As Of                Filer                Filing    For·On·As Docs:Size

 3/30/07  Synthesis Energy Systems Inc      SB-2/A                 8:2.2M

Document/Exhibit                   Description                      Pages   Size 

 1: SB-2/A      Pre-Effective Amendment to Registration of          HTML    650K 
                          Securities of a Small-Business Issuer                  
 2: EX-3        Articles of Incorporation/Organization or By-Laws   HTML    111K 
 3: EX-10       Material Contract                                   HTML    380K 
 4: EX-10       Material Contract                                   HTML     58K 
 5: EX-10       Material Contract                                   HTML     19K 
 6: EX-10       Material Contract                                   HTML     65K 
 8: EX-23       Consent of Experts or Counsel                       HTML      7K 
 7: EX-16       Letter re: Change in Certifying Accountant          HTML      7K 

TABLE OF CONTENTS

Page

PROSPECTUS SUMMARY

1

RISK FACTORS

2

FORWARD LOOKING STATEMENTS

14

BUSINESS

15

DESCRIPTION OF PROPERTY

25

PLAN OF OPERATIONS

26

SELLING STOCKHOLDERS

29

USE OF PROCEEDS

30

PLAN OF DISTRIBUTION

31

DIRECTORS AND EXECUTIVE OFFICERS

34

CORPORATE GOVERNANCE

37

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

38

EXECUTIVE COMPENSATION

39

INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

42

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

43

DESCRIPTION OF COMMON STOCK

44

RELATIONSHIPS WITH ISSUER OF EXPERTS NAMED IN REGISTRATION STATEMENT

45

LEGAL PROCEEDINGS

45

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

46

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF SECURITIES ACT LIABILITIES  46

LEGAL MATTERS

46

EXPERTS

47

INDEX TO FINANCIAL STATEMENTS

F-1

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of our common stock in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

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PROSPECTUS SUMMARY

The following summary should be read together with the information contained in other parts of this prospectus and the documents we incorporate by reference to fully understand the offering as well as the other considerations that are important to you in making a decision about whether to invest in our common stock. As used in this prospectus, unless the context otherwise requires, “we,” the “Company,” “us,” “our” or “Synthesis” refers to Synthesis Energy Systems, Inc. and its consolidated subsidiaries unless otherwise indicated or the context requires otherwise. We have provided definitions for some of the industry terms used in this registration statement in the “Glossary of Terms” in Appendix A.

Our Company

We are an emerging development stage company involved in the global development and commercialization of gasification technology.  As described further herein, our principal asset is an exclusive license with the Gas Technology Institute (“GTI”), a U.S. based non-profit research and development organization, for their U-GAS^® coal gasification technology.  

Our principal executive offices are located at 6330 West Loop South, Suite 300, Houston, Texas 77401, and our phone number is (713) 579-0600.  Our website address is www.synthesisenergy.com.  Information on our website is not incorporated by reference into this prospectus and does not constitute part of this prospectus.

The Offering

Common stock offered:

By us	None
By the selling stockholders	8,000,000 shares
Common stock outstanding after the offering	28,183,715 shares(1)
Pink Sheets symbol	SYMX
Use of proceeds	We will not receive any of the proceeds from the sale or other disposition of the shares covered hereby, or interests therein, by the selling stockholders.  See “Use of Proceeds.”
Risk Factors	See “Risk Factors” beginning on page 3 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.

(1)

The number of shares shown to be outstanding is based on the number of shares of our common stock outstanding as of February 28, 2007, and does not include shares reserved for issuance upon the exercise of options granted or available under our stock incentive plan.  As of February 28, 2007, we had outstanding options to purchase 5,367,500 shares of our common stock with a weighted average exercise price of $3.24 per share.

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RISK FACTORS

An investment in our common stock involves a high degree of risk.  You should consider carefully the risks and uncertainties described below and the other information included in, or incorporated by reference into, this prospectus, including our financial statements and related notes, before deciding to invest in our common stock.  If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer.  In that event, the market price of the offered securities could decline and you could lose all or part of the money you paid to buy our common stock.

Risks Related to our Business

We are a newly organized company and our business plans and strategies may not be accepted in the marketplace.

We began operations in November of 2003 as Synthesis Energy Systems, Inc., a corporation formed under the laws of the British Virgin Islands, and have a limited operating history.  Our proposed business plans and strategies described in this registration statement incorporate our senior management’s current best analysis of potential markets, opportunities and difficulties that face us.  No assurance can be given that the underlying assumptions accurately reflect current trends in the energy services industry or our consumers’ reaction to our products and services or that such will be successful.  In addition, our plans may and likely will change substantially from time to time as our senior management reassesses its opportunities and reallocates its resources, and any such plans may be changed or abandoned at any time.  Our strategies remain untested and there is no assurance that our business plans and strategies can be successfully implemented and executed.

We will utilize a technology with a limited commercial history.  If the U-GAS^® technology fails to gain or loses market acceptance, our business will suffer.

Although GTI is one of the world’s leading energy research and development organizations with well-equipped research facilities, it does not have marketing resources to fully commercialize its U-GAS® technology.  To date, U-GAS® technology has not been used in a large number of commercial facilities.   There is a risk that the U-GAS^® technology will not meet reliability or efficiency targets.  If U-GAS^® technology is not generally accepted as a low cost energy alternative and we are unable to effectively manage the implementation of the U-GAS^® technology, our business and operating results could be seriously harmed.

We may require 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.

We have spent or plan to spend the following within the next twelve months; (i) approximately $12.4 million related to construction of a coal gasification plant through our joint venture with Hai Hua (described under “Business—Current Projects”), which includes a $9.1 million equity contribution by the Company and a loan by the Company to our joint venture with Hai Hua of $3.3 million; (ii) approximately $2.2 million of operating costs; and (iii) approximately $800,000 of project development expenses.  On March 22, 2007 we completed a loan transaction with the Industrial and Commercial Bank of China (“ICBC”) to fund (i) above.  See “Plan of Operations” for more on this loan.  As of March 30, 2007, we had approximately $3 million of cash in our banks, in addition to approximately $18.4 million of cash in the Joint Venture.

As described in more detail in “Plan of Operations,” over the next twelve months, we also plan to continue to advance the commercial development of U-GAS® based projects in China and selected locations in the United States, and to further expand our global engineering and project execution team to complete future projects which are currently contemplated.  In the next few months, we plan to raise

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approximately $25 million to $50 million in order to implement these strategies in furtherance of our business plan.  We may need to raise additional funds sooner in order to fund more rapid expansion, cover unexpected construction costs or delays, replace flawed equipment, develop new or enhanced energy services or products, respond to competitive pressures or to acquire complementary energy related products, services, businesses or technologies.  We intend to rely on commercial banks to finance or refinance some portion of our project costs.  We may also offer debt or equity securities to fulfill our other cash requirements.  There can be no assurances that financing will be available to us in the future on acceptable terms or at all.  If we cannot raise required funds on acceptable terms, we may not be able to, among other things (i) develop, implement or enhance our energy related products and services; (ii) negotiate and enter into new gasification plant development contracts; (iii) expand our operations; (iv) hire and train employees; or (v) respond to competitive pressures or unanticipated capital requirements.  

The termination of our license agreement with GTI or our joint venture with Hai Hua could materially adversely affect our business and results of operations.

Our license agreement with GTI for the U-GAS^® technology (described under “Business—GTI License Agreement”) and our joint venture with Hai Hua (described under “Business—Current Projects”) are essential to the Company and its future development.  The license agreement terminates on August 31, 2016, but may be terminated by GTI upon certain events of default if not cured by the Company within specified time periods.  In addition, after the two extension periods provided under the license agreement, there is no assurance that we will succeed in obtaining an extension of the term of the license in the future at a royalty rate that we believe to be reasonable or at all.  Our joint venture with Hai Hua terminates on July 6, 2056, but may be terminated due to certain events of bankruptcy and if the purchase and sale contract for syngas is terminated.  The purchase contract terminates on October 22, 2026, but may be terminated by Hai Hua upon certain events of default.  Termination of the joint venture would require us to seek another collaborative relationship in that territory. There is no assurance that a suitable alternative third party would be identified, and even if identified, there is no assurance that the terms of any new relationship would be commercially acceptable to us.

Our lack of an operating history, any significant assets or any meaningful revenue or profits makes it difficult to evaluate our business prospects and there can be no assurance of our future profitability.

We are a development stage company and our lack of operating history precludes us from forecasting operating expenses based on historical results.  We do not have any significant assets, other than our license agreement with GTI for the U-GAS^® technology (described under “Business—GTI License Agreement”), and have not generated any revenues from our business.  If we are unable to develop the U-GAS^® technology and successfully enter into and implement contracts with industrial complexes, and provide energy services to these customers and reduce their energy costs and manage our business and operations, we may never achieve profitability.  You should evaluate our business and prospects given the risks, difficulties, expenses and challenges we may encounter because we are a development stage company in a rapidly evolving market.  Even if we do achieve profitability, it may not be sustainable, and we cannot predict the level of such profitability.

Our products and services are in an early stage of development and we may never be able to reach agreement regarding the completion of a project.

All of our other potential development opportunities are in the early stages of development and/or contract negotiations.  Our joint venture with Hai Hua discussed herein under “Business – Current Projects” is currently our only negotiated contract.  We must undertake the time-consuming and costly process of fulfilling the requirements of requests for proposals and negotiating contracts before offering our services to industrial complexes.  We are unsure of when, if ever, many of these contracts will be negotiated, executed and implemented.  There are many reasons that we may fail in our efforts to negotiate, execute and implement contracts with our target customers to provide cost efficient energy services, including the possibility that: (i) our products and services will be ineffective; (ii) our products

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and services will be cost prohibitive or will not achieve broad market acceptance; (iii) competitors will offer superior products and services; or (iv) competitors will offer their products and services at a lower cost.  

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.

For our joint venture with Hai Hua (described under “Business—Current Projects”), and possibly for other projects we may work on in the future, we are managing plant design, procurement of equipment, and supervising construction.  Most of this work has been subcontracted to third parties with the Company coordinating and supervising these tasks.  The Company believes that this is the most time and cost effective way to build gasification plants in China and elsewhere, but the Company does bear the risk of cost and schedule overruns and quality control.  If we do not properly manage the design, procurement and construction of our plants, our business and operating results could be seriously harmed.

Our results of operations could be negatively affected by potential fluctuations in exchange rates with China.

Any decrease in the value of the U.S. dollar in relation to foreign currencies could increase the cost of the services provided to us upon contract expirations.  There can be no assurance that we will be able to offset any such increases and any failure to do so could have a material adverse effect on our business, financial condition and results of operations.  We may in the future engage in hedging activities to protect operations and future obligations in foreign currencies, which could adversely affect our business and operating results.

We are also exposed to foreign currency exchange rate risks as a result of our business in China. Although the Chinese Yuan has historically been largely pegged to the U.S. dollar, which has minimized our foreign currency exchange rate risk in China, recently, the Chinese Yuan has been allowed to float against to the U.S. dollar, and therefore, we will be exposed to additional foreign currency exchange rate risk.  This risk will also increase as we continue to increase our activities in other foreign countries.

Our operations in China may be adversely affected by evolving economic, political and social conditions.

Our operations are subject to risk inherent in doing business internationally. Such risks include the adverse effects on operations from war, international terrorism, civil disturbances, political instability, governmental activities and deprivation of contract and property rights. In particular, since 1978, the Chinese government has been reforming its economic and political systems, and we expect this to continue. Although we believe that these reforms have had a positive effect on the economic development of China and have improved our ability to do business in China, we cannot assure you that these reforms will continue or that the Chinese government will not take actions that impair our operations or assets in China. In addition, periods of international unrest may impede our ability to do business in other countries and could have a material adverse effect on our business and results of operations.

Long-term offtake agreements could be difficult to enforce because of China’s underdeveloped legal system.

Our project level subsidiary revenues may be derived from long-term offtake agreements for syngas, power and other commodities.  If a commodity purchaser ceases payment, there is less certainty under China’s legal system to seek remedies as compared to Western countries.  We will seek to mitigate this risk by (i) obtaining all requisite government approvals, (ii) developing projects with good underlying economics, (iii) developing modular plants that can be moved away in an extreme circumstance, (iv) using local banks to finance a majority of our project costs, and (v) including enforceable arbitration provisions in all project agreements.  The success of our business depends in part on our ability to successfully negotiate, implement and manage the offtake agreements.  As a result, our business and

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financial condition would be materially adversely affected if we are unable to mitigate the offtake agreement risks.

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.

In addition to long-term offtake agreements, in certain circumstances, we plan to sell hydrogen, nitrogen, elemental sulfur, ash and other commodities into the merchant market.  These sales may not be subject to long-term offtake agreements and the price will be dictated by the then prevailing market price.  Revenues from such sales may fluctuate and may not be consistent or predictable.  Our business and financial condition would be materially adversely affected if we are unable to obtain satisfactory prices for these commodities or if prospective buyers do not purchase these commodities.

Our results of operations may fluctuate.

Our operating results have varied on a quarterly basis during our short operating history and may fluctuate significantly as a result of a variety of factors, many of which are outside our control.  Factors that may affect our quarterly operating results include: (i) our ability to retain new customers;  (ii) the announcement or introduction of services and products by us or our competitors; (iii) the success and acceptance of U-GAS^® technology; (iv) pricing competition; (v) shortages of equipment, raw materials, or fuel; (vi) approvals by various government agencies; (vii) the inability to obtain land use rights for our projects; and (viii) general economic conditions as well as economic conditions specific to the energy industry.

We are dependent on key personnel who would be difficult to replace.

Our performance is substantially dependent on the continued services and on the performance of our senior management and other key personnel.  Our performance also depends on our ability to retain and motivate our officers and key employees.  The loss of the services of any of our executive officers or other key employees could have a material adverse effect on our business, results of operations and financial condition.  Although we have employment agreements, which include non-competition provisions, with Timothy Vail, our President and Chief Executive Officer, David Eichinger, our Chief Financial Officer and certain other of our key employees, as a practical matter, those agreements will not assure the retention of our employees and we may not be able to enforce all of the provisions in either employment agreement, including the non-competition provisions.  Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel.  Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, integrate or retain sufficiently qualified personnel.  In addition, because a large portion of operations are currently in China, we will be required to retain personnel who reside in, or are willing to travel to, and who speak the language and understand the customs of, China.  Our inability to retain these types of individual could have a material adverse effect on our business, results of operations and financial condition.

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.

Our business strategy contemplates growth and diversification.  As we add to our services, our number of customers, and our marketing and sales efforts, our operating expenses and capital requirements will increase.  Our ability to manage growth effectively will require that we continue to expend funds to improve our operational, financial and management controls, as well as reporting systems and procedures.  In addition, we must effectively expand, train and manage our employees.  We will be unable to manage our business effectively if we are unable to alleviate the strain on resources caused by growth in a timely and successful manner.  There can be no assurance that we will be able to manage our growth and a failure to do so could have a material adverse effect on our business.

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We face intense competition.  If we cannot gain a market share among our competition, we may not earn revenues and our business may be harmed.

The business of providing energy is highly competitive.  In the gasification market, large multi-national industrial companies such as General Electric, Shell, ConocoPhillips, Siemens, and small Chinese firms (with fluidized beds and fixed bed technologies) offer coal gasification equipment and services. Although we do not directly compete with the multi-national firms, their activities in the marketplace may negatively impact our operations and our ability to attract quality projects.   In addition, new competitors, some of whom may have extensive experience in related fields or greater financial resources, may enter the market.  Increased competition could result in a loss of contracts and market share.  Either of these results could seriously harm our business and operating results.  In addition, there are a number of gasification and conventional, non-gasification, coal-based alternatives for producing heat and power that could compete with our technology in specific situations.   If we are unable to effectively compete with other sources of energy, our business and operating results could be seriously harmed.

In our areas of operation, the projects we intend to build will face rigorous environmental regulations, review and approval.  There is no assurance that we will be able to obtain such approvals or maintain them once granted.

Our operations are subject to stringent federal, state and local laws and regulations governing the discharge of materials into environment or otherwise relating to environmental protection.  Numerous governmental agencies, such as the U.S. Environmental Protection Agency and various Chinese authorities, issue regulations to implement and enforce such laws, which often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties or may result in injunctive relief for failure to comply.  These laws and regulations may require the acquisition of a permit before operations at a facility commence, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with such activities, limit or prohibit construction activities on certain lands lying within wilderness, wetlands, ecologically sensitive and other protected areas, and impose substantial liabilities for pollution resulting from our operations.  We believe that we are in substantial compliance with current applicable environmental laws and regulations and we have not experienced any material adverse effect from compliance with these environmental requirements.

In China, developing and constructing gasification facilities is highly regulated.  In the development stage of a project, the key government approvals are the project’s environmental impact assessment report, feasibility study (also known as the project application report) and, in the case of a Sino-foreign joint venture, approval of the joint venture company’s joint venture contract and articles of association.  Approvals in China are required at the municipal, provincial and/or central government levels depending on the total investment in the project.

Although we have been successful in obtaining the permits that are required at this stage of our development, any retroactive change in regulations or an opinion that the approvals that have been obtained are inadequate, either at the federal, provincial or state level, could require us to obtain additional or new permits or spend considerable resources on complying with such regulations.  Other developments, such as the enactment of more stringent environmental laws and regulations, could require us to incur significant capital expenditures.

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We may have difficulty managing the government approval process which could delay the implementation of our business plan.

Selling syngas, electricity and other commodities is highly regulated in many markets around the world.  We believe our projects will be supported by the governmental agencies in which they will operate because coal-based technologies, which put less of a burden on the environment, are generally encouraged by most governments.  However, in China and other developing markets, the regulatory environment is often uncertain and can change quickly, often with contradictory regulations being issued.  In some cases, government officials have different interpretations of such regulations and project approvals that are obtained by the Company could later be deemed to be inadequate or new regulations could require that additional levels of approval be obtained.  If we are unable to effectively manage the government approval process in the markets in which we intend to operate, our business prospects and operating results could be seriously harmed.

We are dependent on the availability and cost of fuel supplies and our inability to obtain a low-cost source could have an impact on our business.

Our projects may depend on the supply of low cost fuel, the supply of which could be interrupted by shortages and/or transportation bottlenecks.  We intend to locate projects in areas where low cost fuels are available, or where low cost fuels can be moved to a project site by bulk commodity transport services, thereby eliminating transportation bottlenecks.  If we are unable to effectively obtain a source of low-cost feedstock for our projects, our business and operating results could be seriously harmed.

We face the potential inability to protect our intellectual property rights which could have a material adverse effect on our business.

We rely on proprietary technology from GTI.  Our license agreement with GTI for the U-GAS^® technology (described under “Business—GTI License Agreement”) is a critical component of our business.  GTI’s proprietary technical know-how is critical to the use of the technology and certain of the patents granted around the U-GAS® technology have expired.  We are improving the technology and we plan to create new technologies around the core U-GAS^® technology and to seek patent protections for these improvements and new technologies.  Proprietary rights relating to the U-GAS^® technology are protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence. There can be no assurance that patents will be issued from any pending or future patent applications owned by or licensed to the Company or that the claims allowed under any issued patents will be sufficiently broad to protect the Company’s technology. In the absence of patent protection, the Company may be vulnerable to competitors who attempt to copy the Company’s technology or gain access to its proprietary information and technical know-how.  In addition, the Company relies on proprietary information and technical know-how that it seeks to protect, in part, by confidentiality agreements with its collaborators, employees, and consultants. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company’s trade secrets will not otherwise become known or be independently developed by competitors.

Proceedings initiated by the Company to protect its proprietary rights could result in substantial costs to the Company. There can be no assurance that competitors of the Company will not initiate litigation to challenge the validity of the Company’s patents, or that they will not use their resources to design comparable products that do not infringe upon the Company’s patents. There may also be pending or issued patents held by parties not affiliated with the Company that relate to the Company’s products or technologies. The Company may need to acquire licenses to, or contest the validity of, any such patents. There can be no assurance that any license required under any such patent would be made available on acceptable terms or that the Company would prevail in any such contest. The Company could incur substantial costs in defending itself in suits brought against it or in suits in which the Company may assert its patent rights against others. If the outcome of any such litigation is unfavorable to the Company, the Company’s business and results of operations could be materially and adversely affected.

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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 the United States.

Despite continuing international pressure on the Chinese government, intellectual property rights protection continues to present significant challenges to foreign investors, and, increasingly, Chinese companies.  China has put in place a comprehensive system of intellectual property laws; however, incidents of infringement are common and enforcement of rights can, in practice, be difficult.  With the assistance of our Chinese and US intellectual property counsel, we have developed a strategy for managing our intellectual property rights in China, the United States and elsewhere.  Even though our first-mover advantage is our best protection against intellectual property rights infringements and/or competitive threats, we have the option to take some or all of the following steps: (i) place tangible protections on intellectual property, especially GTI’s know-how, including compartmentalization of information and tracking access to sensitive design information, which may include restricting access to computer systems by locking disc drives, installing security systems on computers that would not allow files to be copied or uploaded for e-mail transmission, restricting a computer user’s ability to print sensitive files, and/or using encryption, (ii) designate a special project room with security and limited access for design work, (iii) develop a solid patent registration portfolio, (iv) register technology licenses with the appropriate authorities, and use contractual mechanisms consistent with Chinese law to provide a basis for enforcement, (v) conduct thorough due diligence of any partners with whom technology will be shared or licensed and ensure alignment of economic interests with such partners, (vi) copyright all engineering design and product design blueprints, (vii) enter into strict confidentiality agreements, (viii) aggressively monitor the market for infringements, (ix) take swift and immediate action at the first signs of infringement, or (x) develop relationships with local authorities where intellectual property rights are licensed or otherwise used.  If we are unable to manage our intellectual property rights, our business and operating results may be seriously harmed.

Risks Related to our Common Stock

We may have a contingent liability arising out of the issuance of shares by Tamborine.

As discussed elsewhere herein, Synthesis Energy Systems, Inc., a corporation formed under the laws of the British Virgin Islands (“Synthesis BVI”), and Synthesis Energy Systems, LLC, a West Virginia limited liability company (“Synthesis LLC”), were formed as sister companies in November of 2003 to engage in the business of development and commercialization of the U-GAS^® technology.  The founders of Synthesis BVI believed that it was important to be a publicly traded company in order to obtain the capital necessary to engage in this business.  Tamborine Holdings, Inc., a shell company trading on the Pink Sheets (“Tamborine”), a centralized quotation service that collects and publishes market maker quotes for securities traded in the over-the-counter market (the “Pink Sheets”), was receptive to a combination transaction with Synthesis BVI.  As such, on April 18, 2005, pursuant to the terms of an Agreement and Plan of Merger (the “Agreement”), SES Acquisition Corporation, a wholly-owned subsidiary of Tamborine, merged with and into Synthesis Energy Holdings, Inc., a Florida corporation (“Synthesis Florida”), whereby the holders of common stock of Synthesis Florida became shareholders of, and Synthesis Florida became a wholly-owned subsidiary of, Tamborine.  As a condition of the above merger, Synthesis Florida completed a restructuring whereby each of Synthesis BVI and Synthesis LLC became wholly owned subsidiaries of Synthesis Florida.  On April 27, 2005, Tamborine changed its name to “Synthesis Energy Systems, Inc.” and on June 27, 2005, reincorporated in the state of Delaware.  At the time of the merger, there were 100,000,000 shares of Tamborine common stock outstanding, 94,000,000 of which were cancelled in connection with the merger.  The remaining 6,000,000 shares became shares of the Company as the surviving entity as a result of the name change and the reincorporation.  An additional 21,000,000 “restricted” shares were issued as consideration in the merger to former shareholders of Synthesis Florida, all of whom were accredited investors.

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Tamborine made numerous representations and warranties in the Agreement, including a representation that all prior offers and sales of its common stock were duly registered or exempt from the registration requirements of the Securities Act or any applicable state securities laws.  As noted above, one of the principal reasons that Synthesis Florida completed the merger was to have access to a public trading market, and Tamborine had represented that its shares were eligible for trading, and in fact were trading, on the Pink Sheets.  The Company’s current management team, which took office beginning in May of 2006, re-examined the facts surrounding the Tamborine issuances prior to the merger and now believes that Tamborine’s representation in the Agreement as to its compliance with federal and state securities laws was incorrect.  Although the Company’s current management has not been able to locate any definitive records regarding the prior issuances of Tamborine, they have been able to determine the following details.

Tamborine was formed in May 2004, and in connection with its formation, issued 100,000,000 shares of its common stock to its three founders, including IFG Investment Services, Inc. (“IFG”).  The certificates issued to two of the three founders contained the appropriate restrictive legend limiting transfer of the shares as is customary in an unregistered private placement.  However, the certificate issued to IFG for 7,500,000 shares was apparently issued without such restrictive legends.  In June 2004, IFG delivered its certificate to Transfer Online, which thereafter began acting as the transfer agent for Tamborine’s common stock.  Subsequently, on December 2, 2004, IFG sold these shares to Ford Allen, Inc., and 1,500,000 of these shares were subsequently cancelled by the Company.  In January 2005, a broker-dealer diligence form was filed by Tamborine with the Pink Sheets under Rule 15c2-11 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) stating that 6,000,000 shares of Tamborine common stock had been sold in 2004 pursuant to an exemption from registration under Rule 504 of the Securities Act of 1933, as amended (the “Securities Act”).  It is our belief that this Rule 15c2-11 form was filed to permit trading of the common stock of Tamborine on the Pink Sheets.  On March 29, 2005, a second Rule 15c2-11 filing was made by Tamborine which stated that there were 7,500,000 freely tradable shares in the “float,” meaning that those shares could be traded on the Pink Sheets, and also stating that 6,000,000 shares had been sold in 2004 to three investors in Texas under Rule 504.

It is our belief that 6,000,000 shares of the 7,500,000 shares that were represented to be “freely tradable” in Tamborine’s second 15c2-11 filing, and which remained outstanding after the merger, were not in fact freely tradable when issued.  As noted above, there are no available definitive records, other than the two Rule 15c2-11 filings, regarding the issuance of those shares or the possible exemptions from registration under federal and state securities laws that were used to issue the shares or permit trading of the shares on the Pink Sheets.  IFG has not provided an opinion of counsel confirming that these shares were issued, and subsequently transferred, subject to an available exemption. Moreover, the representation in the 15c2-11 filing that issuing these shares under Rule 504 permits those shares to become “freely tradable” is likely not correct.  Under Rule 504, any shares sold thereunder are “restricted” shares and may not be sold in the public markets without the use of an exemption from registration.  We believe that IFG may have based its view on an incorrect and outdated interpretation of Rule 504.  This means that resales of these shares by IFG and subsequently Ford Allen, Inc. on the Pink Sheets may have been in violation of applicable securities laws because the shares were in fact restricted.  Trading by subsequent holders may have been in accordance with applicable securities laws based on other available exemptions, but we do not have any documentation to confirm any such conclusions.

We are currently taking a number of steps to deal with these issues.  We have notified our transfer agent to cease any further transfers of our common stock without the approval of management.  Additionally, we may request that Ford Allen, Inc. surrender its remaining shares of common stock in return for restricted shares and/or for cancellation.  We have no reason to believe, at this time, that Ford Allen, Inc. will respond to our request.  We also contacted all stockholders who purchased shares of common stock in our May 2005 and August 2006 private placements to inform them of these issues and gave them the opportunity to have the aggregate purchase price that they paid returned, plus interest.  The offer period expired on March 20, 2007, and none of the stockholders elected to accept the offer.  We are also filing this registration statement on Form SB-2 to (a) cause the Company to become a reporting company under the Exchange Act, which simplifies the use of Rule 144 to trade Company securities for

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eligible stockholders, provides information that is more complete to stockholders and is a key requirement for listing on a national securities exchange, and (b) register resales of shares held by investors in the private placements noted above, which provides them with an opportunity to dispose of shares using the registration statement without any limitations on volume or concerns about the issues noted above.  Lastly, the Company has filed an updated 15c2-11 filing on August 11, 2006 and intends to file another updated 15c2-11 filing in connection with the filing of the registration statement to provide current and correct information about the Company and the above matters.  Tamborine’s ‘‘promoters’’ or their ‘‘affiliates’’ and their transferees, within the meaning of the Securities Act, both before and after the Merger (as described in “Business–General”), are deemed to be ‘‘underwriters’’ within the meaning of the Securities Act. Any commissions or discounts given to any such broker-dealer may be regarded as underwriting commissions or discounts under the Securities Act.  As such, regardless of technical compliance with Rule 144 under the Act, because Tamborine was a shell company prior to the Merger, Rule 144 will be unavailable to its promoters and affiliates and their transferees.

As noted above, many aspects of these events cannot be corroborated by documentary evidence or otherwise.  In addition, there is not sufficient evidence relating to the trading history of our common stock to analyze the range of potential damages, if any, arising out of these events.  In fact, the trading price for our stock has generally increased since it began trading on the Pink Sheets, and we have made progress in executing its business plan, so it is possible that these events have not generated significant liabilities.  Of course, federal and state regulatory agencies could also examine these events and commence proceedings against the Company, its officers and directors (former and current) and the other individuals involved.  We do maintain officer and director liability insurance, and would of course utilize that coverage, if it is available under the terms of the policy, in the event any liabilities are assessed against officers and directors. Given the above facts, it is not possible at this time to predict the likelihood that the Company will in fact have any liability arising out of these events or the amount of such liability, if any.

Our historic stock price has been volatile and the future market price for our common stock is likely to continue to be volatile.  Furthermore, the limited market for our shares could make our price more volatile. This may make it difficult for you to sell our common stock for a positive return on your investment.

The public market for our common stock has historically been very volatile. Any future market price for our shares is likely to continue to be very volatile. During the twelve months ended December 31, 2006, our common stock has traded at prices as low as $3.00 per share and as high as $9.75 per share.  This price volatility may make it more difficult for you to sell shares when you want at prices you find attractive.  We do not know of any one particular factor that has caused volatility in our stock price.  However, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies.  Broad market factors and the investing public’s negative perception of our business may reduce our stock price, regardless of our operating performance.

Further, the market for our common stock is limited and we cannot assure you that a larger market will ever be developed or maintained.  The average daily trading volume of our common stock has historically been insignificant and on some trading days, we have had no volume in our common stock.  Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price.  Should additional equity be issued by us in the future, we cannot assure you that a more active trading market will develop.  As a result, this may make it difficult or impossible for you to sell our common stock or to sell our common stock for a positive return on your investment.

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Our securities have been thinly traded on the Pink Sheets, which may not provide liquidity for our investors.

Our securities are quoted on the Pink Sheets. The Pink Sheets are an inter-dealer, over-the-counter market that provides significantly less liquidity than national or regional exchanges. Securities traded on the Pink Sheets are usually thinly traded, highly volatile, have fewer market makers and are not followed by analysts. The order handling rules of the Securities and Exchange Commission (“SEC”) do not apply to securities quoted on the Pink Sheets. Quotes for stocks included on the Pink Sheets are not listed in newspapers. Therefore, prices for securities traded solely on the Pink Sheets may be difficult to obtain and holders of our securities may be unable to resell their securities at or near their original acquisition price, or at any price.  We cannot give any assurance that we will be able to meet, or, if met, maintain, the listing standards of any national or regional exchanges.

Investors must contact a broker-dealer to trade over-the-counter bulletin board securities. As a result, you may not be able to buy or sell our securities at the times that you may wish.

Even though our securities are quoted on the Pink Sheets, the Pink Sheets may not permit our investors to sell securities when and in the manner that they wish. Because there are no automated systems for negotiating trades on the Pink Sheets, they are conducted via telephone or the Internet. In times of heavy market volume, the limitations of this process may result in a significant increase in the time it takes to execute investor orders. Therefore, when investors place market orders an order to buy or sell a specific number of shares at the current market price it is possible for the price of a stock to go up or down significantly during the lapse of time between placing a market order and its execution.

Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

The SEC has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that (i) has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, or (ii) is not registered on a national securities exchange or listed on an automated quotation system sponsored by a national securities exchange. Although our common stock currently trades for more than $5.00 per share, it has traded below this threshold at various periods of time in the past.  For any transaction involving a penny stock, unless exempt, Rule 15g-9 of the Exchange Act requires:

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that a broker or dealer approve a person’s account for transactions in penny stocks; and

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the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

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obtain financial information and investment experience objectives of the person; and

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make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

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sets forth the basis on which the broker or dealer made the suitability determination; and

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attests that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about the commissions payable to both the broker-dealer and the registered representative.  Current quotations for the securities and the rights and remedies and to be available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.  Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules.  This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Substantial sales of our common stock by the selling stockholders or us could cause our stock price to decline and issuances by us may dilute your ownership interest in our company.

The 8,000,000 shares covered by this prospectus represents approximately 28% of our outstanding common stock on a fully diluted basis.  We are unable to predict the amount or timing of sales by the selling stockholders of our common stock.  Any sales of substantial amounts of our common stock in the public market by the selling stockholders or us, or the perception that these sales might occur, could lower the market price of our common stock.  As described in more detail in “Plan of Operations,” in the next few months, we plan to raise approximately $25 million to $50 million through debt or equity financing in order to implement strategies in furtherance of our business plan.  If we issue additional equity securities to raise this additional capital, your ownership interest in the Company may be diluted and the value of your investment may be reduced.

The market valuation of our business may fluctuate due to factors beyond our control and the value of your investment may fluctuate correspondingly.

The market valuation of energy companies, such as us, frequently fluctuate due to factors unrelated to the past or present operating performance of such companies.  Our market valuation may fluctuate significantly in response to a number of factors, many of which are beyond our control, including:

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changes in securities analysts' estimates of our financial performance, although there are currently no analysts covering our stock;

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fluctuations in stock market prices and volumes, particularly among securities of energy companies;

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changes in market valuations of similar companies;

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announcements by us or our competitors of significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments;

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variations in our quarterly operating results;

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fluctuations in oil and natural gas prices;

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loss of a major customer or failure to complete significant commercial contracts;

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loss of a relationship with a partner; and

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additions or departures of key personnel.

As a result, the value of your investment in us may fluctuate.

Investors should not look to dividends as a source of income.

In the interest of reinvesting initial profits back into our business, we do not intend to pay cash dividends in the foreseeable future.  Consequently, any economic return will initially be derived, if at all, from appreciation in the fair market value of our stock, and not as a result of dividend payments.

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FORWARD LOOKING STATEMENTS

This registration statement on Form SB-2 includes “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act.  All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are our early stage of development, our estimate of the sufficiency of existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the limited history and viability of our technology, our results of operations in foreign countries and our ability to diversify. Although we believe that in making such forward-looking statements our expectations are based upon reasonable assumptions, such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. We cannot assure you that the assumptions upon which these statements are based will prove to have been correct.

When used in this registration statement on Form SB-2, the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under “Plan of Operation,” and elsewhere in this registration statement on Form SB-2.

You should read these statements carefully because they discuss our expectations about our future performance, contain projections of our future operating results or our future financial condition, or state other “forward-looking” information. Before you invest in our common stock, you should be aware that the occurrence of certain of the events described in this registration statement on Form SB-2 could substantially harm our business, results of operations and financial condition and that upon the occurrence of any of these events, the trading price of our common stock could decline, and you could lose all or part of your investment.

We cannot guarantee any future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update any of the forward-looking statements in this registration statement on Form SB-2 after the date hereof.

As we are not subject to the reporting requirements of Section 13(a) or Section 15(d) of the Exchange Act, we are ineligible to rely on the safe harbor provisions of the Securities Act and the Exchange Act relating to forward-looking statements.  However, once we become subject to such reporting requirements, we will be eligible to, and we intend to, rely on such safe harbor provisions.

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BUSINESS

General

We are an emerging development stage company involved in the global development and commercialization of gasification technology.  We have not earned any operating revenue as of the date of this filing.  As described further herein, our principal asset is an exclusive license with GTI for their U-GAS^® gasification technology.  Our license agreement with GTI has an initial term of ten years beginning on August 31, 2006, but may be extended for two additional ten years terms at the option of the Company.  See  “License Agreement with GTI” for more information.

Synthesis Energy Systems, Inc., a corporation formed under the laws of the British Virgin Islands (“Synthesis BVI”), and Synthesis Energy Systems, LLC, a West Virginia limited liability company (“Synthesis LLC”), were formed as sister companies in November of 2003 to engage in the business of development and commercialization of the U-GAS^® technology.  On April 18, 2005, pursuant to the terms of an Agreement and Plan of Merger (the “Agreement”), SES Acquisition Corporation, a wholly-owned subsidiary of Tamborine Holdings, Inc., a Mississippi corporation (“Tamborine”), merged with and into Synthesis Energy Holdings, Inc., a Florida corporation (“Synthesis Florida”), whereby the holders of common stock of Synthesis Florida became shareholders of, and Synthesis Florida became a wholly-owned subsidiary of, Tamborine (the “Merger”).  As a condition of the above merger, Synthesis Florida completed a restructuring whereby each of Synthesis BVI, Synthesis LLC, International Hydrogen Technologies, Inc., a Florida corporation, and Innovative Engines, Inc., a Florida corporation became wholly owned subsidiaries of Synthesis Florida.  On April 27, 2005, Tamborine changed its name to “Synthesis Energy Systems, Inc.” and on June 27, 2005, reincorporated in the state of Delaware.  During 2006, International Hydrogen Technologies, Inc. and Innovative Engines, Inc. were dissolved.

We have provided definitions for some of the industry terms used in this registration statement, and in particular, this “Business” section, in the “Glossary of Terms” in Appendix A

Overview of Gasification Technology and U-GAS^®

Gasification is a technology which converts solid hydrocarbon fuels such as coal, biomass or petroleum coke into synthesis gas, a mixture of hydrogen, carbon monoxide and other products, otherwise referred to as “syngas.”

Gasification plants are extremely low emitters of certain regulated emissions, such as sulfur, nitrous oxides and particulates and allow, if desired, for the low cost capture of greenhouse gases such as carbon dioxide from the effluent steam.  Typically, integrated gasification combined cycle (“IGCC”) power plants are more efficient than conventional combustion coal power plants.  According to Green Car Congress, an energy product, policies and issues publication, conventional coal power plants have an

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efficiency of approximately 30%-35% while new IGCC power plants have achieved 38%-45% efficiency with efficiency targets of 50%-60%.  In addition to power and steam production, such plants can supply a slate of chemical products including hydrogen, carbon monoxide, oxygen, nitrogen and steam to chemical plants, petrochemical facilities, oil refineries and other industrial complexes.

Technology

Over the past 30 years, GTI has developed a fluidized bed gasification technology trademarked U-GAS^®.  In January 2004 we obtained a ten-year exclusive license to the medium and high-pressure U-GAS^® applications for certain geographic areas from GTI.  As described further below, we entered into an Amended and Restated License Agreement with GTI in August 2006 which grants us an exclusive license to manufacture, make, use and sell U-GAS^® systems using the technology of GTI worldwide as to coal (and as to biomass blends made of up to 40% biomass) gasification systems and a non-exclusive license to manufacture, make, use and sell biomass gasification systems worldwide.

The primary advantage of U-GAS^® relative to other leading gasification technologies is the ability to efficiently gasify a wide array of fuels including wastes from coal processing facilities, high ash coals and lignite coals.  These “low rank” fuels may cost as little as $0.25-1.20 per MMBtu while higher rank coals typically required by other gasification technologies can cost significantly more than $1.50 per MMBtu.  In addition, U-GAS^® systems have been in operation worldwide for over 30 years, with the most recent project being a $12 million facility at GTI’s Chicago technical campus built in 2004.

U-GAS^® Gasification Process

The U-GAS^® gasification process is based on a single-stage fluidized-bed technology for production of low-to-medium heating value syngas from a wide array of biomass feedstocks and coals (including high-ash fuels).    The U-GAS^® technology was developed for gasification of all ranks of coal as well as coal and biomass blends.

In the U-GAS^® gasification process, fuel is processed and conveyed into the gasifier vessel.  Within the fluidized bed, the fuel reacts with steam, air and/or oxygen at a temperature of 840°C to 1100°C (1550°F to 2000°F).  The temperature for gasification depends on the type of fuel used and is controlled to maintain high carbon conversion and non-slagging conditions for the ash.  The U-GAS^® process accomplishes four important functions in a single-stage fluidized bed gasifier: it decakes, devolatilizes, and gasifies fuel, and if necessary, agglomerates and separates ash from the reacting coal.  The operating pressure of the gasifier depends on the end use for the syngas and may vary from 3 to 30 bars (40 to 435 psia) or more.  After cleaning, the product gas can be used as industrial fuel gas for

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process heating, syngas for production of methanol, ammonia, hydrogen or liquids, and for power generation and fuel cells.

During operation, fuel is gasified rapidly within the fluidized bed and produces a gaseous mixture of hydrogen, carbon monoxide, carbon dioxide, water vapor and methane, in addition to small amounts of hydrogen sulfide and other trace impurities.  If the operating temperature required to achieve acceptable carbon conversion exceeds the fuel ash softening temperature, the ash concentration of the fluidized bed is allowed to increase until a condition is reached that allows the ash particles to agglomerate into larger particles.  The agglomerated particles are denser than the surrounding bed material and can thus be selectively removed from the bottom of the bed.

Reactant gases, including steam, air, and/or oxygen are introduced into the gasifier in two areas: 1) through a sloping distribution grid at the bottom of the bed and 2) through a terminal velocity-controlled ash discharge port at the center of the distribution grid.  In both agglomerating and non-agglomerating operating modes, ash is removed by gravity from the fluidized bed and discharged into a lockhopper system for depressurization and disposal.  In both operating modes, the gasifier maintains a low level of carbon in the bottom ash discharge stream, making overall carbon conversion of 95% or higher possible.  Cold gas efficiencies of over 80% have been repeatedly demonstrated.

Fines purified from the fluidized bed are typically separated from the product syngas by up to three stages of external cyclone separators, one or two of which return the fines to the fluidized bed for increased carbon conversion.  The product syngas is essentially free of tars and oils due to the temperature and residence time of the gases in the fluidized bed, simplifying downstream heat recovery and gas cleaning operations.

When used to gasify biomass or highly reactive wastes, an inert material such as sand, limestone or dolomite is used to maintain the fluidized bed.  In this case, most of the ash from the fuel leaves the fluidized bed with the product syngas, with the bottom ash discharge serving primarily to discharge tramp material entering with the biomass or waste feed.

U-GAS^® Installation History

Initial Test Facility in Chicago.  GTI built a large-scale U-GAS^® test facility in the Chicago area and completed installation and testing in the late 1970s.  GTI continued periodic development of U-GAS^® at this facility into the 1980’s and early 1990’s with a focus on biomass.  These facilities ran for

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thousands of hours and demonstrated the technical and economic viability of the technology. This facility has since been decommissioned to make way for a more modern test facility.

U-GAS^® Facility in Finland.  In 1989, the U-GAS^® technology for biomass fuels (and coal blends with over 40% biomass) was licensed to Tampella Power Inc., which built a multi-fuel pressurized pilot plant in Tampere, Finland to further develop and demonstrate the technology for air-blown IGCC power generation with coal and biomass.  This fully integrated plant includes all gasification island components from fuel presentation through waste heat recovery and hot gas clean-up.  The facility can process up to 42 tons/day of coal and 60 tons/day of biomass at pressures up to 435 psia.  At the time of this filing, the plant has logged over 3,800 hours of operations with 5,900 tons of fuel processed in 26 test runs.  The tested fuels include biomass and mixtures of coal and biomass.

Biomass Demonstration Project in Hawaii.  In early 1990, GTI built a demonstration project in Hawaii in conjunction with the U.S. Department of Energy (“DOE”).  The project involved building a medium pressure gasifier to convert sugarcane waste produced from a local sugar processing facility.  The plant was fully constructed and was successfully tested and commissioned.  However, after a period of successful operations, the local sugar grower changed the sugarcane harvesting process resulting in a waste product that would not flow through the originally designed fuel handling system.  The DOE chose not to fund the fuel handling upgrade that was required to process the new fuel type citing that the test was successful and the required data was gathered. Currently the plant has been shutdown awaiting further funding.

Large Commercial Facility for Shanghai Coking and Chemical.  A large low pressure, commercial installation at Shanghai Coking and Chemical (“SCC”) was developed in 1994 that included eight gasifiers with a capability at full pressure of producing over 160,000 normal cubic meter/hr of syngas.  The SCC facility, which was conceived and designed as a seasonal peaking facility, entered commercial operation in 1995 and remained in service supplying syngas to a large chemical complex until, in 2000, a free source of waste fuel gas became available from a neighboring sister facility.  During its six years of operations, the SCC installation experienced some operational challenges dealing with improper coal purchasing and preparation. Despite these problems, three SCC gasifiers reached 8,000 operating hours each by 1998, three more in 1999 and a seventh in 2000.  Total SCC gasifier operating hours exceeded 76,000 hours.  

Large-scale Test Gasifier in Chicago.  With historically high natural gas prices in the U.S., GTI recently put renewed emphasis on U-GAS^® technology and in 2004 completed a $12 million large-scale test gasifier facility on its technical campus northwest of Chicago.  The facility evaluates advanced and innovative gasification processes using all ranks of coal and other low-cost solid fuels.  The facility is also being used to facilitate commercialization of advanced gasification and other new technologies to improve the commercial competitiveness of U-GAS^® technology.  The facility’s flexible design allows testing of a variety of syngas cleanup systems, and the gasifier and feed system is configured to allow simultaneous co-firing of coal with biomass or other opportunity fuels.

License Agreement with GTI

Pursuant to the Amended and Restated License Agreement dated as of August 31, 2006 between Synthesis and GTI (the “License Agreement”), Synthesis has an exclusive global license to manufacture, make, use and sell U-GAS^® systems for coal and coal and biomass blends made of up to 40% biomass and non-exclusive license to manufacture, make, use and sell U-GAS^® systems for coal and biomass blends in excess of 40% biomass.  The License Agreement has a term of ten years, but may be extended for two additional ten-year periods at the option of Synthesis.

As consideration for the license, Synthesis paid $500,000 cash, and issued 190,500 shares of restricted common stock, to GTI.  Synthesis is also restricted from offering a competing gasification technology during the term of the license. Additionally, for each U-GAS^® unit which Synthesis licenses, designs, builds or operates which uses coal, or a coal and biomass mixture, as the feed stock, Synthesis

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must pay a royalty based upon a calculation using the per thermal megawatt/hr of dry syngas production of a rated design capacity, payable in installments at the beginning and at the completion of the project build.  Synthesis must also provide GTI with a copy of each contract that Synthesis enters into relating to a U-GAS^® system and report to GTI with their progress on development of the technology every six months.  A failure to comply with any of the above requirements could result in the termination of the License Agreement by GTI if not cured by the Company within specified time periods.

In addition, Synthesis was required to (i) have a contract for the sale of a U-GAS^® system with a customer in the territory covered by the License Agreement no later than August 31, 2007, (ii) fabricate and put into operation at least one U-GAS^® system by July 31, 2008 and (iii) fabricate and put into operation at least one U-GAS^® system for each calendar year of the License Agreement, beginning with the calendar year 2009.  The Company has satisfied the obligation to have a contract for the sale of a U-GAS^® system no later than August 31, 2007 through our contract with Hai Hua described below. Additionally, Synthesis is required to disclose to GTI any improvements related to the U-GAS® system which are developed and implemented by Synthesis and the manner of using and applying such improvements.  Failure to satisfy the requirements as to these milestones could lead to the revocation of the license by GTI; provided, however, that GTI is required to give a twelve-month notice of termination and Synthesis is able to cure the default and continue the Agreement prior to the expiration of such time period.

During the term of the license, Synthesis has granted to GTI a royalty-free non-exclusive irrevocable license to make, manufacture, use, market, import, offer for sale and sell U-GAS^® systems that incorporate the improvements of Synthesis.  Such license only applies outside of the exclusive rights granted to Synthesis under the License Agreement.  Without the prior written consent of GTI, Synthesis has no right to sublicense any U-GAS^® system other than to customers for which Synthesis has constructed a U-GAS^® system. For a period of ten years, Synthesis is restricted from disclosing any confidential information (as defined in the license) to any person other than employees of its affiliates or contractors who are required to deal with such information, and such persons will be bound by the confidentiality provisions of the license.  Synthesis further indemnifies GTI and its affiliates from any liability or loss resulting from unauthorized disclosure or use of any confidential information that it receives.

Market Opportunity

Over the past decade developing economies such as China and India, as well as established economies such as the United States, have had increased demand for energy to fuel growth and many commercial opportunities to address energy related concerns have emerged.  Some of the specific trends over the past several years include:

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Demand for natural gas is outpacing supply and resulting in higher prices and potential interruptions in supply due to technological innovations related to natural gas combustion (primarily for power generation).

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Increased attention on air quality and greenhouse gas emissions.

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Higher energy price environments resulting from the absorption of excess petroleum capacities.

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Recognition by policy makers of national security issues related to reliance on external energy sources.

Similar to the advances, such as increased efficiencies and reduced emissions, in natural gas turbine technologies, emerging technologies that efficiently and cleanly convert coal into fuels for power generation, chemical production and even transportation will experience rapid market acceptance.  With the expectation that those technical improvements should be achieved, coal has become a larger part of the long-term supply plans for governments and major energy companies worldwide.

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In particular, within the Chinese and U.S. markets, coal gasification represents an opportunity to improve air quality, economically capture greenhouse gas emissions and replace energy imports from politically unstable sources with indigenous coal supplies.  The United States Department of Energy has stated that Chinese and U.S. coal reserves make up approximately 40% of the global totals.  China and the U.S. are also the largest importers of petroleum products.  We believe a significant commercial opportunity exists for companies that can successfully introduce clean coal technologies, to utilize these indigenous coal fuel sources.  

We have elected to make China a priority market since China offers immediate opportunities to develop U-GAS^®-based coal gasification projects and has a ready supply of low rank coal.  According to The World Bank, China is the world’s second largest and fastest growing energy market.  They estimate that over the next 25 years China will require two trillion dollars of investment in the power sector alone, more than any other country or region.  They believe growth in manufacturing and the rise of China’s middle class are driving this demand, and this demand is far outstripping supply for electricity and other essential industrial commodities in China.  The World Bank also believes that despite a 15% growth in electricity production and 100 million additional tons of coal mined in 2003, energy shortages in China will persist.  Coal is China’s most abundant, indigenous energy resource and is in high demand, which in turn causes economic and environmental pressures and forces the Chinese government and Chinese industries to re-think the way coal is used.  In order to meet the demand for clean energy and industrial commodities, China is in the process of finding environmentally acceptable methods to convert coal into energy and chemical commodities.

Our goal is to develop projects, technologies and systems to meet these needs and to establish U-GAS^® as a reliable and efficient alternative source of power, hydrogen and other gasification products to manufacturers.  The primary drivers for growth is a large indigenous coal supply, heightened awareness of environmental issues, and a desire to develop a diversified energy mix and mitigate over-reliance on natural gas and imported crude oil.

Targeted Customers

Chemical Plants, Petrochemical Plants and Refineries. We believe that many chemical, petrochemical plants and refineries are seeking a broad slate of products including electricity, steam, hydrogen, carbon monoxide, oxygen, nitrogen and compressed air.  We also believe U-GAS^® gasification systems provide an ideal solution for these plants and refineries because inherent integration opportunities allow these products to be produced with minimum additional capital and/or operating costs.  Moreover, because such plants tend to be run on a continuous basis, low fuel cost is a key to economic competitiveness.  General Electric and Shell have built multiple IGCC power or chemical feedstock facilities for petrochemical and refinery facilities around the world.

Large Manufacturers.  Many manufacturers require power, steam and hot water as part of their production process.  In addition, many industrial development zones are seeking co-generation facilities specially dedicated to manufacturers in that zone that require power, steam and hot water for industrial applications and for district heating and air conditioning.  We believe that a clean U-GAS^® facility can provide the necessary energy and chemical operating feedstocks in areas where scarcity or high prices of other energy sources make operations unprofitable.

Ammonia and Fertilizer Plants.  Ammonia and fertilizer plants require large amounts of hydrogen, carbon monoxide, power and steam.  We believe a significant opportunity exists for conversion of these plants to U-GAS^® since most of these plants purchase power from the grid and produce their own syngas using old fixed bed gasification technology, which requires low ash and high priced coal for fuel.  We also believe that, due to the wide use of inefficient fixed bed gasification systems, the vast majority of China’s fertilizer plants will require replacement of their entire gasification systems in the near future.

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Alumina Refineries.  The production of alumina from bauxite requires a great deal of energy that is currently being provided by natural gas or heavy fuel oil. The integration of a U-GAS^® coal gasification facility into an alumina refinery can lower the cost of production by reducing the raw material costs for the energy required and increase the efficiency by which the refinery can produce alumina. There are many alumina refineries in our target markets that are actively seeking alternatives to their current high cost energy structure, which may include our U-GAS^® technology.

Hydrogen Production.  Around the world, most hydrogen is produced from natural gas.  With increased natural gas prices, hydrogen production costs have risen dramatically.  U-GAS^® technology can produce hydrogen at a cost which is much lower than the cost of hydrogen based on production using natural gas as a feedstock.  Increasingly heavy crude oils, as well as increased chemical plant utilization, has driven the demand for hydrogen to unprecedented levels.  Coal gasification is a viable alternative for large scale production of hydrogen.  We believe that the U-GAS^® process will allow us to take advantage of this expanding marketplace by being the low cost provider of coal-derived hydrogen.

Coal-to-Liquids Plants.  Many countries desire to avoid their dependence on imported oil and have taken steps to make coal-to–liquid technology a viable energy alternative for transportation fuels.  Such plants will need large quantities of hydrogen, electricity, steam and oxygen, which we believe can be provided by U-GAS^® gasification plants.  For example, two of China’s largest coal companies are developing large coal-to-liquids facilities.  Coal companies typically have substantial amounts of waste coal that are not adequately utilized.  We believe the U-GAS^® system could allow such a mining company to convert negative value waste into low cost feedstocks for these coal-to-liquid projects.

Integrated Projects.  Projects with the highest margins will be located at, or within a very close distance to, opportunity fuels such as low-rank coals, lignites and other waste coals.  Such projects typically require multiple gasification commodities, such as power, steam, hydrogen, carbon monoxide, and nitrogen, where an entire product’s value chain is integrated within one complex.  For example, where a methanol complex is established at a coal mine, the basic structure of the project would be waste coal to power, steam, hydrogen, carbon monoxide, to methanol and then sales to domestic and international markets.

Competition

We will seek to deploy U-GAS^® plants in areas where the maximum integration of the process is possible.  In the world gasification market, the largest providers are General Electric, Shell, Siemens and ConocoPhillips. Shell’s gasification efforts remain focused on the production of syngas for chemical processes.  Shell has recently announced a multi-million dollar contract to use its gasification technology to produce hydrogen for a large coal-to-liquids project in China.  There are also several Chinese companies that utilize older, low pressure technologies, which utilize high-cost coals and are relatively immature, with low capital costs being their primary competitive advantage.  In addition, there is a small Chinese coal gasification company that utilizes a low pressure fluidized bed technology which may compete with our U-GAS^® technology.  The following table depicts the U-GAS^® process as compared to the other major coal gasification technologies.

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In general, we believe that the primary competitive advantages of U-GAS^® relative to the other technologies are: (a) the potential for U-GAS^® gasifiers to utilize low quality, low cost coals, (b) the inherent flexibility of the U-GAS^® technology allows a project to change fuels or utilize a mix of fuels over the life of the project, and (c) the ability to economically build relatively smaller plants.  This ability to build plants that are economical at sizes required by many industrial companies opens up a potentially large under served market.  We believe that the lower capital costs, shorter site preparation and construction time periods may allow us to build projects where our larger competitors would be economically disadvantaged.

Current Projects

Our plan is to develop, finance, build, own and operate U-GAS^® based coal gasification plants ranging in size from 20 MWs (equivalent) to greater than 250 MWs (equivalent) and at costs ranging from $20 million to several hundred million dollars.  Our strategy is to sell the outputs of the plants, which can be syngas, power, steam and other products (e.g. sulfur, ash) under long-term contracts to industrial and wholesale customers.  We may sell capacity in the plants outright or under tolling agreements as a way to insulate the Company from commodity price volatility.  We also have the right to sublicense any U-GAS^® system to customers for which we have constructed a U-GAS^® system.

For our first project, Synthesis Energy Systems Investments, Inc., a wholly-owned subsidiary of Synthesis Energy Holdings, Inc. (“SES Investments”), entered into a cooperative joint venture contract with Shandong Hai Hua Coal & Chemical Company Ltd. (“Hai Hua”) which established Synthesis Energy Systems (Zaozhuang) New Gas Company Ltd. (the “Joint Venture”), a joint venture company that has the primary purposes of (i) developing, constructing and operating a synthesis gas production plant utilizing the U-GAS^® technology in Zaozhuang City, Shandong Province, China and (ii) producing and selling syngas, steam and the various byproducts of the plant, including ash, elemental sulphur, hydrogen and argon.  Hai Hua is an independent producer of coke and coke oven gas and owns a subsidiary engaged in methanol production.  Hai Hua processes its coal in its own coal washery prior to using such coal in its coke ovens.  This coal washing process produces a byproduct which is the design fuel for the Joint Venture’s U-GAS^® gasification plant.  The technology will enable syngas to be produced from Hai Hua’s coal sources and such syngas will be used in Hai Hua’s methanol subsidiary, coke ovens and power plant.  In exchange for their respective ownership shares in the Joint Venture, SES Investments contributed approximately $9.1 million in capital, and Hai Hua contributed approximately $480,000 in cash, land use rights to a parcel of land for construction of coal storage facilities and certain other

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management services.  The contribution of SES Investments is payable in installments, with approximately $3,800,000 being contributed as of December 31, 2006.

By November of 2006, the project had obtained approval of its feasibility study, environmental impact assessment and the Joint Venture was issued its business license.  The groundbreaking for the plant took place on December 5, 2006.  We entered into the primary construction contract in February 2007.  Construction on the plant is expected to be completed in the second half of the calendar year 2007 at a projected cost of $24.4 million.  As of March 22, 2007, these costs were funded through: (i) $9.1 million equity contribution by SES into the Joint Venture company, (ii) $3.3 million intercompany shareholder loan, and (iii) $12.0 million of bank debt.  See “Plan of Operations” for a summary of the terms of the two loans.  The plant will be built on a site adjacent to the Hai Hua coke and methanol facility.  Hai Hua is obligated to grant rights of way for construction access and other on-going operations of the plant.  The land was purchased from the Chinese government with the assistance of the Shandong Xue Cheng Economic Development Zone.

If either of SES Investments or Hai Hua desires to invest in another coal gasification project within Zaozhuang City, the other company has a right to participate in up to 25% of the investment.  For the first twenty years, after the date that the plant becomes operational (the “Operational Date”), 95% of all net profits of the Joint Venture will be distributed to SES Investments.  After the initial twenty years, the profit distribution percentages will be changed, with SES Investments receiving 10% of the net profits of the Joint Venture and Hai Hua receiving 90% of the Joint Venture’s net profits.  The contract has a term of fifty years, subject to earlier termination if either SES Zaohuang files for bankruptcy or becomes insolvent or if the syngas purchase contract between the Joint Venture and Hai Hua (discussed in more detail below) is terminated.  Hai Hua has also agreed that the License Agreement is the sole property of SES Investments and its affiliated entities and that it will not compete with SES Investments, or its affiliated entities, with respect to fluidized bed gasification technology for the term of the Joint Venture.

In addition, Hai Hua has agreed to purchase, once the plant is completed, syngas from the Joint Venture pursuant to the terms and conditions of a purchase and sale contract.  Hai Hua will (i) pay a monthly capacity fee and a monthly energy fee; (ii) provide piping to the plant for the acceptance of steam and coke oven gas from Hai Hua and for the delivery of syngas from the Joint Venture to Hai Hua; and (iii) coordinate its operations and maintenance so as to ensure Hai Hua purchases as much syngas as possible.  The energy fee is a per Ncum of syngas fee calculated by a formula which factors in the monthly averages of the prices of design base coal, coke, coke oven gas, power, steam and water, all of which are components used in the production of syngas.  The capacity fee is paid based on the capacity of the plant to produce syngas, factoring in the number of hours (i) of production and (ii) of capability of production as compared to the guaranteed capacity of the plant, which for purposes of the contract is 22,000 Ncum per hour of syngas.

The Joint Venture is required to procure any other necessary consumables for operation of the plant, provided, however, the Joint Venture is entitled to reimbursement for these costs through the payment of the energy fee.  As part of its registered capital contribution to the Joint Venture, Hai Hua shall, to the extent that it is required, contribute approximately $480,000 in cash, provide up to 100,000 Ncum of coke oven gas and up to 600 tons of coke free to the Joint Venture during the first year of operation as start-up fuels for the gasifiers.  Any requirements for coke or coke oven gas above these amounts shall be paid for by the Joint Venture.  If Hai Hua is unable or unwilling to provide the required coke or coke oven gas, the plant will be deemed to be able to produce for purposes of calculating the capacity fee and Hai Hua will not be relieved of its payment obligations.  Pursuant to the terms of the contract, the value of the items provided by Hai Hua to the Joint Venture (including the coke, coke oven gas, piping and acreage for the storage facilities) shall not exceed 5% of the equity of the Joint Venture.

Hai Hua is required to annually provide to the Joint Venture a preliminary syngas usage plan for that year, provided, however, that in no event shall the usage plan require less than 19,000, or more than 22,000, Ncum per hour of syngas.  In connection with this, the Joint Venture shall annually provide a generation plan to Hai Hua which sets forth the anticipated syngas generation for that year, and it shall

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use its best efforts to match its generation plan with Hai Hua’s usage plan.  If the Joint Venture produces more syngas than the capacity that Hai Hua is required to purchase under the contract, Hai Hua shall have a right of first refusal to purchase such excess amount.

The syngas to be purchased by Hai Hua is subject to certain quality component requirements set forth in the contract.  All byproducts of the gasification process are the property of the Joint Venture.  The Joint Venture is entitled to provide services and sell products which it produces other than syngas to third parties, but Hai Hua has a right of first refusal for any such sales.  Hai Hua is obligated to pay the capacity fee regardless of whether they use the gasification capacity, subject only to availability of the plant and exceptions for certain events of force majeure.

The agreement terminates twenty years from the Operational Date.  Upon termination of the agreement for any reason other than the expiration of the term, the Joint Venture will have the right to either produce syngas for other customers in its current location or dismantle the plant and move the plant to another location.  Within two years of October 22, 2006, the date of the contract, Hai Hua may request that the Joint Venture expand its syngas production in order to assist in the production of methanol by a subsidiary of Hai Hua and the Joint Venture is required to negotiate such increased production in good faith.  Hai Hua has made such a request and as of the date hereof, the Joint Venture is in negotiations regarding the details and pricing of the expansion project.

In addition to the Joint Venture, we have also entered into a Memorandum of Understanding with Golden Concord Holdings Ltd. for the construction of integrated coal gasification to methanol (ultimately into liquid dimethyl ether (“DME”)) plant in Inner Mongolia.  We are currently negotiating various documents related to this project, including an agreement to form a joint venture company, operations and management agreement for the plant, coal purchase agreements, offtake agreements, and other related agreements, and the transaction remains subject to government approval and approval by the board of directors of each company.

Research and Development

During the fiscal year ended June 30, 2006 and 2005, we spent $373,282 and $87,954, respectively, for research and development mainly related to the development and fuel testing of coal as well as the development of engine generators using syngas as fuel. During the years ended June 30, 2006 and 2005 we spent $158,406 and $26,804 in engineering salaries, respectively.  We plan to continue increasing internal research and development with a goal of offering our customers the best and most efficient clean coal solutions.

Governmental and Environmental Regulation

Our operations are subject to stringent federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Numerous governmental agencies, such as the U.S. Environmental Protection Agency and various Chinese authorities, issue regulations to implement and enforce such laws, which often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties or may result in injunctive relief for failure to comply. These laws and regulations may require the acquisition of a permit before operations at a facility commence, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with such activities, limit or prohibit construction activities on certain lands lying within wilderness, wetlands, ecologically sensitive and other protected areas, and impose substantial liabilities for pollution resulting from our operations. We believe that we are in substantial compliance with current applicable environmental laws and regulations and we have not experienced any material adverse effect from compliance with these environmental requirements.

In China, developing and constructing gasification facilities is highly regulated.  In the development stage of a project, the key government approvals are of the project’s environmental impact

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assessment report, feasibility study (also known as the project application report) and, in the case of a Sino-foreign joint venture, approval of the joint venture company’s joint venture contract and articles of association.  Approvals in China are required at the municipal, provincial and/or central government levels depending on the total investment in the project.  

Although we have been successful in obtaining the permits that are required at this stage of the project, any retroactive change in regulations or an opinion that the approvals that have been obtained are inadequate, either at the federal, provincial or state level, could require us to obtain additional or new permits or spend considerable resources on complying with such regulations.  Other developments, such as the enactment of more stringent environmental laws and regulations, could require us to incur significant capital expenditures.

Employees

As of March 28, 2007, we had 30 employees.  None of our employees is represented by any collective bargaining unit.  We have not experienced any work stoppages, work slowdowns or other labor unrest.  We believe that our relations with our employees are good.

DESCRIPTION OF PROPERTY

Our corporate office occupies approximately 3,000 square feet of leased office space in Houston, Texas.  We also lease approximately 3,500 square feet of office space in Shanghai, China and we also lease small offices in Miami, Florida and Beijing, China.  Over time, additional facilities may be required as we add personnel to advance our commercial and technical efforts.

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PLAN OF OPERATIONS

The following plan of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this registration statement.  We are a development stage enterprise and have not earned any operating revenue as of the date of this filing.  Our principal asset is our License Agreement.  If we are successful in the use of this license, our plants will provide our customers with molecular feedstocks (e.g. hydrogen, carbon monoxide) or energy services (e.g. power, compression, steam) integrated with engine and/or turbine generators for power and steam production.  In connection with our molecular feedstock and energy supply business, we may also provide certain additional services relating to U-GAS^® installation projects, including equipment procurement and supply services, technology licensing services, technology and engineering development services, and operations and maintenance services.

Our core business plan includes:

•

Completing engineering and construction of plants as well as creating modular gasification engineering blocks to speed the development of future U-GAS^® based projects.

•

Building relationships with multi-national industrial concerns to provide U-GAS^® solutions for their energy and chemical feedstock needs.

•

Expanding our experienced global engineering and project execution team to complete the development of current projects as well as future projects under development.  

•

Protecting technology used and/or developed by the Company in the U.S. Patent and Trademark Office as well as similar agencies throughout the world.

Over the next twelve months, we are planning to develop relationships with energy and chemical feedstock customers.  We plan to develop multi-megawatt facilities from which syngas or power could be sold into the wholesale energy and chemical markets.  We intend to sell the outputs of the plant which can be syngas, power, steam and other products (e.g. sulfur, ash) under long term contracts to industrial and wholesale customers.  In some cases, we may sell capacity in the plants outright or under tolling agreement contracts with coal providers and customers to mitigate commodity price risk.  We will attempt to secure non-recourse debt financing in order to construct our plant facilities.  Such financing will be used on a project basis to reduce the amount of equity capital required to complete the project.

For our first project, we established the Joint Venture for the primary purposes of (i) developing, constructing and operating a synthesis gas production plant (“Plant”) utilizing the U-GAS® technology in Zaozhuang City, Shandong Province, China and (ii) producing and selling syngas, steam and the various byproducts of the plant, including ash, elemental sulphur, hydrogen and argon.  In exchange for their respective ownership shares in the Joint Venture, SES Investments agreed to contribute approximately $9.1 million in equity capital, and Hai Hua agreed to contribute approximately $480,000 in cash, land use rights to a parcel of land for construction of coal storage facilities and certain other management services.  

In October of 2006, all necessary government approvals were received for the formation of the Joint Venture and construction of the Plant.  The groundbreaking on the Plant took place on December 5, 2006 and we entered into the primary construction contract in February 2007.  On March 22, 2007 we funded a loan in the amount of approximately $12 million from ICBC.  Construction on the Plant is expected to be completed in the second half of the calendar year 2007 at a projected cost of $24 million.  

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We have spent or plan to spend the following within the next twelve months:

•

Approximately $12.4 million related to construction of the Plant, which includes a $9.1 million equity contribution by the Company and an intercompany loan by Synthesis Energy Systems Investments Inc. (“Synthesis Investments”) the Joint Venture of approximately $3.3 million.  

•

Approximately $2.2 million of operating costs.

•

Approximately $800,000 of project development expenses.

On March 22, 2007 we received the proceeds from a bank loan pursuant to the terms of a Fixed Assets Loan Contract with ICBC for approximately $12 million.  These proceeds completed the project funding needed for our Joint Venture to complete the Project.  Key terms of the Fixed Assets Loan Contract are as follows:

•

Term of the loan is 7 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.  Interest is payable monthly on the 20^th day of each month.

•

Principal payments of approximately $1.0 million are due in March and September of each year beginning on September 22, 2008 and end on March 21, 2014.

•

Hai Hua is a guarantor on the loan.

•

The Project assets are pledged as collateral on the loan.

•

The Company 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 Project.

•

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.

Additionally, on March 20, 2007, the Joint Venture entered into and funded a Shareholder’s Loan Agreement with Synthesis Investments for a loan of approximately $3.3 million (the “Shareholder Loan”).  The Shareholder Loan bears interest per annum at a rate of 1-Year LIBOR plus 0.5% and is due and payable on the date which is 720 days after the ICBC loan described above is paid in full.  The shareholder Loan is unsecured and is subordinated to the above described ICBC loan, and any other subsequent ICBC loans.  The Joint Venture may not prepay the Shareholder Loan until the ICBC loan is either paid in full or is fully replaced by another loan.  Proceeds of the Shareholder Loan may only be used for the purpose of developing, constructing, owning, operating and managing the Project.

As of March 30, 2007, we had approximately $3 million of cash in our banks, in addition to approximately $18.4 million of cash in the Joint Venture.  Over the next twelve months, we also plan to continue to advance the commercial development of U-GAS^® based projects in China and selected locations in the United States, and to further expand our global engineering and project execution team to complete future projects which are currently contemplated.  We currently expect that we have sufficient funds to implement these strategies in furtherance of our business plan during the next twelve months.  In the next few months, we plan to raise approximately $25 million to $50 million through debt or equity financing in order to implement strategies in furtherance of our business development and expansion.  We intend to rely on commercial banks to finance or refinance some portion of our future project costs.  We

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may also offer debt or equity securities to fulfill our other cash requirements.  See also “Risk Factors – We may require additional funding . . .” on page 2 for more information.

We do not have any off balance sheet financial arrangements.

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SELLING STOCKHOLDERS

The following table sets forth certain information concerning the selling stockholders.  Assuming that the selling stockholders offer all of their shares of our common stock, the selling stockholders will not have any beneficial ownership except as otherwise provided in the table below.  The shares are being registered to permit the selling stockholders to sell or otherwise dispose of the shares covered hereby, or interests therein, from time to time.  We will file a prospectus supplement to name successors to any named selling shareholders who are able to use the prospectus to resell the shares.  Such prospectus supplement would be required to be delivered, together with this prospectus, to any purchaser of such shares.  See “Plan of Distribution.”  

Selling Stockholder		Number of Shares Owned and to be Owned Prior to Offering(1)		Number of Shares Being Offered(1)		Number of Shares Owned After Offering(2)		Percentage of Shares Owned After Offering(2)
ATC Trustees (Bahamas) Ltd. (3)		80,000		80,000		-		-
Thomas G. Bongard (3)		100,000		100,000		-		-
Frank J. Cadwell (3)		33,333		33,333		-		-
Ira Ronald Cadwell (3)		33,334		33,334		-		-
Stephanie Cadwell (3)		33,333		33,333		-		-
David A. Schwedel (3)		1,136,900 (5)		931,760		-		-
Adam M. Dernbach (3)		20,000		20,000		-		-
Jeremy Alan Dernbach (3)		20,000		20,000		-		-
Timothy A. Dernbach (4)		10,000		10,000		-		-
Theodore & Eve Golfinopoulos (3)		20,000		20,000		-		-
James D. Hanson, Jr. (4)		206,000		206,000		-		-
MD Investments Limited (3)(7)		40,000		40,000		-		-
John F. Michel, Jr. (3)		28,000		28,000		-		-
Thomas E. Puccio (3)		12,000		12,000		-		-
Renee Schwedel (3)		40,000		40,000		-		-
Silo Investments Limited (3)(8)		210,000		210,000		-		-
Michael G. Storey (3)		1,440,000 (6)		900,000		540,000		2.0%
Michael Tublin (4)		80,000		80,000		-		-
Travis & Edith Wichman (4)		80,000		80,000		-		-
Zahaca Enterprises USA LLC (3)(9)		80,000		80,000		-		-
(10)		5,088,240		5,088,240		-		-

___________________

*

Less than one percent, based on 28,183,715 shares outstanding as March 28, 2007.

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(1)

Ownership is determined in accordance with Rule 13d-3 under the Exchange Act.

(2)

Assumes the sale of all of the shares offered hereby to persons who are not affiliates of the selling stockholders.

(3)

Each of these selling stockholders acquired the shares offered hereby on a private placement in May of 2005.  Each selling stockholder purchased the shares offered hereby for their own account and not with a view toward distribution.

(4)

Each of these selling stockholders (i) acquired the shares offered hereby in private placement in May of 2005, and (ii) holds shares included in the 6,000,000 shares eligible for trading on the Pink Sheets described in Footnote 10.  Each selling stockholder purchased the shares offered hereby for their own account and not with a view toward distribution.

(5)

Includes 205,200 shares held by the David A. Schwedel Living Trust, of which Mr. Schwedel is the beneficial owner.

(6)

Includes 40,000 shares of common stock issuable upon exercise of options which are currently exercisable or exercisable within 60 days hereof.

(7)

Mark Daeche, the Director of MD Investments Limited, exercises voting and investment authority over the shares held by this selling stockholder.

(8)

Marc Citron, the Director of Silo Investments Limited, exercises voting and investment authority over the shares held by this selling stockholder.

(9)

Marc A. Pearl, Managing Partner of Zahaca Enterprises USA LLC, exercises voting and investment authority over the shares held by the selling stockholder.

(10)

We also plan to include 6,000,000 shares of stock which are eligible for trading on the Pink Sheets.  We plan to set a record date and include the names of the selling stockholders on such date in an amendment to this registration statement.

USE OF PROCEEDS

We will not receive any of the proceeds from the sale or other disposition of the shares covered hereby, or interests therein, by the selling stockholders.

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PLAN OF DISTRIBUTION

The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions.  These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.  Because there is no trading market in our common stock as of the date of this prospectus, the selling stockholders will sell any shares in the public market at prices ranging from $3.50 to $8.00 per share until a public market develops for the common stock. Once a public market develops for the common stock, the selling stockholders may sell their shares of common stock in the public market based on the market price at the time of sale or at negotiated prices.

Subject to the foregoing, the selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:

•

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

•

block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

•

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

•

an exchange distribution in accordance with the rules of the applicable exchange;

•

privately negotiated transactions;

•

short sales effected after the date the registration statement, of which this prospectus is a part, is declared effective by the SEC;

•

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

•

broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; and

•

a combination of any such methods of sale.

The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.  The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.  We will file a prospectus supplement to name successors to any named selling shareholders who are able to use the prospectus to resell the shares.  Such prospectus supplement would be required to be delivered, together with this prospectus, to any purchaser of such shares.

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In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume.  The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities.  The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any.  Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents.  We will not receive any of the proceeds from this offering.

Certain of the selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule.  However, Tamborine’s ‘‘promoters’’ or their ‘‘affiliates’’ and their transferees, within the meaning of the Securities Act, both before and after the Merger (as described in “Business–General”), are deemed to be ‘‘underwriters’’ within the meaning of the Securities Act. Any commissions or discounts given to any such broker-dealer may be regarded as underwriting commissions or discounts under the Securities Act.  As such, regardless of technical compliance with Rule 144 under the Act, because Tamborine was a shell company prior to the Merger, Rule 144 will be unavailable to its promoters and affiliates and their transferees.

The other selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act.  Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act.  Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers.  In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

We intend to advise the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates.  In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act.  The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

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The selling stockholders will not engage in any short sale of the securities offered by it pursuant to this prospectus until the registration statement of which this prospectus is a part has been declared effective by the SEC.

We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.

We have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which the shares may be sold pursuant to Rule 144(k) of the Securities Act.

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DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning our directors, executive officers and key employees as of March 16, 2007:

Name	Age	Position
Lorenzo Lamadrid	56	Chairman of the Board
Timothy Vail	44	President, Chief Executive Officer and Director
David Eichinger	41	Chief Financial Officer and Senior Vice President of Corporate Development
Donald Bunnell	41	President, Chief Executive Officer – Asia Pacific and Director
Gregory (“Bruce”) Golden	55	Chief Technologist
Carol Pearson	46	Corporate Controller and Corporate Secretary
Michael Storey	65	Director
Denis Slavich	67	Director
Harry Rubin	54	Director

Lorenzo Lamadrid.  Mr. Lamadrid has been our Chairman since April of 2005.  Since 2001, Mr. Lamadrid has also served as Chairman and Chief Executive of Globe Development Group, LLC, a firm specializing in international energy advisory, investment, and development of major energy and power projects.  He is also a Managing Director and Founding Partner of the Worldwide Power Group, Ltd., a developer of large-scale energy and power generation projects in Asia and Latin America, and is also a member of the International Advisory Board and the Executive Committee of Sirocco Aerospace International, a marketer of aerospace products.  From 1999 to 2001, Mr. Lamadrid was President and Chief Executive Officer of Arthur D. Little, Inc., a global management consulting firm.  Prior to joining Arthur D. Little, from 1996 to 1999, Mr. Lamadrid was President of Western Resources International, Inc., a subsidiary of Western Resources, Inc., and Managing Director of The Wing Group, a subsidiary of Western Resources that develops large-scale international electric power projects.  Prior to that, Mr. Lamadrid spent seven years with General Electric, the last two as a Corporate Officer.  He served as Vice President and General Manager of GE Aerospace, where he was responsible for international operations, domestic marketing and business development activities, and strategy development for the overall Aerospace Group.  While at General Electric, Mr. Lamadrid also served as Corporate Staff Executive for strategic planning and business development.  Mr. Lamadrid also served on the Board of Directors of the General Electric Trading Company, GE/RCA Licensing Operation, Toshiba Electronic Systems Company (Japan), Ltd., and the Philadelphia World Affairs Council. Before joining General Electric, Mr. Lamadrid was a Manager at The Boston Consulting Group, and was also a founding investor of the Boston Beer Company.  Mr. Lamadrid graduated from Yale University with a B.S. in Chemical Engineering and Administrative Sciences, Massachusetts Institute of Technology with a M.S. in Chemical Engineering, and Harvard with an M.B.A.

Timothy Vail.  Mr. Vail is our President and Chief Executive Officer and is also a Director. Mr. Vail joined us as a Director on September 20, 2005, and accepted the President and Chief Executive Officer position on May 30, 2006.  Prior to joining us, beginning in 2002, Mr. Vail served as the Director of Commercialization for Fuel Cell Development for General Motors Corporation (“GM”). At GM, Mr. Vail’s duties included the development of GM’s Shanghai fuel cell office as well as coordination of engineering facilities in the US, Germany, Japan and China. Prior to his position at GM, Mr. Vail was the Vice President of product development for The New Power Company, a start-up subsidiary of Enron Corporation, where he was responsible for the development of new products and services to be delivered to New Power’s customer bases.  From 1995 until starting work for The New Power Company, Mr. Vail was a Vice President at Enron Energy Services.  Mr. Vail was also a securities lawyer with Andrews

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Kurth, LLP from 1990 to 1993.  Mr. Vail holds a J.D. from the University of Houston Law Center and a B.A. in Economics from The University of Texas at Austin.  

David Eichinger.  Mr. Eichinger has served as our Chief Financial Officer and Senior Vice President of Corporate Development, since May 30, of 2006.  Prior to joining us as an executive officer, Mr. Eichinger was a consultant to us since November 1, 2005, in which capacity he advised us on technology license negotiations and global expansion beyond the Chinese market.   From 1991 to 1996, Mr. Eichinger spent five years in the Corporate Treasury function as an analyst in Corporate Finance and Tax at Exxon Corporation and Exxon Chemicals.  From 1996 to 2000, Mr. Eichinger led merger and acquisition teams for Enron Corporation in the deregulating wholesale and retail markets in North and South America.  In addition, Mr. Eichinger led the spin off of The New Power Company and served as an executive officer in charge of corporate development.  Mr. Eichinger has also advised a number of energy related firms including CAM Energy (a New York based hedge fund) and General Hydrogen.  Mr. Eichinger holds both a B.S. and M.S. in Chemistry from The College of William and Mary, and an M.B.A. from Carnegie Mellon.

Donald Bunnell. Mr. Bunnell is our President and Chief Executive Officer – Asia Pacific, a Director and a co-founder of our company.  From 2001 until the creation of our company, Mr. Bunnell was the Asia Business Development Vice President for BHP Billiton’s aluminum group.   Between 1997 and 2001, Mr. Bunnell served in various capacities, including Vice President in charge of Enron China’s power group, and Country Manager, with the power development team of Enron Corporation.    During this time, Mr. Bunnell spent three years leading the Enron/Messer/Texaco consortium for the Nanjing BASF Project.  From 1995 to 1997, Mr. Bunnell was a manager with Coastal Power Corporation (now part of El Paso Corporation) in Beijing, where he was involved in development of gas turbine power plants and other power projects.  Mr. Bunnell is an attorney licensed to practice in the United States and has practiced law in Hong Kong, advising clients on China investments, prior to entering the power business.  Mr. Bunnell is fluent in Mandarin Chinese, has lived in China for over 11 years, and has 10 years of experience in the China power industry developing projects and managing joint ventures.  Mr. Bunnell graduated from Miami University with a B.A. and from the William & Mary School of Law with a J.D.

Gregory “Bruce” Golden.  Mr. Golden is our Chief Technologist and a co-founder of the Company.  Mr. Golden has 30 years of experience in the power industry developing, designing, building and operating power plants, including experience with IGCC power and utility plants.  Mr. Golden worked for Enron Corporation from 1991 through 2001.  From March to November 2001, Mr. Golden led Enron Corporation’s technical definition and estimate phase of a solid fuel power generation initiative.  This solid fuel initiative helped Mr. Golden to better understand the competitiveness of IGCC power utility plants and led him to the U-GAS^® technology.  From 1997 to 2000, Mr. Golden led several technical proposal teams for “inside-the-fence” utility supply facilities and was also general manager of development engineering responsible for technical support for the development of several large power plants in China.  From March 1994 to June 1996, Mr. Golden managed the construction of a 150 MW combined cycle gas turbine power plant in Hainan, China.  Mr. Golden also assumed responsibility during this period for the review and oversight of a 550 MW poly-generation facility for the Saras Oil Refinery in Italy.  When Mr. Golden joined Enron in 1991, he initially managed the development and construction of power plants in Guatemala, Nicaragua, El Salvador, and Honduras.  Of Mr. Golden’s 30 years in the power industry, he has spent most of the past 10 years developing and building power and poly-generation plants.  Mr. Golden graduated from Rice University with a B.S. in Mechanical Engineering.

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Carol Pearson.  Ms. Pearson has served as our Corporate Controller since July 27, 2006 and as our Corporate Secretary since October 11, 2006.   From October 2005 to July 2006, she served as Corporate Controller for Cornell Companies Inc.  Prior to that, Ms. Pearson served as Director of Internal Audit at Camden Property Trust, Inc. from May 2004 through August 2005. From January 2001 through May 2004, she was in charge of Financial Reporting and Compliance for EGL, Inc.  Ms. Pearson previously served as an audit manager with Ernst & Young, LLP and a senior accountant with Coopers & Lybrand, LLP.  She graduated from Northeast Louisiana University with a B.B.A. in accounting with Honors and is a Certified Public Accountant.

Michael Storey.  Mr. Storey has served as one of our directors since November of 2005.  From 2000 to 2004, he has served as President and CEO of Inmarsat Ventures, a global communications company.  He resigned in March of 2004, but continues as an advisor. From 1993 to 1999, Mr. Storey ran several telecommunications businesses during European deregulation that became MCI Europe and is now Verizon Communications.  In 1984, Mr. Storey established City Centre Communications, a business in the cable television and telecommunications industry. He grew his business and acquired several franchises before selling his interests in 1992 to Videotron and Bell Canada.  He served as a Director and then Chairman of the Cable Communications Association from 1983 to 1990, representing all the investors in the U.K. cable industry.  Starting in 1972, Mr. Storey served for 10 years as a Vice President and Partner of Booze Allen Hamilton International Management Consultants.  Mr. Storey is a graduate of King’s Fund Administrative Staff College and has an M.B.A. from the University of Chicago. From 1958 to 1968, he worked in the healthcare industry, operating hospitals in the U.K., Middle East, and North America.  He also holds two professional certifications:  Professionally Qualified Hospital Administrator and Professionally Qualified Personnel Manager.

Denis Slavich.  Mr. Slavich has served as a director since November of 2005 and currently serves as the Chairman of our Audit Committee. Mr. Slavich has over 35 years of experience in large-scale power generation development.  He is currently an international consultant to a number of U.S. and China-based companies engaged in cross border transactions, as well as an advisor and board member for a number of additional firms.  From 1998 to 2000 Mr. Slavich was the CFO and director of KMR Power Corporation and was responsible for the development of an international IPP company that developed projects in Columbia as well as other areas.  Mr. Slavich also served as acting President for Kellogg Development Corporation, a division of M.W. Kellogg, during 1997.  From 1991 to 1995, Mr. Slavich was also a Vice President of Marketing for Flour Daniel.  From 1971 to 1991 Mr. Slavich served in various executive positions at Bechtel Corporation including Sr. VP, CFO, and director and Sr. VP and manager of the International Power Division. Mr. Slavich received his Ph.D. from Massachusetts Institute of Technology, M.B.A. from the University of Pittsburgh and his B.S. in Electrical Engineering from the University of California at Berkeley.

Harry Rubin.  Mr. Rubin has been a Director since August 5, 2006. Mr. Rubin is currently Chairman of Henmead Enterprises, in which capacity he advises various companies regarding strategy, acquisitions and divestitures. He currently serves as a Director of Image-Metrics Plc, and has held board positions at a number of private and public companies such as the A&E Network, RCA/Columbia Pictures Home Video and the Genisco Technology Corporation. He was a founding partner of the Boston Beer Company. In the 12 years prior to 2006, Mr. Rubin held various senior management roles in the computer software industry, including Senior Executive Vice President and Chief Operating Officer of Atari, and President of International Operations and Chief Financial Officer for GT Interactive Software.   Mr. Rubin entered the computer software business in 1993 when he became Executive VP for GT Interactive Software as a start-up company, and played a leadership role in GT’s progression as the company went public in 1995 and became one of the largest industry players. Prior to 1993, he held various senior financial and general management positions at RCA, GE and NBC. He is a graduate of Stanford University and Harvard Business School, and resides in New York City.

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CORPORATE GOVERNANCE

The Company’s Board of Directors (the “Board”) has six directors and has established the Audit, Compensation, and Nominating and Governance Committees as its standing committees. The Board does not have an executive committee or any committees performing a similar function.   We are not currently listed on a national securities exchange or in an inter-dealer quotation system that has requirements that a majority of the board of directors be independent, however, we have applied for a listing with the NASDAQ Stock Market, Inc. which has requirements that a majority of the board of directors be independent.  The Board has determined that all members of the Board, other than Lorenzo Lamadrid, Chairman of the Board, Timothy Vail, the Company’s President and Chief Executive Officer and Donald Bunnell, President and Chief Executive Officer – Asia Pacific, are “independent” under the definition set forth in the listing standards of the NASDAQ Stock Market, Inc., which is the definition that the Board has chosen to use for the purposes of the determining independence, as the Pink Sheets does not provide such a definition.  Therefore, only half of the Company’s current Board members are independent.  The Company is utilizing the phase-in provisions of the NASDAQ rules for the majority independent requirement, which permits the Company to be listed if it has a majority of independent members within twelve months of the date of listing.  The Board plans to appoint at least one more independent director as soon as practicable within this one-year period.  In addition, the Board of Directors has determined that all members of the Company’s Audit Committee, in addition to meeting the above standards, also meet the criteria for independence for audit committee members which are set out in the Exchange Act.  

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial ownership of our common stock as of March 28, 2007, by:

•

each person who is known by us to beneficially own 5% or more of the outstanding class of our capital stock;

•

each member of the Board;

•

each of our executive officers; and

•

all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC.  To our knowledge, each of the holders of capital stock listed below has sole voting and investment power as to the capital stock owned unless otherwise noted.

Name and Address of Beneficial Owner		Numbers of Shares of Common Stock Beneficially Owned				% of Common Stock Outstanding(1)
Donald Bunnell			6,102,500				21.7%
Lorenzo Lamadrid (2)			3,195,000				11.3%
Gregory “Bruce” Golden			3,030,000				10.8%
Azure International (3)			1,680,000				6.0%
Michael Storey (4)			1,480,000				5.3%
Timothy Vail (5)			1,185,000				4.2%
David Eichinger (6)			700,000				2.5%
Denis Slavich (7)			115,000				*
Harry Rubin (8)			110,000				*
Executive Officers and Directors as a group (8 persons)			15,917,500				56.5%

__________________________

* Less than 1%

(1)

Based on 28,183,715 shares outstanding as of March 16, 2007.

(2)

Includes 25,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.

(3)

Christopher J. Raczkowski, Stephen M. Terry and Juanli Han are the principals of, and exercise voting and investment authority over the shares held by, this stockholder.

(4)

Includes 80,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.

(5)

Includes 965,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.

(6)

Includes 700,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.

(7)

Includes 105,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.

(8)

Includes 40,000 shares of common stock issuable upon the exercise of options which are currently exercisable or exercisable within 60 days hereof.

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EXECUTIVE COMPENSATION

Summary Compensation Table.  The following table provides information concerning compensation paid or accrued during the fiscal years ended June 30, 2006 and 2005 to our principal executive officer and each of our other two most highly paid executive officers whose salary and bonus exceeded $100,000, collectively referred to as the Named Executive Officers, determined at the end of the last fiscal year:

Name and Principal Position		Year		Salary		Bonus		Stock Awards		Option Awards		Nonqualified Deferred Compensation Earnings		All Other Compensation		Total
Timothy Vail, President and CEO		2006 2005		$ 12,500 (1) $ -		- -		$ - $ -		$ 8,219,478 (2) $ -		- -		$ - $ -		$ 8,231,987 $ -
David Eichinger, CFO		2006 2005		$ 10,000 (3) $ -		- -		$ - $ -		$ 5,936,891 (2) $ -		- -		$ 46,573 (4) $ -		$ 5,993,464 $ -
Donald  Bunnell, President and CEO Asia Pacific		2006 2005		$ 120,000 $ 24,000		- -		$ - $ 100,000 (5)		$ - $ -		- -		$ - $ -		$ 120,000 $ 124,000

(1)

Prior to May 30, 2006, Mr. Vail served only as a director, for which he did not receive any cash compensation.

(2)

Time vested options.  Value determined using a Black-Sholes model.  See Note 11 to the Consolidated Financial Statements for a discussion of assumptions made in the valuation of option grants.

(3)

Prior to May 30, 2006, Mr. Eichinger served as a consultant to the Company.  His compensation for these services is listed under “All Other Compensation.”

(4)

Represents amounts paid under a consulting agreement between the Company and Mr. Eichinger which was effective from October 19, 2005 through May 1, 2006.  Mr. Eichinger was hired by the Company as an employee on a permanent basis effective May 30, 2006.  

(5)

Mr. Bunnell was one of the Company’s founders and received 7,402,500 shares in exchange for his work for the Company and his initial capital contribution of $100,000 subsequent to our merger with Tamborine on April 18, 2005.

We have entered into employment agreements with Timothy Vail, as our President and Chief Executive Officer, David Eichinger, as our Chief Financial Officer and Senior Vice President of Corporate Development and Donald Bunnell, as our President and Chief Executive Officer – Asia Pacific.

Our agreement with Mr. Vail became effective May 30, 2006 and is for a four-year term.  He receives an annual base salary of up to $180,000, bonuses as may be awarded from time to time by the Board or any compensation committee thereof, including a performance bonus, and reimbursement of no more than $1,500 per month for all reasonable and customary medical and health insurance premiums incurred by Mr. Vail if he is not covered by insurance.  Mr. Vail’s salary as of June 30, 2006 was $10,000 per month and was subject to increase upon the achievement of certain performance milestones.  Mr. Vail met two of these milestones, one in August of 2006 and his salary was increased to $12,500 per month, and the second in March of 2007 and his salary was increased to $15,000 per month.  The compensation committee of the Board shall also evaluate Mr. Vail’s salary on an annual basis and determine if any additional increases are warranted. Pursuant to the terms of the employment agreement, we have also granted Mr. Vail options to purchase 2,350,000 shares of common stock.  The options have an exercise price of $3.00 and vest in five equal annual installments, with the first installment vesting on the effective date of the employment agreement.  The options are subject to the terms and conditions outlined in the Company’s Amended and Restated 2005 Incentive Plan (the “Plan”). If the employment agreement is terminated by us other than by reason of death, disability or cause, we will continue to pay Mr. Vail his

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salary for the remaining term of the employment agreement, but in no event less than 6 months and all options shall automatically vest.  All vested options must be exercised within six months of the termination date, regardless of the reason for termination. The employment agreement prohibits Mr. Vail from competing with us during his employment and for a period of 18 months after termination of his employment.  In addition, all options shall automatically vest upon a change of control, as such term is defined in the employment agreement.

Mr. Vail was also granted an option to purchase 50,000 shares of common stock pursuant to the terms of a nonstatutory stock option agreement dated effective November 7, 2005.  The option has an exercise price of $2.50 and vest in four equal annual installments, with the first installment vesting on the effective date of the grant.  The option expires on November 7, 2010.  The option is subject to the terms and conditions outlined in the Plan.  In addition, the option shall automatically vest upon a change of control, as such term is defined in the grant agreement.

Our agreement with Mr. Eichinger became effective May 30, 2006 and is for a four-year term.  He receives an annual base salary of up to $180,000, bonuses as may be awarded from time to time by the Board or any compensation committee thereof, including a performance bonus, and reimbursement of no more than $1,500 per month for all reasonable and customary medical and health insurance premiums incurred by Mr. Eichinger if he is not covered by insurance.  Mr. Eichinger’s current salary is $15,000 per month and is subject to increase upon the achievement of certain performance milestones.  The compensation committee of the Board shall also evaluate Mr. Eichinger’s salary on an annual basis and determine if any additional increases are warranted.  We have also granted Mr. Eichinger options to purchase 1,750,000 shares of common stock.  The options have an exercise price of $3.00 and vest in five equal annual installments, with the first installment vesting on the date of the option grant.  The options are subject to the terms and conditions outlined in the Plan.  If the employment agreement is terminated by us other than by reason of death, disability or cause, we will continue to pay Mr. Eichinger his salary for the remaining term of the employment agreement, but in no event less than 6 months and all options shall automatically vest.  All vested options must be exercised within six months of the termination date, regardless of the reason for termination.  The employment agreement prohibits Mr. Eichinger from competing with us during his employment and for a period of 18 months after termination of his employment.  In addition, all options shall automatically vest upon a change of control, as such term is defined in the employment agreement.

Our agreement with Mr. Bunnell was amended and restated effective July 14, 2006 and is for a term ending on April 18, 2009.  Mr. Bunnell receives an annual base salary of $120,000, bonuses as may be awarded from time to time by the Board or any compensation committee thereof, including a performance bonus, and reimbursement of no more than $1,500 per month for all reasonable and customary medical and health insurance premiums incurred by Mr. Bunnell if he is not covered by insurance.  Mr. Bunnell’s salary is subject to increase upon the achievement of certain performance milestones.  The compensation committee of the Board shall also evaluate Mr. Bunnell’s salary on an annual basis and determine if any additional increases are warranted.  If the employment agreement is terminated by us other than by reason of death, disability or cause, we will continue to pay Mr. Bunnell his salary for the remaining term of the employment agreement, but in no event less than 6 months and all options shall automatically vest.  All vested options must be exercised within six months of the termination date, regardless of the reason for termination.  The employment agreement prohibits Mr. Bunnell from competing with us during his employment and for a period of 18 months after termination of his employment.

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
		Option Awards										Stock Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards Number of Securities Underlying Unexercised Unearned Options (#)		Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
(a)		(b)		(c)		(d)		(e)		(f)		(g)		(h)		(i)		(j)
Timothy Vail		482,500		1,917,500 (1)		-		(1)		(1)		-		-		-		-
David Eichinger		350,000		1,400,000 (2)		-		$3.00		(2)		-		-		-		-
Donald Bunnell		-		-		-		-		-		-		-		-		-

______________________

(1)

Mr. Vail has received two option grants: (a) an option to purchase 50,000 shares at an exercise price of $2.50 on November 7, 2005, and (b) an option to purchase 2,350,000 shares at an exercise price of $3.00 on May 30, 2006.  The options expire on November 7, 2010 and May 30, 2011, respectively.  The November 7, 2005 option vests in four equal annual installments, with the first installment vesting on the date of grant.  The May 30, 2006 option vests in five equal annual installments, with the first installment vesting on the date of grant.

(2)

Mr. Eichinger received an option to purchase 1,750,000 shares on May 30, 2006 which vests in five equal annual installments, with the first installment vesting on the date of grant. The option expires on May 30, 2011.

The description of the terms of the employment agreements of Messrs. Vail and Eichinger also includes a summary description of the terms of their May 30, 2006 option grants.

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DIRECTOR COMPENSATION
Name		Fees Earned or Paid in Cash		Stock Awards		Option Awards		Non-Equity Incentive Compensation	1	Nonqualified Deferred Compensation Earnings		All Other Compensation		Total
(a)		(b)		(c)		(d)		(e)		(f)		(g)		(h)
Lorenzo Lamadrid		$ 60,000		-		$ 212,317 (1)		-		-		-		$ 272,317
Michael Storey		$ -		-		$ 770,437 (2)		-		-		-		$ 770,437
Denis Slavich		$ -		-		$ 770,437 (2)		-		-		-		$ 770,437
Harry Rubin		$ -		-		$ - (3)		-		-		-		$ -

_________________

(1)

Mr. Lamadrid was granted an option to purchase 50,000 shares of common stock at an exercise price of $2.50 on November 7, 2005.  The option vests in four equal annual installments, with the first installment vesting on the date of grant.  The option expires on November 7, 2010.

(2)

Each of Mr. Storey and Mr. Slavich were granted (i) an option to purchase 50,000 shares of common stock at an exercise price of $2.50 per share on November 7, 2005 and (ii) an option to purchase 200,000 shares of common stock at an exercise price of $3.00 per share on May 30, 2006.  The options vest in four and five equal annual installments, respectively, with the first installment vesting on the date of grant.  The options expire on November 7, 2010 and May 30, 2011, respectively.  

(3)

Mr. Rubin began serving as a director on August 4, 2006.  On that date, he was granted an option to purchase 160,000 shares of common stock at an exercise price of $3.00 per share.  The option vests in five equal annual installments, with the first installment vesting on the date of grant.  The option expires on August 4, 2011.  Additionally, on March 26, 2007, Mr. Rubin was granted an option to purchase an additional 40,000 shares of common stock at an exercise price of $6.00 per share.  The option vests in five equal annual installments, with the first installment vesting on the date of the grant.  The option expires on February 7, 2010.

Mr. Lamadrid has a consulting agreement with us for his service as Chairman of our Board. The agreement is for a four-year term effective August 1, 2006.  Mr. Lamadrid receives an annual consulting fee of $60,000 and reimbursement for reasonable expenses incurred in the performance of his services.  The compensation committee of the Board shall also evaluate Mr. Lamadrid’s consulting fee on an annual basis and determine if any additional increases are warranted.  

INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

None.

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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock has been quoted on the Pink Sheets since March 23, 2005.  On May 23, 2005, we changed our symbol on the Pink Sheets from “TMBH” to “SYMX” and our common stock is currently trading on the Pink Sheets under that symbol.

The following table sets forth the range of the high and low closing prices, as reported by the Pink Sheets, for our common stock for the periods indicated.

	Sales Price
Year Ending June 30, 2005:	High		Low
Third Quarter (beginning March 23, 2005)	$ 6.75		$ 3.00
Fourth Quarter	$ 6.00		$ 4.75
Year Ending June 30, 2006:
First Quarter	$ 6.00		$ 5.00
Second Quarter	$ 7.25		$ 5.75
Third Quarter	$ 9.75		$ 5.00
Fourth Quarter	$ 6.50		$ 3.00
Year Ending June 30, 2007:
First Quarter	$ 8.00		$ 5.75
Second Quarter	$ 7.50		$ 6.25
Third Quarter (as of March 28, 2007)	$ 6.75		$ 5.00

Our authorized capital stock consists of 100,000,000 shares of common stock.  As of March 16, 2007, 28,183,715 shares of common stock were issued and outstanding.  As of such date, there were approximately 290 holders of record of our common stock.

We have not paid dividends on our common stock and do not anticipate paying cash dividends in the immediate future as we contemplate that our cash flows will be used for continued growth of our operations.  The payment of future dividends, if any, will be determined by our Board of Directors in light of conditions then existing, including our earnings, financial condition, capital requirements, and restrictions in financing agreements, business conditions and other factors.

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DESCRIPTION OF COMMON STOCK

General

Our authorized capital stock consists of 100,000,000 shares of common stock, $0.01 par value per share, of which 28,183,715 shares of our common stock are issued and outstanding as of March 27, 2007.  All of our outstanding shares of common stock are duly authorized, validly issued and outstanding and fully paid and non-assessable.

Common Stock

Voting.  The holders of our common stock have one vote for each share they hold on all matters presented to them and do not have cumulative voting rights.

Dividends.  Holders of our common stock are entitled to receive dividends equally, if any, as may be declared by the Board out of funds legally available therefore after taking into account various factors, including, among others, our financial condition, results of operations, cash flows from operations, current and anticipated capital requirements and expansion plans.

Liquidation.  Upon our liquidation, dissolution or winding up, the holders of our common stock will be entitled to a ratable portion (based upon the number of shares of our common stock held by each such holder or issuable upon the exercise of any securities convertible in shares of our common stock) of our available net assets.

Preemptive Rights.  Holders of our common stock have no preemptive, subscription, redemption, or conversion rights.

Transfer Restrictions.  Holders of our common stock may only transfer, sell or otherwise dispose of our common stock held pursuant to an effective registration statement under the Securities Act, pursuant to an available exemption from the registration requirements of the Securities Act or Rule 144 promulgated under the Securities Act.  In connection with any transfer, sale or disposition of any of our common stock other than pursuant to an effective registration statement or Rule 144, we may require you to provide us a written opinion of counsel providing that such transfer, sale or disposition does not require registration under the Securities Act.

Anti-Takeover Effects of Provisions of Our Certificate of Incorporation and Our Amended and Restated Bylaws

Some provisions of our certificate of incorporation and our amended and restated bylaws contain provisions that could make it more difficult to acquire us by means of a merger, tender offer, proxy contest or otherwise, or to remove our incumbent officers and directors. These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals because negotiation of such proposals could result in an improvement of their terms.

Stockholder meetings.  Our amended and restated bylaws provide that a special meeting of stockholders may be called only by the Chairman of the Board, the Chief Executive Officer or by a resolution adopted by a majority of our board of directors.

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Requirements for advance notification of stockholder nominations and proposals.  Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors.

Stockholder action by written consent.  Our amended and restated bylaws provide that no action that is required or permitted to be taken by our stockholders at any annual or special meeting may be effected by written consent of stockholders in lieu of a meeting of stockholders, unless the action to be effected by written consent of stockholders and the taking of such action by such written consent have expressly been approved in advance by our board of directors. This provision, which may not be amended except by the affirmative vote of holders of at least 66 2/3% of the voting power of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, makes it difficult for stockholders to initiate or effect an action by written consent that is opposed by our board of directors.

Amendment of the bylaws.  Under Delaware law, the power to adopt, amend or repeal bylaws is conferred upon the stockholders. A corporation may, however, in its certificate of incorporation also confer upon the board of directors the power to adopt, amend or repeal its bylaws. Our charter and amended and restated bylaws grant our board the power to adopt, amend and repeal our amended and restated bylaws at any regular or special meeting of the board on the affirmative vote of a majority of the directors then in office. Our stockholders may adopt, amend or repeal our amended and restated bylaws but only at any regular or special meeting of stockholders by an affirmative vote of holders of at least 66 2/3% of the voting power of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class.

These provisions of our certificate of incorporation and amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests.

Agreement with Union Charter Financial

In March 2005, we entered into an agreement with Union Charter Capital VII, Inc. (“UCF”) which covered certain capital commitment obligations of UCF and the Company and set forth certain rights of UCF if certain commitment thresholds were met.  Effective November 30, 2006, we have amended and restated this agreement in its entirety to clarify certain statements in the original agreement.  As amended and restated, UCF is entitled to purchase up to 2,000,000 shares of the Company’s common stock at a purchase price of $2.50 per share on or prior to June 30, 2007.  Upon exercise of this right, UCF may purchase all or a portion of the shares.

RELATIONSHIPS WITH ISSUER OF EXPERTS NAMED IN REGISTRATION STATEMENT

None.

LEGAL PROCEEDINGS

None.

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

In November 2006, KPMG LLP, a US based accounting firm, became our independent auditor.  We were formerly audited by KPMG Huazhen, the China member firm of KPMG International. The decision to move the audit function to the United States from China was deemed the best course of action given our recent opening of our corporate headquarters in Houston, Texas. There were no disagreements between us and KPMG Huazhen over accounting principles or practices, and the audit firm did not issue an adverse opinion or disclaimer, regarding our financial statements for the years ending June 30, 2006 and 2005 and the period from November 4, 2003 (inception) to June 30, 2006. Additionally, their opinions were not qualified and did not have any modifications as to uncertainty, audit scope or accounting principle.

We did not consult with KPMG LLP regarding the application of accounting principles or application before their appointment as our auditors. Our audit committee approved the change to KPMG LLP.

DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION OF SECURITIES ACT LIABILITIES

Our bylaws provide that each officer and director of our company shall be indemnified by us against all costs and expenses actually and necessarily incurred by him or her in connection with the defense of any action, suit or proceeding in which he or she may be involved or to which he or she may be made a party by reason of his or her being or having been such director or officer, except in relation to matters as to which he or she has been finally adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty.

The indemnification provisions of our bylaws diminish the potential rights of action, which might otherwise be available to shareholders by affording indemnification against most damages and settlement amounts paid by a director in connection with any shareholders derivative action. However, there are no provisions limiting the right of a shareholder to enjoin a director from taking actions in breach of his fiduciary duty, or to cause the Company to rescind actions already taken, although as a practical matter courts may be unwilling to grant such equitable remedies in circumstances in which such actions have already been taken. Although we presently have directors' liability insurance, there is no assurance that it will provide coverage to the extent directors would be indemnified under the provisions, and as such, we may be forced to bear a portion or all of the cost of the director's claims for indemnification under such provisions. If we are forced to bear the costs for indemnification, the value of our stock may be adversely affected.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

LEGAL MATTERS

Certain legal matters in connection with the common stock offered hereby will be passed on for us by Porter & Hedges, L.L.P., 1000 Main Street, Suite 3600, Houston, Texas 77002.  Any underwriters will be advised about other issues relating to any offering by their own legal counsel.

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EXPERTS

The consolidated financial statements of Synthesis Energy Systems, Inc. as of June 30, 2006 and 2005, and for each of the years in the two-year period ended June 30, 2006 and 2005 and the period from November 4, 2003 (inception) to June 30, 2006, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets as of June 30, 2006 and 2005

F-3

Consolidated Statements of Operations for the years ended
June 30, 2006 and 2005 and the period from November 4, 2003 (inception)
to June 30, 2006

F-4

Consolidated Statement of Stockholders' Equity for years ended
June 30, 2006 and 2005 and the period from November 4, 2003 (inception)
to June 30, 2006

F-5

Consolidated Statements of Cash Flows for years ended
June 30, 2006 and 2005 and the period from November 4, 2003 (inception)
to June 30, 2006

F-6

Notes to the Consolidated Financial Statements for years ended
June 30, 2006 and 2005 and the period from November 4, 2003 (inception)
to June 30, 2006

F-7

Condensed Consolidated Balance Sheets as of December 31, 2006
(unaudited) and June 30, 2006

F-20

Condensed Consolidated Statements of Operations for the six months
ended December 31, 2006 and 2005 and the period from November 4, 2003
(inception) to December 31, 2006 (unaudited)

F-21

Condensed Consolidated Statements of Operations for the three months
ended December 31, 2006 and 2005 (unaudited)

F-22

Condensed Consolidated Statement of Stockholders’ Equity for the
three months ended December 31, 2006 (unaudited)

F-23

Condensed Consolidated Statements of Cash Flows for the six months
ended December 31, 2006 and 2005 and the period from November 4, 2003
(inception) to December 31, 2006 (unaudited)

F-24

Notes to Unaudited Condensed Consolidated Financial Statements for the
three and six months ended December 31, 2006 and 2005 and the period from
November 4, 2003 (inception) to December 31, 2006 (unaudited)

F-25

F-1

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Synthesis Energy Systems, Inc.:

We have audited the accompanying consolidated balance sheets of Synthesis Energy Systems, Inc. and subsidiaries (a development-stage enterprise) as of June 30, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2006 and for the period from November 4, 2003 (inception) to June 30, 2006.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Synthesis Energy Systems, Inc. and subsidiaries (a development-stage enterprise) as of June 30, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the two-year period ended June 30, 2006 and for the period from November 4, 2003 (inception) to June 30, 2006, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Houston, Texas

January 25, 2007

F-2

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SYNTHESIS ENERGY SYSTEMS, INC.

(A Development Stage Enterprise)

Consolidated Balance Sheets
		June 30, 2006		June 30, 2005
ASSETS
Current assets:
Cash		$ 3,154,096		$ 2,706,602
Prepaid expenses and other currents assets (Note 3)		42,037		30,818
Total current assets		$ 3,196,133		$ 2,737,420
Property, plant and equipment, net (Note 4)		9,854		5,929
Intangible asset, net (Note 5)		7,561		8,561
Total assets		$ 3,213,548		$ 2,751,910
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued expenses and other payables (Note 6)		$ 328,198		$ 114,003
Loan from a shareholder		-		1,150
Total liabilities		328,198		115,153
Stockholders’ Equity:
Common stock, $0.01 par value: 100,000,000 shares authorized: 24,647,500 and 28,030,000 shares issued and outstanding, respectively (Note 10)		246,475		280,300
Additional paid-in capital (Note 10)		8,179,604		2,714,810
Deficit accumulated during development stage		(5,540,729)		(358,353)
Total stockholders’ equity		$ 2,885,350		$ 2,636,757
Commitments and contingencies (Note 9)		-		-
Total liabilities and stockholders’ equity		$ 3,213,548		$ 2,751,910
See accompanying notes to the condensed consolidated financial statements.

F-3

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SYNTHESIS ENERGY SYSTEMS, INC.

(A Development Stage Enterprise)

Consolidated Statements of Operations
		Year Ended June 30, 2006		Year Ended June 30, 2005		November 4, 2003 (inception) To June 30, 2006
Net Sales		$ -		$ -		$ -
Costs of goods sold		-		-		-
Gross Profit		-		-		-
General and administrative expenses and other expenses:
General and administrative expenses		(1,023,229)		(237,463)		(1,261,132)
Stock-based compensation		(3,042,979)		-		(3,042,979)
Project development expenses		(871,882)		(43,679)		(915,561)
Technical development		(373,282)		(87,954)		(461,236)
Operating loss		$ (5,311,372)		$ (369,096)		$ (5,680,908)
Non-operating income:
Interest Income		128,996		13,623		142,619
Interest expense		-		(2,440)		(2,440)
Net loss before income tax benefit		(5,182,376)		(357,913)		(5,540,729)
Income tax benefit		-		-		-
Net loss		$ (5,182,376)		$ (357,913)		$ (5,540,729)
Net loss per share (Note 8):
Basic and diluted		$ (0.19)		$ (0.01)		$ (0.20)
Weighted average common shares outstanding:
Basic and diluted shares		27,754,139		27,180,446		27,351,936
See accompanying notes to the consolidated financial statements.

F-4

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SYNTHESIS ENERGY SYSTEMS, INC.

(A Development Stage Enterprise)

Consolidated Statement of Stockholders’ Equity
	Common Stock				Additional Paid-in Capital		Deficit  Accumulated During the Development Stage		Total
	Shares		Common Stock
Balance at November 4, 2003 (inception)	100,000		$ -		$ -		$ -		$ -
Net loss for the period November 4, 2003 to June 30, 2004	-		-		-		(440)		(440)
Balance at June 30, 2004	100,000		$ -		$ -		$ (440)		$ (440)
Shares Forfeited in Merger	(94,000,000)	(1)	-		-		-		-
Shares Issued in Merger	21,000,000	(1)	-		-		-		-
Net loss for the year	-		-		-		(357,913)		(357,913)
Investor contributions	-		264,190	(1)	235,810		-		500,000
Conversion of debt to equity	-		5,810	(1)	5,190		-		11,000
Net proceeds from private placement offering	1,030,000		10,300		2,473,810		-		2,484,110
Balance at June 30, 2005	28,030,000		$ 280,300		$ 2,714,810		$ (358,353)		$ 2,636,757
Net loss for the year	-		-		-		(5,182,376)		(5,182,376)
Net proceeds from private placement offering	970,000		9,700		2,378,290		-		2,387,990
Stock-based compensation	-		-		3,042,979		-		3,042,979
Adjustment related to return of shares	(4,392,500)		(43,525)		43,525		-		-
Balance at June 30, 2006	24,647,500		$ 246,475		$ 8,179,604		$ (5,540,729)		$ 2,885,350
(1)  Merger related transactions See accompanying notes to the consolidated financial statements

F-5

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