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v2.3.0.11
Investment In And Loans To Dynamic Fuels, LLC
6 Months Ended
Jun. 30, 2011
Investment In And Loans To Dynamic Fuels, LLC  
Investment In And Loans To Dynamic Fuels, LLC

                               

5.     Investment in and Loans to Dynamic Fuels, LLC

 

On June 22, 2007, we entered into definitive agreements with Tyson to form Dynamic Fuels, to construct and operate facilities in the United States using our Bio-Synfining™ Technology. Dynamic Fuels is organized and operated pursuant to the provisions of its Limited Liability Company Agreement between the Company and Tyson (the "LLC Agreement"). 

 

The LLC Agreement provides for management and control of Dynamic Fuels to be exercised jointly by representatives of the Company and Tyson equally with no LLC member exercising control.  This entity is accounted for under the equity method and is not required to be consolidated in our financial statements; however, our share of the Dynamic Fuels net income or loss is reflected in the Consolidated Statements of Operations.  Dynamic Fuels has a different fiscal year than us. The Dynamic Fuels fiscal year ends on September 30 and we report our share of Dynamic Fuels results of operations on a three month lag.  Our carrying value in Dynamic Fuels is reflected in "Investment in and Loans to Dynamic Fuels, LLC" in our Consolidated Balance Sheets.  As of June 30, 2011, Syntroleum's total estimate of maximum exposure to loss as a result of its relationships with this entity was approximately $42,277,000, which represents our equity investment in and loans to this entity in the amount of $40,435,000 and accounts receivable from this entity in the amount of $1,842,000, which fluctuates from time to time with certain operating activities. 

 

Dynamic Fuels, LLC Quarter Ended March 31, 2011 Unaudited Financials (in thousands):

 

 

 

 

 

March 31,

 

Balance Sheet

 

2011

 

 

 Cash and Receivables

 

$      10,892

 

 

 Inventory

 

10,506

 

 

 Property, Plant and Equipment and Other Assets

 

     150,682     

 

 

   Total Assets

 

 $   172,080

 

 

 

 

 

 

 

Current Liabilities

 

  $      8,079

 

 

Notes and Accounts Payable to Related Parties

 

17,620

 

 

Long-Term Liabilities

 

     100,037

 

 

   Total Liabilities

 

125,736

 

 

  Total Members' Equity

 

46,344

 

 

  Total Liabilities and Members' Equity

 

$  172,080

 

 

 

Statement of Operations

 

For the Quarter Ended March 31,

2011

For the Six Months Ended March 31, 2011

 

 

 

 

 

 

 

 

Revenue

 

$                 20,375

$          28,098

 

 

Operating Expenses

 

28,455

40,464

 

 

   Loss from Operations

 

              (8,080)

(12,366)

 

 

Other Income (Expense)

 

(1,025)

(1,305)

 

 

   Net Loss

 

$              (9,105)

$       (13,671)

 

 

 

 

 

 

 

 

 

 

 

 

 

The losses generated by Dynamic Fuels during their six months ended March 31, 2011, relate to plant commissioning with limited production, 6.5 million gallons or approximately 20% of plant design, and additional expenses for materials and labor to address mechanical reliability issues with key pieces of equipment.  5.7 million gallons of renewable products were sold during their six months ended March 31, 2011. 

Dynamic Fuels began commercial operations in November of 2010 and produced over 19.3 million gallons of products by the end of July, 2011.  Specifically, plant production was 7.2 million gallons from the start of plant operations in October 2010 through April, 2011 and 3.1, 3.6 and 5.4 million gallons in May, June and July, respectively.  The plant has run the hydro-processing reactors up to 120% of design feed rates, but stable production has been interrupted by mechanical reliability issues with certain key pieces of rotating equipment and third party supply of  hydrogen, electricity and feedstock.  The plant continues to demonstrate improved reliability with compressor run time in excess of 1600 hours which is a 217% improvement over its previous best run time and we have encountered no issues with the solvent recycle pump since we last replaced the seals in March, 2011.   The plant's design rates are 75 million gallons per year.

During the six months ended June 30, 2011 and June 30, 2010, we recognized revenue associated with our technical services agreement between us and Dynamic Fuels in the amount of $514,000 and $815,000 respectively.  This revenue is reported in "Technical services from Dynamic Fuels, LLC" in the Consolidated Statement of Operations.  We had a receivable from Dynamic Fuels of $1,842,000 and $729,000 as of June 30, 2011 and December 31, 2010, respectively.  In April, we made additional payments of $260,000 for purchases made on behalf of Dynamic Fuels for prepayments to raw material suppliers.  Dynamic Fuels paid Syntroleum once raw materials were received on site in July 2011.  For the three months ended June 30, 2011, Syntroleum and Tyson each contributed an additional $3,850,000 in the form of working capital loans to the entity.  We provided $650,000 in the form of a working capital loan in July 2011 and expect to provide additional working capital loans for the prepayment to raw material suppliers of fats, oils and greases in the third quarter.   The total amount of working capital loans of $9,500,000 will be repaid to each member upon Dynamic Fuels generating sufficient working capital from fuel sales.