Syntroleum Corp. (NASDAQ:SYNM) filed Quarterly Report for the period ended 2009-09-30.
Syntroleum Corp. is a developer owner and licensor of a proprietary catalytic process for converting natural gas to synthetic liquid hydrocarbons generally known as gas-to-liquids or GTL technology. They sell licenses to use their GTL technology the Syntroleum Process for the production of fuels and plan to develop and own GTL plants based on the Syntroleum Process that produce refined specialty products and fuels. Syntroleum Corp. has a market cap of $168.3 million; its shares were traded at around $2.32 with and P/S ratio of 34.5.
Highlight of Business Operations:The capital and working capital budget for Dynamic Fuels financing, construction and initial operations of the first plant to use our Bio-Synfining Technology is estimated to equal $150.0 million in total. Dynamic Fuels received approval from the Louisiana State Bond Commission to sell $100 million in Gulf Opportunity Tax Exempt Bonds to partially finance the plant. These bonds were sold on October 21, 2008, in the amount of $100 million. Syntroleum and Tyson have made capital contributions in the amount of $20.0 million each in 2008 and 2009. The remaining estimated $5.0 million each will be required to be funded in the first quarter of 2010, if needed.
Cash flows provided by operations was $11,793,000 during the nine months ended September 30, 2009, compared to cash flows used in operations of $1,719,000 during the nine months ended September 30, 2008. The increase in cash flows provided by operations primarily results from the collection of revenues from technology deployment agreements of $16,000,000 and engineering technical services.
Cash flows used in investing activities were $6,213,000 during the nine months ended September 30, 2009, compared to $5,532,000 during the nine months ended September 30, 2008. We funded $6,000,000 into Dynamic Fuels in April of 2009 and have committed to an additional $5,000,000 investment in the first quarter of 2010, if needed. We expect to utilize cash flows provided by operations for this investment. The cash used in investing activities in 2008 included a $14,000,000 investment into Dynamic Fuels. This investment was offset by the sale of assets associated with our discontinued operations such as, receipt of payments from AEERL of $7,266,000 and the proceeds from the sale of the Technology Center of $1,100,000. We do not have any other assets for sale related to our discontinued operations.
The capital and working capital budget for Dynamic Fuels financing, construction and initial operations of the first plant to use the Companys Bio-Synfining Technology is estimated to equal $150.0 million. Dynamic Fuels received approval from the Louisiana State Bond Commission to sell $100 million in Gulf Opportunity Zone Tax Exempt Bonds to partially finance the plant. These bonds were sold on October 21, 2008, in the amount of $100 million. Syntroleum and Tyson have made capital contributions in the amount of $20.0 million each in 2008 and 2009. The remaining estimated $5.0 million each will be required to be funded in the first quarter of 2010, if needed. Timing of funding is contingent based on cash needs during commissioning. We expect to fund the remaining 2010 commitment from available cash. The plant is expected to begin commercial operations by the third quarter of 2010.
On October 14, 2009, we entered into a Settlement Agreement with Fletcher International, Ltd. (Fletcher) to settle all legal claims arising in connection with the Investment Agreement (the Investment Agreement) dated November 18, 2007, between us and Fletcher. Pursuant to the terms of the Investment Agreement, under which a maximum of 12.4 million shares could be issued, Fletcher agreed to purchase $12 million worth of our stock at floating per share prices over a twenty-four month period. The purchase was divided into an Initial Investment of $3 million (at a premium to the trading price of our stock) and Later Investments totaling $9 million (at a discount to the trading price of our stock). Fletcher refused to close on the Initial Investment at $1.39 per share, asserting that all of the conditions precedent had not been satisfied, and subsequently attempted to make a Later Investment at $0.44 per share. We refused to close on the grounds that, because Fletcher failed to make the Initial Investment, Fletcher was not entitled to go forward with the Later Investments. Each party subsequently filed legal claims against one another, with Syntroleum claiming unspecified damages against Fletcher and Fletcher claiming damages, excluding legal fees, of $14 million.
Pursuant to the terms of the Settlement Agreement, we and Fletcher entered into a Securities Purchase Agreement (the Securities Purchase Agreement) dated October 14, 2009 whereby Fletcher purchased 1,513,833 shares of our common stock at a price of approximately $2.64 per share and was issued a warrant, exercisable until October 14, 2015, to purchase 1,892,291 shares of our common stock at an exercise price of $3.30 per share. The net proceeds to the Company were $3.8 million, after deducting fees and expenses of the offering payable by us. Under the terms of the Securities Purchase Agreement, Fletcher also has the option to purchase, on or before June 30, 2010, an additional 3,027,665 shares of our common stock, at a price of $2.64 per share, in up to two subsequent closings, at a minimum of 1,513,833 shares of common stock for the first such closing and up to the remainder, if any, at the second such closing. At any subsequent closing, Fletcher will receive a warrant, exercisable for a period of six years, to purchase the number of shares of our common stock equal to the product of 1.25 times the number of shares of our common stock purchased in such subsequent closing, with an exercise price of $3.30 per share.
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