##### 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, 2008
 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
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 PagePART I
    
    
    1Item 1. Description of Business
    
    
    1Item 1A. Risk Factors
    
    
    14Item 1B. Unresolved Staff Comments
    
    
    25Item 2. Description of Property
    
    
    25Item 3. Legal Proceedings
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25PART II
    
    
    26Item 5. Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    26Item 6. Selected Financial Data
    
    
    29Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 7A. Quantitative and Qualitative Disclosure About Market Risk
    
    
    37Item 8. Financial Statements and Supplementary Data
    
    
    39Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    64Item 9A. Controls and Procedures
    
    
    64Item 9B. Other Information
    
    
    66PART III
    
    
    67Item 10. Directors, Executive Officers and Corporate Governance
    
    
    67Item 11. Executive Compensation
    
    
    67Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    67Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    67Item 14. Principal Accountant Fees and Services
    
    
    67Item 15. Exhibits and Financial Statement Schedules
    
    
    68Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   i




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




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Overview of U-GAS®
 ® ® ® ® ®
 ® ®
 
  2




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® ®
     U-GAS®
development history
 
  3




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##### Table of Contents



Example installations
 
    
    Initial test facility in Chicago. Operational from 1975 through 1985.
    
    Biomass facility in Finland. Commissioned in 1989 and ceased operation in
mid-1990s.
    
    Biomass demonstration project in Hawaii. Commissioned in early 1990 and ceased
operations in late 1990s.
    
    Large commercial facility for Shanghai Coking and Chemical. Entered commercial
operation in 1995 and remained in service until 2000.
    
    Large scale test gasifier in Chicago. Commissioned in 2003 and currently in
operation.
    
    Our Hai Hua plant. Began operations in January 2008 and syngas sales commenced in
February 2008.
 GTI Agreements
 License Agreement
 ®
 ® ®
 ® ® ® ® ® ®
  4




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##### Table of Contents



® ® ®
 Other Services
 ® ®
 Business Strategy
  
    
    Execute on projects currently under development.We intend to leverage our success
to date at Hai Hua 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 believe that
our Golden Concord project, and, if approved, our YIMA and CONSOL projects, will
demonstrate our ability to expand into increasingly larger projects and new product
markets, which we believe will lead to additional future projects.
    
    Leverage our relationships with our strong strategic partners for project
development.China is presently our primary market, where our efforts have been focused
primarily on facilities producing syngas, methanol and DME. We have also focused on
expanding our relationship with our current partners, and developing new relationships
with strategic partners in the key coal-to-chemicals regions of China. We are also
working with partners that control coal and coal waste resources to develop projects in
the United States that focus on methanol, ammonia, SNG and synthetic gasoline markets.
    
    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 or coal waste to utilize as fuel and the project scale is in
our target size of up to 400 MW (equivalent).
    
    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 six
patent applications relating to improvements to the U-GAS® technology.
    
    Investigate acquisition opportunities.As our business continues to develop, we plan
to evaluate acquisition opportunities, including existing plants, facilities or coal
mines where we could enhance the economics with our U-GAS® technology.
 
  5




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Target Markets
 China
 ®
 United States
 ® ®
 Business Development and Engineering Staff
 Business Development Staff
 ® ®
  6




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Engineering Staff
 ® ®
  Current Operations and Projects
  Hai Hua
 ®
   7




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8




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Golden Concord
 ®
      9




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##### Table of Contents



YIMA
  CONSOL
 ®
  10




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North American Coal
 ®
 Other Industry Partners
 AEI
 ®
  
    
    Projects utilizing syngas to produce refined products, such as methanol, ethanol,
DME and ammonia;
    
    Industrial projects using syngas to generate thermal energy; and
    
    Projects providing syngas to power plants which will use the syngas to produce
electricity.
 ® ®
  11




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® ® ®
   China National Chemical Engineering Company
 ®
  12




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Competition
  Suppliers
  Research and Development
  Governmental and Environmental Regulation
    13




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Employees
  
 Item 1A. Risk Factors
 Risks Related to Our Business
 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.
 ®
 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.
 ® ® ® ® ®
  14




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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.
  
    
    equity contributions of approximately $13.0 million to our Golden Concord project
and, if approved, approximately $65.0 to $90.0 million to our YIMA project;
    
    the proposed expansion of our Hai Hua project;
    
    feasibility and engineering design work for our CONSOL and NAC projects and any
future North American projects; and
    
    working capital and general corporate purposes.
    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.
 ®
  15




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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.
  Our projects are subject to an extensive governmental approval process which could delay the
implementation of our business strategy.
   16




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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 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.
  Our results of operations may fluctuate.
 ®
  17




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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.
  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.
   18




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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.
 ®
  19




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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.
 ® ® ® ® ®
  20




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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.
     21




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Risks Related to Our Chinese Operations
 Our results of operations would be negatively affected by potential currency fluctuations in
exchange rates with foreign countries.
   Our operations in China may be adversely affected by evolving economic, political and social
conditions.
  Long term offtake agreements could be difficult to obtain and, if obtained, enforce because of
Chinas underdeveloped legal system.
   22




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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.
  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.
   23




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Our historic stock price has been volatile and the future market price for our common stock is
likely to continue to be volatile.
  Our common stock was thinly traded on the Pink Sheets and has continued to be 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 your investment 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;
  24




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
    
    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;
    
    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
   25




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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, 2007:First Quarter
    
    $
    8.00
    
    
    $
    6.00Second Quarter
    
    $
    7.50
    
    
    $
    5.50Third Quarter
    
    $
    6.75
    
    
    $
    5.00Fourth Quarter
    
    $
    11.00
    
    
    $
    5.70Year 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
   26




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Securities Authorized For Issuance Under Equity Compensation Plans
  Equity Compensation Plan InformationWeighted average
    
    
    Number of securities remainingNumber of securities to
    
    
    exercise
    
    
    available for future issuancebe issued upon exercise
    
    
    price of outstanding
    
    
    under equity compensationof outstanding options,
    
    
    options, warrants and
    
    
    plans (excluding securitieswarrants and rights
    
    
    rights
    
    
    reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders (1)
    
    
    7,136,000
    (2)
    
    $
    4.90
    
    
    
    766,200
    (2)Equity compensation
plans not approved by
security holders
    
    
    
    
    
    
    
    
    
    
    Total as of June 30, 2008
    
    
    7,136,000
    
    
    $
    4.90
    
    
    
    766,200
 (1)
    
    Consists of the Amended and Restated 2005 Plan, as amended, or the Plan.(2)
    
    Of the total 8,000,000 shares under the Plan, 7,136,000 options were outstanding at
June 30, 2008 and 5,800 stock grants had been issued under the Plan. These
shares immediately vested upon grant. 
  27




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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
Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference
into such filing.
  
 
    28




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Item 6. Selected Financial Data
  Consolidated statements of operations data
 November 4,2003Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    (inception)June 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    to June 30, 2008Revenue
    
    $
    328,105
    
    
    $
    
    
    
    $
    
    
    
    $
    328,105Cost of goods sold:Depreciation
    
    
    732,490
    
    
    
    
    
    
    
    
    
    
    
    732,490Other
    
    
    2,394,873
    
    
    
    
    
    
    
    
    
    
    
    2,394,873Total cost of goods sold
    
    
    3,127,363
    
    
    
    
    
    
    
    
    
    
    
    3,127,363Gross Loss
    
    
    (2,799,258
    )
    
    
    
    
    
    
    
    
    
    
    (2,799,258
    )General and administrative
expenses and other expenses:General and administrative
expenses
    
    
    13,617,036
    
    
    
    5,865,922
    
    
    
    1,023,229
    
    
    
    20,744,090Stock-based compensation
expenses
    
    
    6,028,911
    
    
    
    6,640,562
    
    
    
    3,042,979
    
    
    
    15,712,452Project and technical
development expenses
    
    
    5,615,232
    
    
    
    1,135,679
    
    
    
    1,245,164
    
    
    
    8,127,708Operating loss
    
    
    (28,060,437
    )
    
    
    (13,642,163
    )
    
    
    (5,311,372
    )
    
    
    (47,383,508
    )Non-operating (income) expense:Interest income
    
    
    (396,927
    )
    
    
    (462,979
    )
    
    
    (128,996
    )
    
    
    (1,002,525
    )Interest expense
    
    
    387,917
    
    
    
    
    
    
    
    
    
    
    
    390,357Net loss before minority interest
    
    
    (28,051,427
    )
    
    
    (13,179,184
    )
    
    
    (5,182,376
    )
    
    
    (46,771,340
    )Minority interest
    
    
    609,943
    
    
    
    36,751
    
    
    
    
    
    
    
    646,694Net loss
    
    $
    (27,441,484
    )
    
    $
    (13,142,433
    )
    
    $
    (5,182,376
    )
    
    $
    (46,124,646
    )Net loss per share:Basic and diluted
    
    $
    (0.80
    )
    
    $
    (0.47
    )
    
    $
    (0.19
    )
    
    $
    (1.59
    )Weighted average common shares
outstanding:Basic and diluted
    
    
    34,384,749
    
    
    
    27,851,642
    
    
    
    27,754,139
    
    
    
    28,967,903
  29




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Consolidated balance sheet information
 Year Ended
    
    
    Year Ended
    
    
    Year EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2006Total current assets
    
    $
    130,719,080
    
    
    $
    6,786,773
    
    
    $
    3,196,133Total assets
    
    
    177,746,841
    
    
    
    38,471,506
    
    
    
    3,213,548Total current liabilities
    
    
    13,073,626
    
    
    
    6,841,216
    
    
    
    328,198Total long-term liabilities
    
    
    11,167,646
    
    
    
    12,080,625
    
    
    
    Total liabilities
    
    
    24,241,272
    
    
    
    18,921,841
    
    
    
    328,198Total stockholders equity
    
    
    150,537,044
    
    
    
    19,094,865
    
    
    
    2,885,350
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Business Overview
 ®
    30




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
    
    Execute on projects currently under development. We intend to leverage our success
to date at Hai Hua 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 believe that our Golden
Concord project, the expansion of our Hai Hua project and, if approved, our YIMA, CONSOL
and NAC projects, will demonstrate our ability to expand into increasingly larger
projects and new product markets, which we believe will lead to additional future
projects.
    
    Leverage our relationships with our strong strategic partners for project
development.  China is presently our primary market, where our efforts have been
focused primarily on facilities producing syngas, methanol and DME. We have also
focused on expanding our relationship with our current partners, and developing new
relationships with strategic partners in the key coal-to-chemicals regions of China. We
are also working with partners that control coal and coal waste resources to develop
projects in the United States that focus on methanol, ammonia, SNG and synthetic
gasoline markets.
    
    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 or coal waste to utilize as fuel and the project scale is in
our target size of up to 400 MW (equivalent).
    
    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
six patent applications relating to improvements to the U-GAS ® technology.
    
    Investigate acquisition opportunities. As our business continues to develop, we plan
to evaluate acquisition opportunities, including existing plants, facilities or coal
mines, where we could enhance the economics with our U-GAS ® technology.
 Results of Operations
  Year Ended June 30, 2007 compared with Year Ended June 30, 2008
 Revenue
  Cost of goods sold
   31




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General and administrative expenses
  Stock-based compensation expenses
  Project and technical development expenses
  Interest income
  Interest expense
  Net loss
  Year Ended June 30, 2006 compared with Year Ended June 30, 2007
 Revenue
  Cost of goods sold
   32




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General and administrative expenses
  Stock-based compensation expenses
  Project and technical development expenses
  Interest income
  Interest expense
  Net loss
  Liquidity and Capital Resources
   33




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Hai Hua Joint Venture
 ®
 
    
    Term of the loan is seven years from the commencement date (March 22, 2007) of the
loan;
    
    Interest for the first year is 7.11% to be adjusted annually based upon the standard
rate announced each year by the Peoples Bank of China. As of June 30, 2008, the
applicable interest rate was 7.83%. Interest is payable monthly on the 20th day of
each month;
    
    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;
    
    The assets of the HH Joint Venture are pledged as collateral for the loan;
    
    The HH Joint Venture agreed to covenants that, among other things, prohibit
pre-payment without the consent of ICBC and permit ICBC to be involved in the review
and inspection of the Hai Hua plant; and
    
    The 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.
    Golden Concord Joint Venture
 ®
  34




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CONSOL Energy
 ®
   North American Coal
 ®
  35




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Outlook
    Off Balance Sheet Arrangements
    36




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Contractual Obligations
  Less than
    
    
    13
    
    
    35
    
    
    After 5Contractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    YearsLong-term bank loan
    
    $
    13,412,839
    
    
    $
    2,245,193
    
    
    $
    6,735,578
    
    
    $
    4,432,068
    
    
    $
    Operating leases
    
    
    1,328,510
    
    
    
    302,956
    
    
    
    761,550
    
    
    
    264,004
    
    
    
    Golden Concord
capital contribution
    
    
    13,000,000
    
    
    
    
    
    
    
    13,000,000
    
    
    
    
    
    
    
    Total
    
    $
    27,741,349
    
    
    $
    2,548,149
    
    
    $
    20,497,128
    
    
    $
    4,696,072
    
    
    $
    
 Recently Issued Accounting Standards
 Fair Value Measurements
 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
 
 Item 7A. Quantitative and Qualitative Disclosure About Market Risk
 Qualitative disclosure about market risk
  Foreign currency risk
   37




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Commodity price risk
  Customer credit risk
   38




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Item 8. Financial Statements and Supplementary Data
 INDEX TO FINANCIAL STATEMENTS
 Reports of Independent Registered Public Accounting Firm
    
    
    40Consolidated Balance Sheets as of June 30, 2008 and 2007
    
    
    42Consolidated Statements of Operations for the years ended
June 30, 2008, 2007 and 2006 and the period from November 4, 2003
(inception) to June 30, 2008
    
    
    43Consolidated Statement of Stockholders Equity for the years ended
June 30, 2008, 2007 and 2006 and the period from November 4, 2003
(inception) to June 30, 2008
    
    
    44Consolidated Statements of Cash Flows for the years ended
June 30, 2008, 2007and 2006 and the period from November 4, 2003
(inception) to June 30, 2008
    
    
    45Notes to the Consolidated Financial Statements
    
    
    46
  39




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Report of Independent Registered Public Accounting Firm
 
    Accounting for
Uncertainty in Income Taxes Share-Based Payment
 Internal Control 
Integrated Framework
 
  40




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Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated Framework
     Internal ControlIntegrated Framework
 
  41




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SYNTHESIS ENERGY SYSTEMS, INC.
 (A Development Stage Enterprise)
 
 Consolidated Balance Sheets
 June 30,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    127,872,234
    
    
    $
    6,202,628Accounts receivable
    
    
    168,430
    
    
    
    Prepaid expenses and other currents assets
    
    
    2,162,158
    
    
    
    441,297Inventory
    
    
    516,258
    
    
    
    Deferred financing costs
    
    
    
    
    
    
    142,848Total current assets
    
    
    130,719,080
    
    
    
    6,786,773Restricted cash
    
    
    578,900
    
    
    
    11,101,157Intangible asset, net of accumulated
amortization of $348,437 and $159,802,
respectively
    
    
    1,546,124
    
    
    
    1,726,561Construction-in-progress
    
    
    2,407,672
    
    
    
    15,168,509Property, plant and equipment, net of
accumulated depreciation of $1,045,193 and
$60,485, respectively
    
    
    37,569,640
    
    
    
    331,410Project prepayments
    
    
    1,424,085
    
    
    
    2,478,088Long-term land lease
    
    
    1,472,588
    
    
    
    879,008Other long-term assets
    
    
    2,028,752
    
    
    
    Total assets
    
    $
    177,746,841
    
    
    $
    38,471,506LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term bank loan
    
    $
    2,245,193
    
    
    $
    Accrued expenses and other payables
    
    
    10,828,433
    
    
    
    6,841,216Total current liabilities
    
    
    13,073,626
    
    
    
    6,841,216Long-term liabilities:Long-term bank loan
    
    
    11,167,646
    
    
    
    12,080,625Total liabilities
    
    
    24,241,272
    
    
    
    18,921,841Commitments and contingencies
    
    
    
    
    
    
    Minority interest
    
    
    2,968,525
    
    
    
    454,800Stockholders Equity:Common stock, $0.01 par value: 100,000,000
shares authorized: 48,010,921 and 30,187,615
shares issued and outstanding, respectively
    
    
    480,109
    
    
    
    301,876Additional paid-in capital
    
    
    194,617,168
    
    
    
    37,300,927Deficit accumulated during development stage
    
    
    (46,124,646
    )
    
    
    (18,683,162
    )Accumulated other comprehensive income
    
    
    1,564,413
    
    
    
    175,224Total stockholders equity
    
    
    150,537,044
    
    
    
    19,094,865Total liabilities and stockholders equity
    
    $
    177,746,841
    
    
    $
    38,471,506
   42




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##### Table of Contents



SYNTHESIS ENERGY SYSTEMS, INC.
(A Development Stage Enterprise)
 
 Consolidated Statements of Operations
 November 4, 2003Years Ended June 30,
    
    
    (inception)2008
    
    
    2007
    
    
    2006
    
    
    to June 30, 2008Revenue
    
    $
    328,105
    
    
    $
    
    
    
    $
    
    
    
    $
    328,105Cost of goods sold:Depreciation
    
    
    732,490
    
    
    
    
    
    
    
    
    
    
    
    732,490Other
    
    
    2,394,873
    
    
    
    
    
    
    
    
    
    
    
    2,394,873Total cost of goods sold
    
    
    3,127,363
    
    
    
    
    
    
    
    
    
    
    
    3,127,363Gross loss
    
    
    (2,799,258
    )
    
    
    
    
    
    
    
    
    
    
    (2,799,258
    )General and administrative
expenses and other expenses:General and administrative
expenses
    
    
    13,617,036
    
    
    
    5,865,922
    
    
    
    1,023,229
    
    
    
    20,744,090Stock-based compensation
expenses
    
    
    6,028,911
    
    
    
    6,640,562
    
    
    
    3,042,979
    
    
    
    15,712,452Project and technical
development expenses
    
    
    5,615,232
    
    
    
    1,135,679
    
    
    
    1,245,164
    
    
    
    8,127,708Operating loss
    
    
    (28,060,437
    )
    
    
    (13,642,163
    )
    
    
    (5,311,372
    )
    
    
    (47,383,508
    )Non-operating (income) expense:Interest Income
    
    
    (396,927
    )
    
    
    (462,979
    )
    
    
    (128,996
    )
    
    
    (1,002,525
    )Interest expense
    
    
    387,917
    
    
    
    
    
    
    
    
    
    
    
    390,357Net loss before minority interest
    
    
    (28,051,427
    )
    
    
    (13,179,184
    )
    
    
    (5,182,376
    )
    
    
    (46,771,340
    )Minority interest
    
    
    609,943
    
    
    
    36,751
    
    
    
    
    
    
    
    646,694Net loss
    
    $
    (27,441,484
    )
    
    $
    (13,142,433
    )
    
    $
    (5,182,376
    )
    
    $
    (46,124,646
    )Net loss per share:Basic and diluted
    
    $
    (0.80
    )
    
    $
    (0.47
    )
    
    $
    (0.19
    )
    
    $
    (1.59
    )Weighted average common shares
outstanding:Basic and diluted
    
    
    34,384,749
    
    
    
    27,851,642
    
    
    
    27,754,139
    
    
    
    28,967,903
   43




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##### Table of Contents



SYNTHESIS ENERGY SYSTEMS, INC.
(A Development Stage Enterprise)
 
 Consolidated Statement of Stockholders Equity
 DeficitAccumulatedCommon Stock
    
    
    
    
    
    
    During the
    
    
    OtherCommon
    
    
    Additional
    
    
    Development
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Paid-in Capital
    
    
    Stage
    
    
    Income
    
    
    TotalBalance at November 4, 2003
(inception)
    
    
    100,000,000
    (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net loss for the period
November 4, 2003 to June
30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (440
    )
    
    
    
    
    
    
    (440
    )Balance at June 30, 2004
    
    
    100,000,000
    
    
    
    
    
    
    
    
    
    
    
    (440
    )
    
    
    
    
    
    
    (440
    )Shares Forfeited in Merger
    
    
    (94,000,000
    )(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares Issued in Merger
    
    
    21,000,000
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (357,913
    )
    
    
    
    
    
    
    (357,913
    )Investor contributions
    
    
    
    
    
    
    264,190
    (2)
    
    
    235,810
    
    
    
    
    
    
    
    
    
    
    
    500,000Conversion of debt to equity
    
    
    
    
    
    
    5,810
    (2)
    
    
    5,190
    
    
    
    
    
    
    
    
    
    
    
    11,000Net proceeds from private
placement offering
    
    
    1,030,000
    
    
    
    10,300
    
    
    
    2,473,810
    
    
    
    
    
    
    
    
    
    
    
    2,484,110Balance at June 30, 2005
    
    
    28,030,000
    
    
    
    280,300
    
    
    
    2,714,810
    
    
    
    (358,353
    )
    
    
    
    
    
    
    2,636,757Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,182,376
    )
    
    
    
    
    
    
    (5,182,376
    )Net proceeds from private
placement offering
    
    
    970,000
    
    
    
    9,700
    
    
    
    2,378,290
    
    
    
    
    
    
    
    
    
    
    
    2,387,990Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,042,979
    
    
    
    
    
    
    
    
    
    
    
    3,042,979Adjustment related to
return of shares
    
    
    (4,352,500
    )
    
    
    (43,525
    )
    
    
    43,525
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2006
    
    
    24,647,500
    
    
    
    246,475
    
    
    
    8,179,604
    
    
    
    (5,540,729
    )
    
    
    
    
    
    
    2,885,350Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,142,433
    )
    
    
    
    
    
    
    (13,142,433
    )Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175,224
    
    
    
    175,224Net proceeds from private
placement offering
    
    
    3,345,715
    
    
    
    33,457
    
    
    
    16,126,343
    
    
    
    
    
    
    
    
    
    
    
    16,159,800Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    6,607,537
    
    
    
    
    
    
    
    
    
    
    
    6,607,537Shares issued for amended
GTI license
    
    
    190,500
    
    
    
    1,905
    
    
    
    1,374,457
    
    
    
    
    
    
    
    
    
    
    
    1,376,362Shares issued upon UCF
option exercise
    
    
    2,000,000
    
    
    
    20,000
    
    
    
    4,980,000
    
    
    
    
    
    
    
    
    
    
    
    5,000,000Stock grants to employees
    
    
    3,900
    
    
    
    39
    
    
    
    32,986
    
    
    
    
    
    
    
    
    
    
    
    33,025Balance at June 30, 2007
    
    
    30,187,615
    
    
    
    301,876
    
    
    
    37,300,927
    
    
    
    (18,683,162
    )
    
    
    175,224
    
    
    
    19,094,865Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,441,484
    )
    
    
    
    
    
    
    (27,441,484
    )Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,389,189
    
    
    
    1,389,189Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    6,009,638
    
    
    
    
    
    
    
    
    
    
    
    6,009,638Exercise of stock options
    
    
    92,000
    
    
    
    920
    
    
    
    563,586
    
    
    
    
    
    
    
    
    
    
    
    564,506Shares issued for GTI
reservation use fee
    
    
    278,000
    
    
    
    2,780
    
    
    
    2,497,220
    
    
    
    
    
    
    
    
    
    
    
    2,500,000Shares issued in public
offerings
    
    
    17,451,406
    
    
    
    174,514
    
    
    
    148,226,543
    (3)
    
    
    
    
    
    
    
    
    
    
    148,401,057Stock grants to employees
    
    
    1,900
    
    
    
    19
    
    
    
    19,254
    
    
    
    
    
    
    
    
    
    
    
    19,273Balance at June 30, 2008
    
    
    48,010,921
    
    
    $
    480,109
    
    
    $
    194,617,168
    
    
    $
    (46,124,646
    )
    
    $
    1,564,413
    
    
    $
    150,537,044
 (1)
    
    Represents the original issuance of shares by the founder of Tamborine, a shell company without any operations. The founders assumed the shell had no value upon
creation and issued shares without cash consideration.(2)
    
    Merger related transactions.(3)
    
    Represents net proceeds of $148,556,355 less $142,848 in offering costs paid prior to June 30, 2007 that had been deferred in debt financing costs, and an accrual of
$12,450 made at June 30, 2008.   44




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##### Table of Contents



SYNTHESIS ENERGY SYSTEMS, INC.
(A Development Stage Enterprise)
 
 Consolidated Statements of Cash Flows
 November 4, 2003Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    (Inception)June 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    To June 30, 2008Cash flows from operating activities:Net loss
    
    $
    (27,441,484
    )
    
    $
    (13,142,433
    )
    
    $
    (5,182,376
    )
    
    $
    (46,124,646
    )Adjustments to reconcile net loss to net cash
used in operating activities:Increase in accounts receivable
    
    
    (168,430
    )
    
    
    
    
    
    
    
    
    
    
    (168,430
    )Increase in minority interest
    
    
    (609,943
    )
    
    
    (36,751
    )
    
    
    
    
    
    
    (646,694
    )Stock-based compensation expense
    
    
    6,028,911
    
    
    
    6,640,562
    
    
    
    3,042,979
    
    
    
    15,712,452Depreciation of property, plant and
equipment
    
    
    986,100
    
    
    
    58,471
    
    
    
    3,960
    
    
    
    1,048,833Loss on disposal of property, plant and
equipment
    
    
    93,392
    
    
    
    2,159
    
    
    
    
    
    
    
    95,551Amortization of long-term land lease
    
    
    21,831
    
    
    
    7,431
    
    
    
    
    
    
    
    29,262Amortization of intangible asset
    
    
    188,635
    
    
    
    157,363
    
    
    
    1,000
    
    
    
    348,437Amortization of other long-term asset
    
    
    5,076
    
    
    
    
    
    
    
    
    
    
    
    5,076Increase in prepaid expenses and other
current assets
    
    
    (461,876
    )
    
    
    (398,915
    )
    
    
    (11,219
    )
    
    
    (902,828
    )Increase in inventory
    
    
    (516,258
    )
    
    
    
    
    
    
    
    
    
    
    (516,258
    )Increase in other long-term assets
    
    
    (30,698
    )
    
    
    
    
    
    
    
    
    
    
    (30,698
    )Increase in accrued expenses and other
payables
    
    
    3,063,558
    
    
    
    1,679,757
    
    
    
    214,195
    
    
    
    5,071,513Net cash used in operating activities
    
    
    (18,841,186
    )
    
    
    (5,032,356
    )
    
    
    (1,931,461
    )
    
    
    (26,078,430
    )Cash flows from investing activities:Loan
proceeds transferred from (to) restricted
cash
    
    
    11,101,157
    
    
    
    (11,101,157
    )
    
    
    
    
    
    
    Restricted cash  investments in long-term
certificates of deposit
    
    
    (578,900
    )
    
    
    
    
    
    
    
    
    
    
    (578,900
    )Capital expenditures
    
    
    (22,267,642
    )
    
    
    (10,707,246
    )
    
    
    (7,885
    )
    
    
    (32,999,004
    )Amendment of GTI license rights
    
    
    
    
    
    
    (500,000
    )
    
    
    
    
    
    
    (500,000
    )Purchase of land use rights
    
    
    (833,255
    )
    
    
    (886,439
    )
    
    
    
    
    
    
    (1,719,694
    )Receipt of Chinese governmental grant
    
    
    555,807
    
    
    
    
    
    
    
    
    
    
    
    555,807Project prepayments
    
    
    (895,531
    )
    
    
    (2,213,236
    )
    
    
    
    
    
    
    (3,108,767
    )Net cash used in investing activities
    
    
    (12,918,364
    )
    
    
    (25,408,078
    )
    
    
    (7,885
    )
    
    
    (38,350,558
    )Cash flows from financing activities:Proceeds from issuance of common stock, net
    
    
    148,556,355
    
    
    
    21,159,800
    
    
    
    2,387,990
    
    
    
    175,088,255Proceeds from long-term bank loan
    
    
    
    
    
    
    12,080,625
    
    
    
    
    
    
    
    12,080,625Prepaid interest
    
    
    
    
    
    
    (275,753
    )
    
    
    
    
    
    
    (275,753
    )Deferred financing costs
    
    
    
    
    
    
    (142,848
    )
    
    
    
    
    
    
    (142,848
    )Contribution from minority interest partner
    
    
    3,124,280
    
    
    
    491,551
    
    
    
    
    
    
    
    3,615,831Proceeds from exercise of stock options, net
    
    
    564,506
    
    
    
    
    
    
    
    
    
    
    
    564,506Loans from (repayments to) shareholders
    
    
    
    
    
    
    
    
    
    
    (1,150
    )
    
    
    11,000Net cash provided by financing activities
    
    
    152,245,141
    
    
    
    33,313,375
    
    
    
    2,386,840
    
    
    
    190,941,616Net increase in cash
    
    
    120,485,591
    
    
    
    2,872,941
    
    
    
    447,494
    
    
    
    126,512,628Cash and cash equivalents at beginning of
the period
    
    
    6,202,628
    
    
    
    3,154,096
    
    
    
    2,706,602
    
    
    
    Effect of exchange rates on cash
    
    
    1,184,015
    
    
    
    175,591
    
    
    
    
    
    
    
    1,359,606Cash and cash equivalents at end of the
period
    
    $
    127,872,234
    
    
    $
    6,202,628
    
    
    $
    3,154,096
    
    
    $
    127,872,234
   45




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##### 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
   46




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##### Table of Contents



(e) Supplemental disclosures of cash flow information:
 November 4, 2003Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    (Inception)June 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    To June 30, 2008Cash paid for interest
    
    $
    917,935
    
    
    $
    440,453
    
    
    $
    150
    
    
    $
    1,361,296Cash received for interest
    
    $
    415,552
    
    
    $
    412,817
    
    
    $
    128,996
    
    
    $
    970,988Non-cash transactions:Stock issued to employees
    
    $
    19,273
    
    
    $
    33,025
    
    
    $
    
    
    
    $
    52,298Fair value of stock issued
to GTI
    
    $
    2,500,000
    
    
    $
    1,376,363
    
    
    $
    
    
    
    $
    3,876,363Conversion of debt to equity
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11,000
 (f) Restricted cash
   (g) Inventories
  (h) Fair value of financial instruments
  (i) Construction-in-progress
 Capitalization of Interest Costs 
  47




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##### Table of Contents



(j) Property, plant, and equipment
  (k) Intangible assets
 Goodwill and
Other Intangible Assets. Accounting for Impairment or Disposal of Long-Lived Assets.
 (l) Impairment of long-lived assets
  (m) Provision for income taxes
   48




---



##### Table of Contents



(n) Debt issuance costs
  (o) Land use rights
  (p) Foreign currency translation
  (q) Revenue recognition
   (r) Research and development costs
  (s) Stock-based compensation
 Share-Based Payment Accounting for Stock Issued to Employees,
  49




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##### Table of Contents



Note 2  Recently Issued Accounting Standards
 Fair Value Measurements
 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
 Note 3  Current Projects
 Hai Hua Joint Venture
 Joint venture contract and construction-in-progress
 ®
   50




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##### Table of Contents



Governmental grant
  Purchase of land use rights
  Syngas purchase and sale agreement
     51




---



##### Table of Contents



Long-term bank loan
  
    
    Term of the loan is seven years from the commencement date (March 22, 2007) of the
loan;
    
    Interest for the first year is 7.11% to be adjusted annually based upon the standard
rate announced each year by the Peoples Bank of China. As of June 30, 2008, the
applicable interest rate was 7.83%. Interest is payable monthly on the 20th day of
each month;
    
    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;
    
    The assets of the HH Joint Venture are pledged as collateral for the loan;
    
    The HH Joint Venture agreed to covenants that, among other things, prohibit
pre-payment without the consent of ICBC and permit ICBC to be involved in the review
and inspection of the Hai Hua plant; and
    
    The 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.
 Restricted cash
  Golden Concord Joint Venture
 ®
    52




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##### Table of Contents



Purchase of land use rights
  Note
4  Stock-Based Compensation
   53




---



##### Table of Contents



Share Based
Payment
 Statement of Cash Flows
  Transition
Election Related to Accounting for Tax Effects of Share-Based Payment Awards
   54




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##### Table of Contents



Prior Period Pro Forma Presentation
 Accounting for Stock-Based Compensation Transition and
Disclosure, an Amendment of FASB Statement No. 123
 November 4, 2003(Inception) toYear Ended
    
    
    Year EndedJune 30, 2006
    
    
    June 30, 2006Net loss, as reported
    
    $
    (5,182,376
    )
    
    $
    (5,540,729
    )Add: total stock-based compensation expense recorded
    
    $
    3,042,979
    
    
    $
    3,042,979Less: total stock-based employee compensation
expense determined under fair value based method
for all awards
    
    $
    (4,132,917
    )
    
    $
    (4,132,917
    )Pro forma net loss
    
    $
    (6,272,314
    )
    
    $
    (6,630,667
    )Net loss per share:Basic and diluted as reported
    
    $
    0.19
    
    
    $
    0.20Basic and diluted pro forma
    
    $
    0.23
    
    
    $
    0.24
 Assumptions
  Year Ended
    
    
    Year Ended
    
    
    Year EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2006Risk-free rate of return
    
    
    3.47
    %
    
    
    4.76
    %
    
    
    4.96
    %Expected life of award
    
    6.1 years
    
    
    3.5 years
    
    
    3.5 yearsExpected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility of stock
    
    
    73
    %
    
    
    69
    %
    
    
    68
    %Weighted-average grant date
fair value
    
    $
    6.72
    
    
    $
    3.47
    
    
    $
    2.88
    55




---



##### Table of Contents



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
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at June 30, 2007
    
    
    5,662,500
    
    
    
    3.50Granted
    
    
    1,852,500
    
    
    
    9.65Exercised
    
    
    (92,000
    )
    
    
    6.20
    
    
    
    
    
    
    $
    0.3Forfeited
    
    
    (287,000
    )
    
    
    7.89Outstanding at June 30, 2008
    
    
    7,136,000
    
    
    
    4.90
    
    
    
    4.6
    
    
    $
    27.8Exercisable at June 30, 2008
    
    
    3,290,000
    
    
    
    3.41
    
    
    
    3.2
    
    
    $
    10.0
   WeightedAverageRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedContractual
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Term
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$2.50 to $3.00
    
    
    4,962,500
    
    
    
    2.9
    
    
    $
    2.97
    
    
    
    3,004,000
    
    
    $
    2.97$3.01 to $7.00
    
    
    227,000
    
    
    
    3.4
    
    
    $
    6.58
    
    
    
    98,000
    
    
    $
    6.57$7.01 to $13.50
    
    
    1,946,500
    
    
    
    9.1
    
    
    $
    9.62
    
    
    
    188,000
    
    
    $
    8.91Total
    
    
    7,136,000
    
    
    
    4.6
    
    
    $
    4.90
    
    
    
    3,290,000
    
    
    $
    3.41
  Weighted AverageNumber of
    
    
    Grant DateStock Options
    
    
    Fair ValueNon-vested at June 30, 2007
    
    
    3,517,000
    
    
    $
    2.81Granted
    
    
    1,852,500
    
    
    
    6.72Vested
    
    
    (1,236,500
    )
    
    
    3.23Forfeited
    
    
    (287,000
    )
    
    
    4.17Non-vested at June 30, 2008
    
    
    3,846,000
    
    
    
    4.61
   56




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##### Table of Contents



Stock Grant to Employees
  Stock Option Exercises
  Note 5  Property, Plant and Equipment
  As of June 30,2008
    
    
    2007Systems under construction and installation
    
    $
    33,532
    
    
    $
    12,651,729Engineering and design
    
    
    348,559
    
    
    
    729,901Piling and foundation
    
    
    
    
    
    
    673,696Technology license fee
    
    
    
    
    
    
    350,000Government fees and levies
    
    
    
    
    
    
    286,263Capitalized interest
    
    
    
    
    
    
    199,459Construction management and supervision
    
    
    
    
    
    
    167,571Site and construction preparation
    
    
    1,605,698
    
    
    
    109,890Safety and environmental evaluation
    
    
    248,861
    
    
    
    Software development costs
    
    
    171,022
    
    
    
    Total
    
    $
    2,407,672
    
    
    $
    15,168,509
  Estimated
    
    As of June 30,useful lives
    
    2008
    
    
    2007Furniture and fixtures
    
    2 to 3 years
    
    $
    407,326
    
    
    $
    66,168Production equipment
    
    15 years
    
    
    30,090,526
    
    
    
    Building  plant and office
    
    30 years
    
    
    7,009,480
    
    
    
    Leasehold improvements
    
    Lease term
    
    
    121,752
    
    
    
    50,679Computer hardware
    
    3 years
    
    
    229,640
    
    
    
    40,898Computer software
    
    3 years
    
    
    253,961
    
    
    
    76,724Office equipment
    
    3 years
    
    
    357,411
    
    
    
    120,764Motor vehicle
    
    5 years
    
    
    144,737
    
    
    
    36,662$
    38,614,833
    
    
    $
    391,895Less: Accumulated depreciation
    
    
    
    
    (1,045,193
    )
    
    
    (60,485
    )Net book value
    
    
    
    $
    37,569,640
    
    
    $
    331,410
   57




---



##### Table of Contents



Note 6  Detail of Selected Balance Sheet Accounts
  As of June 30,2008
    
    
    2007Prepaid project development costs
    
    
    144,434
    
    
    
    292,786Prepaid parts and assemblies
    
    
    784,142
    
    
    
    Current portion prepaid interest
    
    
    43,738
    
    
    
    Interest receivable from deposits
    
    
    
    
    
    
    50,161Receivable from CONSOL
    
    
    425,000
    
    
    
    Value added tax receivable
    
    
    434,875
    
    
    
    Prepaid insurance
    
    
    13,757
    
    
    
    14,492Prepaid legal & consulting services
    
    
    
    
    
    
    17,781Prepaid rent & related deposits
    
    
    16,513
    
    
    
    20,930Employee advances
    
    
    24,231
    
    
    
    9,181Other
    
    
    275,468
    
    
    
    35,966$
    2,162,158
    
    
    $
    441,297
  As of June 30,2008
    
    
    2007Raw materials
    
    $
    150,270
    
    
    $
    Parts and assemblies
    
    
    365,988
    
    
    
    $
    516,258
    
    
    $
    
  As of June 30,2008
    
    
    2007Prepaid interest
    
    $
    202,750
    
    
    $
    264,853Hai Hua project prepayments
    
    
    
    
    
    
    1,887,432Golden Concord project prepayments
    
    
    1,221,335
    
    
    
    325,803$
    1,424,085
    
    
    $
    2,478,088
  58




---



##### Table of Contents



As of June 30,2008
    
    
    2007Construction and equipment costs
    
    $
    4,499,566
    
    
    $
    4,832,505Accounts payable  trade
    
    
    2,286,891
    
    
    
    Accrued payroll, vacation and bonuses
    
    
    1,557,843
    
    
    
    702,151Technical consulting, engineering and design
services
    
    
    1,585,980
    
    
    
    613,449Audit, tax and other consulting
    
    
    186,567
    
    
    
    529,105Reimbursable expenses
    
    
    77,509
    
    
    
    105,601Interest payable
    
    
    26,490
    
    
    
    23,859Other
    
    
    607,587
    
    
    
    34,546$
    10,828,433
    
    
    $
    6,841,216
 Note 7  Intangible assets
 ®
 ®
  ® ®
  59




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##### Table of Contents



® ® ® ® ® ®
 ® ® ®
 Estimated useful life
    
    
    As of June 30, 2008
    
    
    As of June 30, 2007used for
    
    
    Gross carrying
    
    
    Accumulated
    
    
    Gross carrying
    
    
    Accumulatedamortization purposes
    
    
    amount
    
    
    amortization
    
    
    amount
    
    
    amortizationUse rights of U-GAS®:
    
    10 years
    
    
    $
    1,886,363
    
    
    $
    348,437
    
    
    $
    1,886,363
    
    
    $
    159,802
   Note 8  Income taxes
  Year ended June 30,2008
    
    
    2007Domestic
    
    $
    (18,969,540
    )
    
    $
    (9,399,590
    )Foreign
    
    
    (9,081,887
    )
    
    
    (3,779,594
    )Net loss before minority interest
    
    $
    (28,051,427
    )
    
    $
    (13,179,184
    )
  60




---



##### Table of Contents



Provision for income taxes
  Year ended June 30,2008
    
    
    2007Net loss before minority interest
    
    $
    (28,051,427
    )
    
    $
    (13,179,184
    )Computed tax benefit at statutory rate
    
    
    (9,818,000
    )
    
    
    (4,612,714
    )Other
    
    
    87,696
    
    
    
    1,497Tax on income/(losses) from foreign operations
    
    
    1,822,392
    
    
    
    1,048,848Valuation allowance
    
    
    7,907,912
    
    
    
    3,562,369$
    
    
    
    $
    
 Deferred tax assets (liabilities)
  Year ended June 30,2008
    
    
    2007Deferred tax assets (liabilities):Net operating loss carry forward
    
    $
    6,817,633
    
    
    $
    1,164,360Depreciation and amortization
    
    
    (71,989
    )
    
    
    14,584Stock-based compensation
    
    
    5,002,975
    
    
    
    3,227,581Accrued Vacation
    
    
    26,419
    
    
    
    15,308Accrued Bonus
    
    
    94,200
    
    
    
    127,980Other accruals
    
    
    809,434
    
    
    
    220,947Subtotal
    
    
    12,678,672
    
    
    
    4,770,760Valuation allowance
    
    
    (12,678,672
    )
    
    
    (4,770,760
    )Net deferred assets (liabilities)
    
    $
    
    
    
    $
    
     61




---



##### Table of Contents



Note 9  Net Loss Per Share Data
  Note 10  Commitments and Contingencies
 Letters of credit
    62




---



##### Table of Contents



Contractual obligations
  Years ending June 30,
    
    Total2009
    
    $
    302,9562010
    
    
    248,7732011
    
    
    253,8502012
    
    
    258,9272013
    
    
    264,004Thereafter
    
    
    Total lease commitments
    
    $
    1,328,510
 Employment agreements
  Note 11  Stockholders Equity
 NASDAQ listing
  Public offering
   Issuance to GTI
 ® ®
  63




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##### Table of Contents



Note 12  Related Party Transaction
  Note 13  Quarterly Results of Operations (Unaudited)
 2008 QuartersFirst
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    2008Revenues
    
    $
    
    
    
    $
    
    
    
    $
    39,879
    
    
    $
    288,226
    
    
    $
    328,105Gross loss
    
    
    
    
    
    
    
    
    
    
    (336,154
    )
    
    
    (2,463,104
    )
    
    
    (2,799,258
    )Net loss
    
    
    (3,766,422
    )
    
    
    (4,327,752
    )
    
    
    (7,437,552
    )
    
    
    (11,909,758
    )
    
    
    (27,441,484
    )Net loss per basic
and diluted
earnings per share
    
    $
    (0.12
    )
    
    $
    (0.13
    )
    
    $
    (0.20
    )
    
    $
    (0.32
    )
    
    $
    (0.80
    )
 2007 QuartersFirst
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    2007Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Gross loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (2,935,067
    )
    
    
    (2,993,665
    )
    
    
    (2,745,437
    )
    
    
    (4,468,264
    )
    
    
    (13,142,433
    )Net loss per basic
and diluted
earnings per share
    
    $
    (0.11
    )
    
    $
    (0.11
    )
    
    $
    (0.10
    )
    
    $
    (0.15
    )
    
    $
    (0.47
    )
 
 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
   64




---



##### Table of Contents



(b) Managements Report on Internal Control over Financial Reporting
   Internal Control  Integrated Framework
   65




---



##### Table of Contents



(c) Remediation of Material Weaknesses
  (d) Changes in Internal Control Over Financial Reporting
  (1)
    
    Ineffective policies and procedures to ensure that sufficient written
agreements describing the terms of payments exist before a disbursement is made.(2)
    
    Ineffective controls to prevent or detect payments being processed without
adequate backup or support to identify the amount being paid, the services rendered and
the associated costs of each service, and the identity of the vendor.(3)
    
    Ineffective internal controls to ensure that disbursements to related parties
are approved by appropriate individuals and that our public filings include the
appropriate disclosure of related party transactions.
  (1)
    
    Increased the level of supporting documentation required for management to pay
invoices.
 (2)
    
    Required Audit Committee approval for all related party transactions regardless
of dollar amount.
 (3)
    
    Required that all new vendors be formally approved prior to payments.
  
 Item 9B. Other Information
   66




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##### Table of Contents



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
   67




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##### 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
    +
    
    Employment Agreement between the Company and Timothy E. Vail dated
May 30, 2006 (incorporated by reference to Exhibit 10.7 to
Amendment No. 2 to the Companys Registration Statement
(Registration No. 333-140367) on Form SB-2 filed on March 30,
2007).10.6
    +
    
    Amendment to Employment Agreement between the Company and Timothy
E. Vail dated November 15, 2006 (incorporated by reference to
Exhibit 10.8 to the Companys Registration Statement (Registration
No. 333-140367) on Form SB-2 filed on January 31, 2007).10.7
    +
    
    Employment Agreement between the Company and David Eichinger dated
May 30, 2006 (incorporated by reference to Exhibit 10.9 to the
Companys Registration Statement (Registration No. 333-140367) on
Form SB-2 filed on January 31, 2007).10.8
    +
    
    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).
  68




---



##### Table of Contents



Number
    
    Description of Exhibits10.9
    +
    
    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).10.10
    +
    
    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).10.11
    +
    
    Form of Nonstatutory Stock Option Agreement (four year vesting)
(incorporated by reference to Exhibit 10.13 to the Companys
Registration Statement (Registration No. 333-140367) on Form SB-2
filed on January 31, 2007).10.12
    +
    
    Form of Nonstatutory Stock Option Agreement (five year vesting)
(incorporated by reference to Exhibit 10.14 to the Companys
Registration Statement (Registration No. 333-140367) on Form SB-2
filed on January 31, 2007).10.13
    
    
    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).10.14
    
    
    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).10.15
    
    
    Amended and Restated Commitment Agreement dated November 30, 2006
between the Company and Union Charter Capital VII, Inc.
(incorporated by reference to Exhibit 10.15 to the Companys
Registration Statement (Registration No. 333-140367) on Form SB-2
filed on January 31, 2007).10.16
    
    
    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).10.17
    
    
    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).10.18
    
    
    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).10.19
    
    
    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).10.20
    
    
    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).10.21
    
    
    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).10.22
    
    
    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).10.23
    
    
    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).
  69




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##### Table of Contents



Number
    
    Description of Exhibits10.24
    
    
    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).10.25
    
    
    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).21.1
    
    
    Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 to the Companys Registration Statement (Registration No.
333-140367) on Form SB-2 filed on January 31, 2007).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 Financial 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 Financial 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.  70




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##### Table of Contents



SIGNATURES
  SYNTHESIS ENERGY SYSTEMS, INC.Date:  September 15, 2008
    By:
    /s/ Timothy E. VailTimothy E. Vail, Presidentand Chief Executive Officer  Signature
    
    Capacity In Which Signed
    
    Date/s/ Timothy E. Vail
Timothy E. Vail
    
    President and Chief Executive Officer and
Director (Principal Executive Officer)
    
    September 15, 2008/s/ David Eichinger
David Eichinger
    
    Chief Financial Officer and Senior Vice
President of Corporate Development (Principal
    
    September 15, 2008Financial and Accounting Officer)/s/ Donald Bunnell
Donald Bunnell
    
    President, Chief Executive Officer  Asia Pacific
and Director
    
    September 15, 2008/s/ Lorenzo Lamadrid
Lorenzo Lamadrid
    
    Director
    
    September 15, 2008/s/ Michael Storey
Michael Storey
    
    Director
    
    September 15, 2008/s/ Denis Slavich
Denis Slavich
    
    Director
    
    September 15, 2008/s/ Harry Rubin
Harry Rubin
    
    Director
    
    September 15, 2008
  71




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##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description of Exhibits31.1*
    
    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 Financial 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 Financial 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.  72