic and diluted
    
    $
    (0.60
    )
    
    $
    (0.80
    )
    
    $
    (0.47
    )
    
    $
    (0.19
    )
    
    $
    (0.01
    )
    
    $
    (2.31
    )Weighted average common shares outstandingBasic and diluted
    
    
    48,017
    
    
    
    34,385
    
    
    
    27,852
    
    
    
    27,754
    
    
    
    27,180
    
    
    
    32,336
 Balance Sheet Data
 June 30,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Total working capital
    
    $
    82,140
    
    
    $
    117,646
    
    
    $
    (54
    )
    
    $
    2,868
    
    
    $
    2,622Total assets
    
    
    146,136
    
    
    
    177,747
    
    
    
    38,472
    
    
    
    3,213
    
    
    
    2,752Total liabilities
    
    
    20,040
    
    
    
    24,241
    
    
    
    18,922
    
    
    
    328
    
    
    
    115Total stockholders equity
    
    
    123,819
    
    
    
    150,537
    
    
    
    19,095
    
    
    
    2,885
    
    
    
    2,637
  23




---



##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  Business Overview
 ®
    
    
    Improve the profitability and cash flows of the HH Joint Venture plant.We are in the
process of implementing operational measures and evaluating strategies to reduce the HH
Joint Ventures losses and improve its financial performance, including the possible
expansion of the plant to produce other products and through the sharing of certain costs
with Hai Hua.
 
    
    Execute on projects in China currently under development.We intend to leverage our
success to date at the HH Joint Venture in our ongoing business development efforts. Our
projects under development are also expected to have a significant impact on our business
development efforts and financial results once they are completed and producing. We also
believe that our Yima Joint Venture will help to demonstrate our ability to expand into
increasingly larger projects and new product markets.
 
    
    Managing further project development in China based on available capital. Based on our
current focus on developing our projects in China, we plan to use our available cash for (i)
general and administrative expenses; (ii) project and technical development expenses; (iii)
debt service related to the HH Joint Venture; and (iv) working capital and general corporate
purposes. However, we intend to minimize any further development on projects or move ahead
on any acquisitions until we
have assurances that acceptable financing is available to complete the project. Until the
capital markets improve, our strategy will be to operate using our current capital resources.
  24




---



##### Table of Contents




    
    Leverage our proprietary technology. We intend to place increased focus on development of
licensing arrangements for our proprietary U-GAS® technology on a global basis
with a focus on China, India, the U.S. and Australia due to their large low rank coal
resources. We anticipate that we can generate revenues through licensing fees and royalties
on products sold by our licensees that incorporate our proprietary technology without
incurring the significant capital costs required to develop a plant.
 
    
    Investigate acquisition opportunities.If we have the capital or financing is otherwise
available, we plan to evaluate acquisition opportunities, including existing plants,
facilities or coal mines, where we could enhance the economics with our U-GAS®
technology.
 
    
    Expand our relationships with our strong strategic partners and new products.China is
presently our primary market, where our efforts have been focused primarily on facilities
producing syngas, methanol and DME. We plan to expand our relationships with our current
partners, develop new relationships with strategic partners and develop new downstream
coal-to-chemicals and coal-to-energy products.
 
    
    Continue to develop and improve U-GAS®technology.We are continually seeking
to improve the overall plant availability, plant efficiency rates and fuel handling
capabilities of the existing U-GAS® gasification technology. To date, we have
filed eight patent applications relating to improvements to the U-GAS®
technology.
 
    
    Concentrate our efforts on opportunities where our U-GAS®technology provides
us with a clear competitive advantage.We believe that we have the greatest competitive
advantage using our U-GAS® technology in situations where there is a ready source
of low rank, low cost coal, coal waste or biomass to utilize as fuel.
 Results of Operations
  Year Ended June 30, 2009 Compared to Year Ended June 30, 2008
 Revenue.
  Cost of sales and plant operating expenses.
 General and administrative expenses.
  25




---



##### Table of Contents



Project and technical development expenses.
 Stock-based compensation expense.
 Depreciation and amortization.
 Interest income.
 Interest expense.
 Minority interest.
 Year Ended June 30, 2008 Compared to Year Ended June 30, 2007
 Revenue
 Cost of sales and plant operating expenses
 General and administrative expenses
 Project and technical development expenses.
  26




---



##### Table of Contents



Stock-based compensation expense
 Depreciation and amortization.
 Interest income
 Interest expense
 Minority interest.
 Liquidity and Capital Resources
   HH Joint Venture
 ®
    27




---



##### Table of Contents




    
    Term of the loan is seven years from the commencement date (March 22, 2007) of the loan;
 
    
    Interest is adjusted annually based upon the standard rate announced each year by the
Peoples Bank of China. As of June 30, 2009, the applicable interest rate was 5.94% and is
payable monthly;
 
    
    Principal payments of $1.1 million are due in March and September of each year beginning
on September 22, 2008 and ending on March 21, 2014;
 
    
    Hai Hua is the guarantor of the entire loan;
 
    
    Assets of the HH Joint Venture are pledged as collateral for the loan;
 
    
    Covenants include, among other things, prohibiting pre-payment without the consent of
ICBC and permiting ICBC to be involved in the review and inspection of the Hai Hua plant;
and
 
    
    Loan is subject to customary events of default which, should one or more of them occur
and be continuing, would permit ICBC to declare all amounts owing under the contract to be
due and payable immediately.
      28




---



##### Table of Contents



Yima Joint Ventures
         29




---



##### Table of Contents



Golden Concord Joint Venture
 ®
  U.S. Department of Energy
  GTI
 ® ® ® ® ® ® ®
 Outlook
  .
   30




---



##### Table of Contents



®
   Critical Accounting Policies
   Impairment Evaluation of Long-Lived Assets
   31




---



##### Table of Contents



Undiscounted Expected Future Cash Flows .
 Fair Value .
  HH Joint Venture Plant Impairment Analysis
   Accounting for Variable Interest Entities (VIEs) and Financial Statement Consolidation Criteria
    32




---



##### Table of Contents



Off Balance Sheet Arrangements
  Contractual Obligations
  Less than 1
    
    
    13
    
    
    45
    
    
    After 5Contractual Obligations
    
    Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsLong-term bank loan, including interest
    
    $
    12,877
    
    
    $
    2,859
    
    
    $
    5,310
    
    
    $
    4,708
    
    
    $
    Operating leases
    
    
    1,132
    
    
    
    352
    
    
    
    515
    
    
    
    265
    
    
    
    Total
    
    $
    14,009
    
    
    $
    3,211
    
    
    $
    5,825
    
    
    $
    4,973
    
    
    $
    
 Recently Issued Accounting Standards
 Fair Value Measurements Effective Date of FASB Statement No. 157
 Non-controlling Interests in Consolidated
Financial Statements  an amendment to ARB No. 51.
 Subsequent Events
 Interim Disclosures about Fair
Value of Financial Instruments Disclosures about Fair Value of Financial Instruments Interim
Financial Reporting
 Amendments to FASB Interpretation No. 46(R)
  33




---



##### Table of Contents



Item 7A.
    
    Quantitative and Qualitative Disclosure About Market Risk
 Qualitative disclosure about market risk
  Foreign currency risk
  Commodity price risk
  Customer credit risk
   34




---



##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data
 INDEX TO FINANCIAL STATEMENTS
 Reports of Independent Registered Public Accounting Firms
    
    
    36Consolidated Balance Sheets as of June 30, 2009 and 2008
    
    
    38Consolidated Statements of Operations for the years ended June 30,
2009, 2008 and 2007 and the period from November 4, 2003 (inception)
to June 30, 2009
    
    
    39Consolidated Statement of Stockholders Equity for the years ended
June 30, 2009, 2008 and 2007 and the period from November 4, 2003
(inception) to June 30, 2009
    
    
    40Consolidated Statements of Cash Flows for the years ended June 30,
2009, 2008 and 2007 and the period from November 4, 2003 (inception)
to June 30, 2009
    
    
    41Notes to the Consolidated Financial Statements
    
    
    42
  35




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
   
  36




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
  37




---



##### Table of Contents



SYNTHESIS ENERGY SYSTEMS, INC.
(A Development Stage Enterprise)
 
 Consolidated Balance Sheets
 (In thousands)
 June 30,
    
    
    June 30,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    90,420
    
    
    $
    127,872Accounts receivable
    
    
    1,333
    
    
    
    169Prepaid expenses and other currents assets
    
    
    689
    
    
    
    2,162Inventory
    
    
    780
    
    
    
    516Total current assets
    
    
    93,222
    
    
    
    130,719Construction-in-progress
    
    
    6,078
    
    
    
    2,408Property, plant and equipment, net
    
    
    37,713
    
    
    
    37,570Intangible asset, net
    
    
    1,386
    
    
    
    1,546Other long-term assets
    
    
    7,737
    
    
    
    5,504Total assets
    
    $
    146,136
    
    
    $
    177,747LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accrued expenses and accounts payable
    
    $
    8,828
    
    
    $
    10,828Current portion of long-term bank loan
    
    
    2,254
    
    
    
    2,245Total current liabilities
    
    
    11,082
    
    
    
    13,073Long-term bank loan
    
    
    8,958
    
    
    
    11,168Total liabilities
    
    
    20,040
    
    
    
    24,241Commitments and contingencies (note 10)Minority interest
    
    
    2,277
    
    
    
    2,969Stockholders Equity:Common stock, $0.01 par value: 100,000 shares authorized:48,118
and 48,011 shares issued and outstanding, respectively
    
    
    481
    
    
    
    480Additional paid-in capital
    
    
    196,441
    
    
    
    194,617Deficit accumulated during development stage
    
    
    (74,701
    )
    
    
    (46,125
    )Accumulated other comprehensive income
    
    
    1,598
    
    
    
    1,565Total stockholders equity
    
    
    123,819
    
    
    
    150,537Total liabilities and stockholders equity
    
    $
    146,136
    
    
    $
    177,747
   38




---



##### Table of Contents



SYNTHESIS ENERGY SYSTEMS, INC.
(A Development Stage Enterprise)
 
 Consolidated Statements of Operations
 (In thousands, except per share amounts)
 November 4, 2003Year Ended June 30,
    
    
    (inception)2009
    
    
    2008
    
    
    2007
    
    
    to June 30, 2009Revenue:Product sales
    
    $
    1,852
    
    
    $
    203
    
    
    $
    
    
    
    $
    2,055Product development fees
    
    
    250
    
    
    
    125
    
    
    
    
    
    
    
    375Total revenue
    
    
    2,102
    
    
    
    328
    
    
    
    
    
    
    
    2,430Costs and Expenses:Costs of sales and plant operating expenses
    
    
    7,449
    
    
    
    2,396
    
    
    
    
    
    
    
    9,845General and administrative expenses
    
    
    16,395
    
    
    
    13,147
    
    
    
    5,644
    
    
    
    36,431Project and technical development expenses
    
    
    3,546
    
    
    
    5,615
    
    
    
    1,136
    
    
    
    11,682Stock-based compensation expense
    
    
    1,869
    
    
    
    6,029
    
    
    
    6,640
    
    
    
    17,581Depreciation and amortization
    
    
    2,905
    
    
    
    1,202
    
    
    
    222
    
    
    
    4,337Total costs and expenses
    
    
    32,164
    
    
    
    28,389
    
    
    
    13,642
    
    
    
    79,876Operating loss
    
    
    (30,062
    )
    
    
    (28,061
    )
    
    
    ( 13,642
    )
    
    
    (77,446
    )Non-operating (income) expense:Interest income
    
    
    (1,742
    )
    
    
    (397
    )
    
    
    (463
    )
    
    
    (2,744
    )Interest expense
    
    
    959
    
    
    
    388
    
    
    
    
    
    
    
    1,349Net loss before minority interest
    
    
    (29,279
    )
    
    
    (28,052
    )
    
    
    (13,179
    )
    
    
    (76,051
    )Minority interest
    
    
    703
    
    
    
    610
    
    
    
    37
    
    
    
    1,350Net loss
    
    $
    (28,576
    )
    
    $
    (27,442
    )
    
    $
    (13,142
    )
    
    $
    (74,701
    )Net loss per share:Basic and diluted
    
    $
    (0.60
    )
    
    $
    (0.80
    )
    
    $
    (0.47
    )
    
    $
    (2.31
    )Weighted average common shares outstandingBasic and diluted
    
    
    48,017
    
    
    
    34,385
    
    
    
    27,852
    
    
    
    32,336
   39




---



##### Table of Contents



SYNTHESIS ENERGY SYSTEMS, INC.
(A Development Stage Enterprise)
 
 Condensed Consolidated Statement of Stockholders Equity
 (In thousands)
 DeficitAccumulatedCommon Stock
    
    
    
    
    
    
    During the
    
    
    OtherCommon
    
    
    Additional
    
    
    Development
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Paid-in Capital
    
    
    Stage
    
    
    Income
    
    
    TotalBalance at November 4, 2003
(inception)
    
    
    100,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net loss for the period
November 4, 2003 to June
30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2004
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares Forfeited in Merger
    
    
    (94,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares Issued in Merger
    
    
    21,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (358
    )
    
    
    
    
    
    
    (358
    )Investor contributions
    
    
    
    
    
    
    264
    
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    500Conversion of debt to equity
    
    
    
    
    
    
    6
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    11Net proceeds from private
placement offering
    
    
    1,030
    
    
    
    10
    
    
    
    2,474
    
    
    
    
    
    
    
    
    
    
    
    2,484Balance at June 30, 2005
    
    
    28,030
    
    
    
    280
    
    
    
    2,715
    
    
    
    (358
    )
    
    
    
    
    
    
    2,637Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,183
    )
    
    
    
    
    
    
    (5,183
    )Net proceeds from private
placement offering
    
    
    970
    
    
    
    10
    
    
    
    2,378
    
    
    
    
    
    
    
    
    
    
    
    2,388Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,043
    
    
    
    
    
    
    
    
    
    
    
    3,043Adjustment related to
return of shares
    
    
    (4,353
    )
    
    
    (44
    )
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2006
    
    
    24,647
    
    
    
    246
    
    
    
    8,180
    
    
    
    (5,541
    )
    
    
    
    
    
    
    2,885Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,142
    )
    
    
    
    
    
    
    (13,142
    )Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    175Net proceeds from private
placement offering
    
    
    3,346
    
    
    
    34
    
    
    
    16,126
    
    
    
    
    
    
    
    
    
    
    
    16,160Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    6,608
    
    
    
    
    
    
    
    
    
    
    
    6,608Shares issued for amended
GTI license
    
    
    191
    
    
    
    2
    
    
    
    1,374
    
    
    
    
    
    
    
    
    
    
    
    1,376Shares issued upon UCF
option exercise
    
    
    2,000
    
    
    
    20
    
    
    
    4,980
    
    
    
    
    
    
    
    
    
    
    
    5,000Stock grants to employees
    
    
    4
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    33Balance at June 30, 2007
    
    
    30,188
    
    
    
    302
    
    
    
    37,301
    
    
    
    (18,683
    )
    
    
    175
    
    
    
    19,095Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,442
    )
    
    
    
    
    
    
    (27,442
    )Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,390
    
    
    
    1,390Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    6,010
    
    
    
    
    
    
    
    
    
    
    
    6,010Exercise of stock options
    
    
    92
    
    
    
    1
    
    
    
    564
    
    
    
    
    
    
    
    
    
    
    
    565Shares issued for GTI
reservation use fee
    
    
    278
    
    
    
    3
    
    
    
    2,497
    
    
    
    
    
    
    
    
    
    
    
    2,500Shares issued in public
offerings
    
    
    17,451
    
    
    
    174
    
    
    
    148,226
    
    
    
    
    
    
    
    
    
    
    
    148,400Stock grants to employees
    
    
    2
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    19Balance at June 30, 2008
    
    
    48,011
    
    
    
    480
    
    
    
    194,617
    
    
    
    (46,125
    )
    
    
    1,565
    
    
    
    150,537Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ( 28,576
    )
    
    
    
    
    
    
    (28,576
    )Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    33Public offering costs
    
    
    
    
    
    
    
    
    
    
    (107
    )
    
    
    
    
    
    
    
    
    
    
    (107
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,869
    
    
    
    
    
    
    
    
    
    
    
    1,869Exercise of stock options
    
    
    107
    
    
    
    1
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    63Balance at June 30, 2009
    
    
    48,118
    
    
    $
    481
    
    
    $
    196,441
    
    
    $
    (74,701
    )
    
    $
    1,598
    
    
    $
    123,819
   40




---



##### Table of Contents



SYNTHESIS ENERGY SYSTEMS, INC.
(A Development Stage Enterprise)
 
 Consolidated Statements of Cash Flows
 (In thousands)
 November 4, 2003Year Ended June 30,
    
    
    (inception)2009
    
    
    2008
    
    
    2007
    
    
    to June 30, 2009Cash flows from operating activities:Net loss
    
    $
    (28,576
    )
    
    $
    (27,442
    )
    
    $
    (13,142
    )
    
    $
    (74,701
    )Adjustments to reconcile net loss to net cash
used in operating activities:Stock-based compensation expense
    
    
    1,869
    
    
    
    6,029
    
    
    
    6,640
    
    
    
    17,581Depreciation of property, plant and equipment
    
    
    2,671
    
    
    
    986
    
    
    
    58
    
    
    
    3,720Amortization of intangible and other assets
    
    
    234
    
    
    
    215
    
    
    
    165
    
    
    
    617Loss on disposal of property, plant and equipment
    
    
    37
    
    
    
    93
    
    
    
    2
    
    
    
    132Impairment loss on ExxonMobil license royalty
    
    
    1,250
    
    
    
    
    
    
    
    
    
    
    
    1,250Minority Interest
    
    
    (703
    )
    
    
    (610
    )
    
    
    (37
    )
    
    
    (1,350
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,164
    )
    
    
    (168
    )
    
    
    
    
    
    
    (1,332
    )Prepaid expenses and other current assets
    
    
    1,578
    
    
    
    (462
    )
    
    
    (398
    )
    
    
    676Inventory
    
    
    (261
    )
    
    
    (516
    )
    
    
    
    
    
    
    (777
    )Other long-term assets
    
    
    (103
    )
    
    
    (31
    )
    
    
    
    
    
    
    (134
    )Accrued expenses and payables
    
    
    (3,581
    )
    
    
    3,065
    
    
    
    1,680
    
    
    
    1,490Net cash used in operating activities
    
    
    (26,749
    )
    
    
    (18,841
    )
    
    
    (5,032
    )
    
    
    (52,828
    )Cash flows from investing activities:Purchase of marketable securities
    
    
    (45,000
    )
    
    
    
    
    
    
    
    
    
    
    (45,000
    )Redemption of marketable securities
    
    
    45,000
    
    
    
    
    
    
    
    
    
    
    
    45,000Capital expenditures
    
    
    (4,155
    )
    
    
    (22,268
    )
    
    
    (10,707
    )
    
    
    (37,155
    )Equity investment in Yima Joint Ventures
    
    
    (1,500
    )
    
    
    
    
    
    
    
    
    
    
    (1,500
    )GTI license royalty  Yima Joint Ventures
    
    
    (1,500
    )
    
    
    
    
    
    
    
    
    
    
    (1,500
    )ExxonMobil license royalty
    
    
    (1,250
    )
    
    
    
    
    
    
    
    
    
    
    (1,250
    )Proceeds from sale of fixed assets
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Loan proceeds transferred from (to) restricted cash
    
    
    
    
    
    
    11,101
    
    
    
    (11,101
    )
    
    
    Restricted cash  redemptions from (investments
in) long-term certificates of deposit
    
    
    150
    
    
    
    (579
    )
    
    
    
    
    
    
    (429
    )Amendment to GTI license rights
    
    
    
    
    
    
    
    
    
    
    (500
    )
    
    
    (500
    )Purchase of land use rights
    
    
    
    
    
    
    (833
    )
    
    
    (887
    )
    
    
    (1,720
    )Receipt of Chinese governmental grant
    
    
    
    
    
    
    556
    
    
    
    
    
    
    
    556Project prepayments
    
    
    (102
    )
    
    
    (895
    )
    
    
    (2,213
    )
    
    
    (3,210
    )Net cash used in investing activities
    
    
    (8,350
    )
    
    
    (12,918
    )
    
    
    (25,408
    )
    
    
    (46,701
    )Cash flows from financing activities:Proceeds (costs) from issuance of common stock,
net
    
    
    (107
    )
    
    
    148,556
    
    
    
    21,160
    
    
    
    174,982Proceeds from long-term bank loan
    
    
    
    
    
    
    
    
    
    
    12,080
    
    
    
    12,080Payments on long-term bank loan
    
    
    (2,253
    )
    
    
    
    
    
    
    
    
    
    
    (2,253
    )Prepaid interest
    
    
    
    
    
    
    
    
    
    
    (276
    )
    
    
    (276
    )Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    (143
    )
    
    
    (143
    )Contribution from minority interest partner
    
    
    
    
    
    
    3,124
    
    
    
    492
    
    
    
    3,616Proceeds from exercise of stock options, net
    
    
    63
    
    
    
    565
    
    
    
    
    
    
    
    628Loans from shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Net cash provided by (used in) financing
activities
    
    
    (2,297
    )
    
    
    152,245
    
    
    
    33,313
    
    
    
    188,645Net increase (decrease) in cash
    
    
    (37,396
    )
    
    
    120,486
    
    
    
    2,873
    
    
    
    89,116Cash and cash equivalents, beginning of period
    
    
    127,872
    
    
    
    6,202
    
    
    
    3,154
    
    
    
    Effect of exchange rates on cash
    
    
    (56
    )
    
    
    1,184
    
    
    
    175
    
    
    
    1,304Cash and cash equivalents, end of period
    
    $
    90,420
    
    
    $
    127,872
    
    
    $
    6,202
    
    
    $
    90,420
   41




---



##### Table of Contents



SYNTHESIS ENERGY SYSTEMS, INC.
(A Development Stage Enterprise)
 
 Notes to the Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies
 (a) Organization and description of business
 ®
 (b) Basis of presentation and principles of consolidation
  (c) Use of estimates
  (d) Cash and cash equivalents
  (e) Supplemental disclosures of cash flow information (in thousands):
 November 4, 2003Years Ended June 30,
    
    
    (inception)2009
    
    
    2008
    
    
    2007
    
    
    to June 30, 2009Interest paid
    
    $
    950
    
    
    $
    918
    
    
    $
    440
    
    
    $
    2,311Interest received
    
    
    1,746
    
    
    
    416
    
    
    
    413
    
    
    
    2,717Non-cash transactions:Accrued construction-in-progress
    
    
    1,556
    
    
    
    367
    
    
    
    
    
    
    
    1,556Stock issued to employees
    
    
    
    
    
    
    19
    
    
    
    33
    
    
    
    52Fair value of stock issued to GTI
    
    
    
    
    
    
    2,500
    
    
    
    1,376
    
    
    
    3,876Conversion of debt to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
  42




---



##### Table of Contents



(f)

    Restricted cash   (g) Inventories
  (h) Fair value of financial instruments
  (i) Construction-in-progress
  (j) Property, plant, and equipment
   (k) Intangible assets
 Goodwill and
Other Intangible Assets. Accounting for Impairment or Disposal of Long-Lived Assets.
  43




---



##### Table of Contents



(l) Impairment of long-lived assets
   (m) Income taxes
   (n) Debt issuance costs
  (o) Land use rights
  (p) Foreign currency translation
  (q) Revenue recognition
   44




---



##### Table of Contents



(r) Stock-based compensation
 Share-Based Payment
 (s) Accounting for Variable Interest Entities (VIEs) and financial statement consolidation
criteria
   Note 2  Recently Issued Accounting Standards
 Fair Value Measurements Effective Date of FASB Statement No. 157
  Level 1
    
    Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical, unrestricted assets or
liabilities;Level 2
    
    Quoted prices in markets that are not active, or inputs that are
observable, either directly or indirectly, for substantially the
full term of the asset or liability; andLevel 3
    
    Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable (i.e.,
supported by little or no market activity).
  45




---



##### Table of Contents



Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets:Certificates of Deposit
    
    $
    
    
    
    $
    679
    (1)
    
    $
    
    
    
    $
    679Money Market Funds
    
    
    
    
    
    
    89,035
    (2)
    
    
    
    
    
    
    89,035
 (1)
    
    Amount comprised of $0.3 million included in cash and cash equivalents, $0.1 million
included in other current assets, and $0.3 million included in other long-term assets on the
Companys consolidated balance sheet.(2)
    
    Amount included in cash and cash equivalents on the Companys consolidated balance sheet. The Fair Value Option for Financial
Assets and Financial Liabilities  including an amendment of FASB Statement No. 115.
 Non-controlling Interests in Consolidated
Financial Statements  an amendment to ARB No. 51.
 Subsequent Events
 Interim Disclosures about Fair
Value of Financial Instruments Disclosures about Fair Value of Financial Instruments Interim
Financial Reporting
 Amendments to FASB Interpretation No. 46(R)
   46




---



##### Table of Contents



Note 3  Current Projects
 Hai Hua Joint Venture
 Joint Venture Agreement
 ®
 Syngas Purchase and Sale Agreement
      47




---



##### Table of Contents



Loan agreement
  
    
    Term of the loan is seven years from the commencement date (March 22, 2007) of the loan;
 
    
    Interest is adjusted annually based upon the standard rate announced each year by the
Peoples Bank of China. As of June 30, 2009, the applicable interest rate was 5.94% and is
payable monthly;
 
    
    Principal payments of $1.1 million are due in March and September of each year beginning
on September 22, 2008 and ending on March 21, 2014;
 
    
    Hai Hua is the guarantor of the entire loan;
 
    
    Assets of the HH Joint Venture are pledged as collateral for the loan;
 
    
    Covenants include, among other things, prohibiting pre-payment without the consent of
ICBC and permitting ICBC to be involved in the review and inspection of the Hai Hua plant;
and
 
    
    Loan is subject to customary events of default which, should one or more of them occur
and be continuing, would permit ICBC to declare all amounts owing under the contract to be
due and payable immediately.
  Yima Joint Ventures
    48




---



##### Table of Contents



Golden Concord Joint Venture
 Joint venture contract
 ®
  49




---



##### Table of Contents



Purchase of land use rights
  ExxonMobil License Rights Agreement
  North American Coal
 ®
 CONSOL Energy
  Note 4  Risks and Uncertainties
      50




---



##### Table of Contents




    
    general and administrative expenses;
 
    
    working capital;
 
    
    debt service related to the HH Joint Venture;
 
    
    project and technical development expenses, and
 
    
    general corporate purposes.
  Note 5  Property, Plant and Equipment
  Estimated
    
    June 30,useful lives
    
    2009
    
    
    2008Furniture and fixtures
    
    2 to 3 years
    
    $
    384
    
    
    $
    407Production equipment
    
    20 years
    
    
    31,295
    
    
    
    30,091Building  plant and office
    
    30 years
    
    
    7,736
    
    
    
    7,009Leasehold improvements
    
    Lease term
    
    
    131
    
    
    
    122Computer hardware
    
    3 years
    
    
    397
    
    
    
    230Computer software
    
    3 years
    
    
    897
    
    
    
    254Office equipment
    
    3 years
    
    
    240
    
    
    
    357Motor vehicle
    
    5 years
    
    
    211
    
    
    
    145$
    41,291
    
    
    $
    38,615Less: Accumulated depreciation
    
    
    
    
    (3,578
    )
    
    
    (1,045
    )Net carrying value
    
    
    
    $
    37,713
    
    
    $
    37,570
  Note 6  Detail of Selected Balance Sheet Accounts
  June 30,2009
    
    
    2008Raw materials
    
    $
    192
    
    
    $
    150Parts and assemblies
    
    
    588
    
    
    
    366$
    780
    
    
    $
    516
  51




---



##### Table of Contents



June 30,2009
    
    
    2008Golden Concord JV
    
    $
    4,821
    
    
    $
    2,189HH Joint Venture
    
    
    1,257
    
    
    
    48Other
    
    
    
    
    
    
    171$
    6,078
    
    
    $
    2,408
  June 30,2009
    
    
    2008Equity investment in Yima Joint Ventures
    
    $
    1,500
    
    
    $
    GTI license royalty  Yima Joint Ventures (a)
    
    
    1,500
    
    
    
    Land use rights
    
    
    1,448
    
    
    
    1,473Project prepayments
    
    
    666
    
    
    
    1,221GTI reservation and use fee
    
    
    
    
    
    
    1,250GTI license royalty, net  HH Joint Venture
    
    
    744
    
    
    
    756Restricted cash
    
    
    329
    
    
    
    579Value added tax receivable  HH Joint Venture
    
    
    1,368
    
    
    
    Other
    
    
    182
    
    
    
    225$
    7,737
    
    
    $
    5,504
 (a)
    
    In June 2009, the Company agreed to pay GTI a non-refundable payment of $1.5 million
toward future royalties due to GTI for the Yima Joint Ventures project.  As of June 30,2009
    
    
    2008Construction and equipment costs
    
    $
    4,880
    
    
    $
    4,500Accounts payable  trade
    
    
    562
    
    
    
    2,287Accrued payroll, vacation and bonuses
    
    
    1,025
    
    
    
    1,558Technical consulting, engineering and design services
    
    
    423
    
    
    
    1,586Book overdrafts
    
    
    1,003
    
    
    
    Other
    
    
    935
    
    
    
    897$
    8,828
    
    
    $
    10,828
 Note 7  Intangible assets
 ®
 ®
 ® ®
  52




---



##### Table of Contents



® ® ® ® ® ® ®
 ® ®
  As of June 30, 2009
    
    
    As of June 30, 2008Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetUse rights of U-GAS®
    
    $
    1,886
    
    
    $
    537
    
    
    $
    1,349
    
    
    $
    1,886
    
    
    $
    348
    
    
    $
    1,538Other intangible assets
    
    
    37
    
    
    
    
    
    
    
    37
    
    
    
    8
    
    
    
    
    
    
    
    8Total
    
    $
    1,923
    
    
    $
    537
    
    
    $
    1,386
    
    
    $
    1,894
    
    
    $
    348
    
    
    $
    1,546
 ®
 Note 8  Income taxes
  Year Ended June 30,2009
    
    
    2008
    
    
    2007Domestic
    
    $
    (9,992
    )
    
    $
    (18,969
    )
    
    $
    (9,399
    )Foreign
    
    
    (19,287
    )
    
    
    (9,083
    )
    
    
    (3,780
    )Net loss before minority interest
    
    $
    (29,279
    )
    
    $
    (28,052
    )
    
    $
    (13,179
    )
  53




---



##### Table of Contents



Provision for income taxes
  Year Ended June 30,2009
    
    
    2008
    
    
    2007Net loss before minority interest
    
    $
    (29,279
    )
    
    $
    (28,052
    )
    
    $
    (13,179
    )Computed tax benefit at statutory rate
    
    
    (10,247
    )
    
    
    (9,818
    )
    
    
    (4,613
    )Other
    
    
    463
    
    
    
    88
    
    
    
    2Tax on income (losses) from foreign operations
    
    
    4,400
    
    
    
    1,822
    
    
    
    1,049Valuation allowance
    
    
    5,384
    
    
    
    7,908
    
    
    
    3,562$
    
    
    
    $
    
    
    
    $
    
 Deferred tax assets (liabilities)
  Year Ended June 30,2009
    
    
    2008Deferred tax assets (liabilities):Net operating loss carry forward
    
    $
    12,833
    
    
    $
    6,818Depreciation and amortization
    
    
    (32
    )
    
    
    (72
    )Stock-based compensation
    
    
    4,613
    
    
    
    5,003Accrued vacation
    
    
    23
    
    
    
    26Accrued bonus
    
    
    97
    
    
    
    94Other accruals
    
    
    529
    
    
    
    809Subtotal
    
    
    18,063
    
    
    
    12,678Valuation allowance
    
    
    (18,063
    )
    
    
    (12,678
    )Net deferred assets (liabilities)
    
    $
    
    
    
    $
    
     Note 9  Net Loss Per Share Data
   54




---



##### Table of Contents



Note 10  Commitments and Contingencies
 Letters of credit
  Operating leases
  Years Ending June 30,
    
    Total2010
    
    $
    3522011
    
    
    2562012
    
    
    2592013
    
    
    265Thereafter
    
    
    Total lease commitments
    
    $
    1,132
 Litigation
  Note 11  Stockholders Equity
 NASDAQ listing
   55




---



##### Table of Contents



Public offering
   Issuance to GTI
 ® ®
 Note 12  Stock-Based Compensation
     56




---



##### Table of Contents



Assumptions
  Year Ended June 30,2009
    
    
    2008
    
    
    2007Risk-free rate of return
    
    
    1.80
    %
    
    
    3.47
    %
    
    
    4.76
    %Expected life of award
    
    5.6 years
    
    
    6.1 years
    
    
    3.5 yearsExpected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility of stock
    
    
    87
    %
    
    
    73
    %
    
    
    69
    %Weighted-average grant date fair value
    
    $
    0.46
    
    
    $
    6.72
    
    
    $
    3.47
   WeightedWeighted
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    ValueStock Options
    
    
    Price
    
    
    Term (years)
    
    
    (in millions)Outstanding at June 30, 2006
    
    
    4,802,500
    
    
    $
    2.97Granted
    
    
    860,000
    
    
    
    6.45Exercised
    
    
    
    
    
    
    Cancelled/forfeited
    
    
    
    
    
    
    Outstanding at June 30, 2007
    
    
    5,662,500
    
    
    
    3.50Granted
    
    
    1,852,500
    
    
    
    9.65Exercised
    
    
    (92,000
    )
    
    
    6.20Cancelled/forfeited
    
    
    (287,000
    )
    
    
    7.89Outstanding at June 30, 2008
    
    
    7,136,000
    
    
    
    4.90Granted
    
    
    6,082,538
    
    
    
    1.08Exercised
    
    
    (106,750
    )
    
    
    0.59
    
    
    
    
    
    
    $
    0.1Cancelled/forfeited
    
    
    (8,012,250
    )
    
    
    4.83Outstanding at June 30, 2009
    
    
    5,099,538
    
    
    
    0.67
    
    
    
    9.6
    
    
    $
    2.6Exercisable at June 30, 2009
    
    
    3,208,511
    
    
    
    0.63
    
    
    
    9.6
    
    
    $
    1.7
   WeightedAverageRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedContractual
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Term
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.43 to $0.66
    
    
    4,697,038
    
    
    
    9.7
    
    
    $
    0.61
    
    
    
    3,208,511
    
    
    $
    0.63$0.67 to $1.00
    
    
    242,500
    
    
    
    9.6
    
    
    
    0.73
    
    
    
    
    
    
    
    $1.01 to $2.00
    
    
    110,000
    
    
    
    9.3
    
    
    
    1.92
    
    
    
    
    
    
    
    $2.01 to $3.00
    
    
    50,000
    
    
    
    9.3
    
    
    
    2.59
    
    
    
    
    
    
    
    Total
    
    
    5,099,538
    
    
    
    9.6
    
    
    
    0.67
    
    
    
    3,208,511
    
    
    
    0.63
 Restricted Stock Grants to Employees
   57




---



##### Table of Contents



Note 13  Subsequent Event
  Note 14  Quarterly Results of Operations (Unaudited) (in thousands, except per share amounts)
 1stQuarter
    
    
    2ndQuarter
    
    
    3rdQuarter
    
    
    4thQuarter
    
    
    Year2009:Revenues
    
    $
    125
    
    
    $
    483
    
    
    $
    326
    
    
    $
    1,168
    
    
    $
    2,102Operating loss (a)
    
    
    (9,337
    )
    
    
    (10,519
    )
    
    
    (3,559
    )
    
    
    (6,647
    )
    
    
    (30,062
    )Net loss (a)
    
    
    (8,516
    )
    
    
    (9,752
    )
    
    
    (3,615
    )
    
    
    (6,693
    )
    
    
    (28,576
    )Net loss per
share  basic and
diluted (a)
    
    
    (0.18
    )
    
    
    (0.20
    )
    
    
    (0.08
    )
    
    
    (0.14
    )
    
    
    (0.60
    )2008:Revenues
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    288
    
    
    
    328Operating loss
    
    
    (3,818
    )
    
    
    (4,438
    )
    
    
    (7,627
    )
    
    
    (12,178
    )
    
    
    (28,061
    )Net loss
    
    
    (3,766
    )
    
    
    (4,328
    )
    
    
    (7,438
    )
    
    
    (11,910
    )
    
    
    (27,442
    )Net loss per share
 basic and
diluted
    
    
    (0.12
    )
    
    
    (0.13
    )
    
    
    (0.20
    )
    
    
    (0.32
    )
    
    
    (0.80
    )
 (a)
    
    The operating results for the third quarter of 2009 included credits of approximately
$3.4 million that were recognized to stock-based compensation expense due to the reversal
of previously recognized expense due to forfeitures related to cancellations of terminated
employees stock option awards. 
 Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
  
 Item 9A.
    
    Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Managements Report on Internal Control over Financial Reporting
   58




---



##### Table of Contents



Internal Control  Integrated Framework
   (c) Remediation Plans for Material Weakness in Internal Control over Financial Reporting
Related to Complex and Non-Routine Transactions
  (d) Remediation of Material Weakness in Internal Control over Financial Reporting Related to
Monitoring the Operation of Internal Controls within our Period-end Close Process on a Timely
Basis
   1)
    
    Hired a full-time Chief Accounting Officer with appropriate U.S. GAAP and public
company financial reporting experience. This assured that previously designed
period-end close procedures and controls were being performed by accounting personnel
with appropriate experience and judgment.
 2)
    
    Changed the frequency of several period-end close procedures and controls from
quarterly to monthly.
 3)
    
    Implemented enhancements of existing internal controls in order to strengthen the
control over the monthly and/or quarterly period-end close and financial reporting
processes.
   59




---



##### Table of Contents



(e) Changes in Internal Control Over Financial Reporting
  
 Item 9B.
    
    Other Information
  
 PART III
 
 Item 10.
    
    Directors, Executive Officers and Corporate Governance
  
 Item 11.
    
    Executive Compensation
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
  
 Item 14.
    
    Principal Accountant Fees and Services
   60




---



##### Table of Contents



Item 15.
    
    Exhibits and Financial Statement Schedules
 1.
    
    Financial Statements.Reference is made to the Index to Consolidated Financial Statements
at Item 8 of this Annual Report.
 2.
    
    Financial Statement Schedules.All schedules are omitted because they are not applicable
or the required information is shown in the financial statements or the notes to the
financial statements.
 3.
    
    Exhibits.
 Number
    
    Description of Exhibits3.1
    
    
    Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Companys Registration
Statement (Registration No. 333-140367) on Form SB-2 filed
on January 31, 2007).3.2
    
    
    Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to Amendment No. 2 to the
Companys Registration Statement (Registration No.
333-140367) on Form SB-2 filed on March 30, 2007).4.1
    
    
    Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement
(Registration No. 333-140367) on Form SB-2 filed on January
31, 2007).10.1
    **
    
    Amended and Restated License Agreement by and between
Synthesis Energy Systems, Inc. and Gas Technology Institute
dated August 31, 2006 (incorporated by reference to Exhibit
10.3 to Amendment No. 4 to the Companys Registration
Statement (Registration No. 333-140367) on Form SB-2 filed
on May 23, 2007).10.2
    
    
    Cooperative Joint Venture Contract of SES (Zaozhuang) New
Gas Company Ltd. between Shandong Hai Hua Coal & Chemical
Company Ltd. and Synthesis Energy Systems Investments, Inc.
dated July 6, 2006  English translation from original
Chinese document (incorporated by reference to Exhibit 10.4
to the Companys Registration Statement (Registration No.
333-140367) on Form SB-2 filed on January 31, 2007).10.3
    
    
    Amendment to Cooperative Joint Venture Contract of SES
(Zaozhuang) New Gas Company Ltd. between Shandong Hai Hua
Coal & Chemical Company Ltd. and Synthesis Energy Systems
Investments, Inc. dated November 8, 2006  English
translation from original Chinese document (incorporated by
reference to Exhibit 10.5 to the Companys Registration
Statement (Registration No. 333-140367) on Form SB-2 filed
on January 31, 2007).10.4
    **
    
    Contract for Synthesis Gas Purchase and Sales by and
between Shandong Hai Hua Coal & Chemical Company Ltd. and
Synthesis Energy Systems (Zaozhuang) New Gas Company Ltd.
dated October 22, 2006  English translation from original
Chinese document (incorporated by reference to Exhibit 10.6
to Amendment No. 4 to the Companys Registration Statement
(Registration No. 333-140367) on Form SB-2 filed on May 23,
2007).10.5
    +
    
    Amended and Restated Employment Agreement between the
Company and Donald P. Bunnell dated July 14, 2006
(incorporated by reference to Exhibit 10.10 to the
Companys Registration Statement (Registration No.
333-140367) on Form SB-2 filed on January 31, 2007).10.6
    +
    
    Consulting Agreement between the Company and Lorenzo
Lamadrid dated May 30, 2006 (incorporated by reference to
Exhibit 10.11 to the Companys Registration Statement
(Registration No. 333-140367) on Form SB-2 filed on January
31, 2007).10.7
    +
    
    Amended and Restated 2005 Incentive Plan (incorporated by
reference to Exhibit 10.13 to Amendment No. 3 to the
Companys Registration Statement (Registration No.
333-140367) on Form SB-2 filed on May 1, 2007).10.8
    
    
    Shareholders Loan Agreement by and between Synthesis
Energy Systems Investments, Inc. and Synthesis Energy
Systems (Zaozhuang) dated March 20, 2007 (incorporated by
reference to Exhibit 10.15 to Amendment No. 2 to the
Companys Registration Statement (Registration No.
333-140367) on Form SB-2 filed on March 30, 2007).10.9
    
    
    Fixed Assets Loan Contract between Synthesis Energy Systems
(Zaozhuang) New Gas Company Ltd. and Industrial and
Commercial Bank of China dated March 27, 2007  English
translation from original Chinese document (incorporated by
reference to Exhibit 10.16 to Amendment No. 2 to the
Companys Registration Statement (Registration No.
333-140367) on Form SB-2 filed on March 30, 2007).
  61




---



##### Table of Contents



Number
    
    Description of Exhibits10.10
    
    
    Second Amendment to Cooperative Joint Venture Contract of
SES (Zaozhuang) New Gas Company Ltd., between Shandong Hai
Hua Coal & Chemical Company Ltd. and Synthesis Energy
Systems Investments, Inc., dated February 12, 2007 
English translation from original Chinese document
(incorporated by reference to Exhibit 10.6 to Amendment No.
3 to the Companys Registration Statement (Registration No.
333-140367) on Form SB-2 filed on May 1, 2007).10.11
    
    
    Co-Operative Joint Venture Contract of SES  GCL (Inner
Mongolia) Coal Chemical Co., Ltd. between Inner Mongolia
Golden Concord (Xilinhot) Energy Investment Co., Ltd. and
Synthesis Energy Systems Investments, Inc. dated May 25,
2007  English translation from original Chinese document
(incorporated by reference to Exhibit 10.21 to Amendment
No. 5 to the Companys Registration Statement (Registration
No. 333-140367) on Form SB-2 filed on June 6, 2007).10.12
    
    
    Amendment No. 1 to Amended and Restated License Agreement
by and between Synthesis Energy Systems, Inc. and Gas
Technology Institute dated June 14, 2007 (incorporated by
reference to Exhibit 10.22 to the Companys Registration
Statement (Registration No. 333-143817) on Form SB-2 filed
on June 15, 2007).10.13
    
    
    Joint Development Agreement by and between Synthesis Energy
Systems, Inc. and AEI dated July 11, 2007 (incorporated by
reference to Exhibit 10.24 to Amendment No. 1 to the
Companys Registration Statement (Registration No.
333-143817) on Form SB-2 filed on July 16, 2007).10.14
    
    
    Form of Indemnification Agreement between the Company and
its officers and directors (incorporated by reference to
Exhibit 10.25 to the Companys Annual Report on Form 10-KSB
for the year ended June 30, 2007).10.15
    
    
    Reservation and Use Agreement dated September 25, 2007
between the Company and the Gas Technology Institute
(incorporated by reference to Exhibit 10.26 to Amendment
No. 4 to the Companys Registration Statement (Registration
No. 333-143817) on Form SB-2 filed on September 26, 2007).10.16
    
    
    First Amendment to Joint Development Agreement by and
between the Company and AEI dated September 26, 2007
(incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on October 2, 2007).10.17
    
    
    Lease Agreement between Synthesis Energy Systems, Inc. and
AVPF Riverway Ltd. dated January 14, 2008 (incorporated by
reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on January 31, 2008).10.18
    
    
    Severance Agreement and Release between Synthesis Energy
Systems, Inc. and Carol Pearson dated effective April 12,
2008 (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on April 17,
2008).10.19
    +
    
    First Amendment to the Amended and Restated 2005 Incentive
Plan (incorporated by reference to Annex B to the Companys
Proxy Statement on Schedule 14A filed on November 15,
2007).10.20
    
    
    Equity Joint Venture Contract of Yima-SES New Energy
Company Ltd. between Yima Coal Industry (Group) Co., Ltd.
and Synthesis Energy Systems Investment, Inc. dated October
11, 2008  English translation from original Chinese
document (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on October 23,
2008).]10.21
    
    
    Employment Agreement between the Company and Robert Rigdon
dated March 14, 2008 (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
November 12, 2008).10.22
    
    
    Employment Agreement between the Company and Kevin Kelly
dated October 16, 2008 (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K
filed on November 12, 2008).10.23
    
    
    Letter Agreement between the Company and Kevin Kelly dated
January 9, 2009 (incorporated by reference to Exhibit 10.2
to the Companys Current Report on Form 8-K filed on
January 14, 2009).10.24
    
    
    Separation Agreement and Release between the Company and
Timothy E. Vail dated effective March 31, 2009
(incorporated by reference herein to Exhibit 10.6 to the
Companys Current Report on Form 8-K dated April 2, 2009).
  62




---



##### Table of Contents



Number
    
    Description of Exhibits10.25
    
    
    Separation Agreement and Release between the Company and
David Eichinger dated effective March 31, 2009
(incorporated by reference herein to Exhibit 10.7 to the
Companys Current Report on Form 8-K dated April 2, 2009).10.26
    
    
    Form of Nonstatutory Stock Option Agreement (incorporated
by reference herein to Exhibit 10.8 to the Companys
Current Report on Form 8-K dated April 2, 2009).10.27
    
    
    Form of Equity Joint Venture Contract between Yima Coal
Industry (Group) Co., Ltd. and Synthesis Energy Investment
Holdings, Inc. dated April 30, 2009  English translation
from original Chinese document (incorporated by reference
to Exhibit 10.7 to the Companys Quarterly Report on Form
10-Q filed on May 11, 2009).]10.28
    
    
    Letter Agreement between the Company and Don Bunnell dated
August 13, 2009 (incorporated by reference to Exhibit 10.2
to the Companys Current Report on Form 8-K filed on August
13, 2009).10.29
    
    
    Form of Equity Joint Venture Contract between Yima Coal
Industry (Group) Co., Ltd. and Synthesis Energy Investment
Holdings, Inc. dated August 27, 2009  English translation
from original Chinese document. (incorporated by reference
to Exhibit 10.1 to the Companys Current Report on Form 8-K
filed on September 2, 2009).21.1
    *
    
    Subsidiaries of the Company.23.1
    *
    
    Consent of PricewaterhouseCoopers LLP.23.2
    *
    
    Consent of KPMG LLP.31.1
    *
    
    Certification of Chief Executive Officer of Synthesis
Energy Systems, Inc. pursuant to Rule 13a-14(a) promulgated
under the Securities Exchange Act of 1934, as amended.31.2
    *
    
    Certification of Chief Accounting Officer of Synthesis
Energy Systems, Inc. pursuant to Rule 13a-14(a) promulgated
under the Securities Exchange Act of 1934, as amended.32.1
    *
    
    Certification of Chief Executive Officer of Synthesis
Energy Systems, Inc. pursuant to Rule 13a-14(b) promulgated
under the Securities Exchange Act of 1934, as amended, and
Section 1350 of Chapter 63 of Title 18 of the United States
Code.32.2
    *
    
    Certification of Chief Accounting Officer of Synthesis
Energy Systems, Inc. pursuant to Rule 13a-14(b) promulgated
under the Securities Exchange Act of 1934, as amended, and
Section 1350 of Chapter 63 of Title 18 of the United States
Code.
 
 *
    
    Filed herewith.**
    
    Portions of this exhibit have been omitted pursuant to a request for confidential treatment
accepted by the Securities and Exchange Commission and this exhibit has been filed separately
with the Securities and Exchange Commission in connection with such request.+
    
    Management contract or compensatory plan or arrangement.  63




---



##### Table of Contents



SIGNATURES
  SYNTHESIS ENERGY SYSTEMS, INC.Date: September 21, 2009
    By:
    /s/ Robert RigdonRobert Rigdon, Presidentand Chief Executive Officer  Signature
    
    Capacity In Which Signed
    
    Date/s/ Robert Rigdon

Robert Rigdon
    
    President and Chief
Executive Officer and Director 
(Principal Executive Officer)
    
    September 21, 2009/s/ Kevin Kelly

Kevin Kelly
    
    Chief Accounting Officer, Controller
and Secretary
(Principal Financial and Accounting Officer)
    
    September 21, 2009/s/ Donald Bunnell

Donald Bunnell
    
    President, Chief Executive Officer  Asia
Pacific and Director
    
    September 21, 2009/s/ Lorenzo Lamadrid
    
    Director
    
    September 21, 2009Lorenzo Lamadrid/s/ Michael Storey
    
    Director
    
    September 21, 2009Michael Storey/s/ Denis Slavich
    
    Director
    
    September 21, 2009Denis Slavich/s/ Harry Rubin
    
    Director
    
    September 21, 2009Harry Rubin/s/ Timothy Vail
    
    Director
    
    September 21, 2009Timothy Vail
  64




---



##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description of Exhibits21.1*
    
    Subsidiaries of the Company.23.1*
    
    Consent of PricewaterhouseCoopers LLP.23.2*
    
    Consent of KPMG LLP.31.1*
    
    Certification of Chief Executive Officer of Synthesis Energy Systems, Inc.
pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended.31.2*
    
    Certification of Chief Accounting Officer of Synthesis Energy Systems, Inc.
pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended.32.1*
    
    Certification of Chief Executive Officer of Synthesis Energy Systems, Inc.
pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of
1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United
States Code.32.2*
    
    Certification of Chief Accounting Officer of Synthesis Energy Systems, Inc.
pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of
1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United
States Code.
 
 *
    
    Filed herewith.  65