10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007.

o TRANSITION REPORTING PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM  _____  TO  _____ .

COMMISSION FILE NO. 0-21911

SYNTROLEUM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	73-1565725
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

5416 S. Yale Suite 400
Tulsa, Oklahoma 74135
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (918) 592-7900

Securities registered pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
and
Preferred Share Purchase Rights

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Smaller reporting company o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No þ

At June 30, 2007, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $145,000,000 based on the closing price of such stock on such date of $2.76 per share (assuming solely for this purpose that all of the registrant’s directors, executive officers and 10 percent stockholders are its affiliates).

At March 1, 2008, the number of outstanding shares of the registrant’s common stock was 62,574,207.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission (“SEC”) within 120 days of December 31, 2007 for its 2008 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

	Page
Part I
Item 1. Business		2
Item 1A. Risk Factors		9
Item 1B. Unresolved Staff Comments		19
Item 2. Properties		19
Item 3. Legal Proceedings		19
Item 4. Submission of Matters to a Vote of Security Holders		19
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		19
Item 6. Selected Financial Data		23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 7A. Quantitative and Qualitative Disclosures about Market Risk		38
Item 8. Financial Statements and Supplementary Data		39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		39
Item 9A. Controls and Procedures		39
Item 9B. Other Information		40
Part III
Item 10. Directors, Executive Officers and Corporate Governance		41
Item 11. Executive Compensation		41
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		41
Item 13. Certain Relationships and Related Transactions, and Director Independence		41
Item 14. Principal Accountant Fees and Services		41
Part IV
Item 15. Exhibits and Financial Statement Schedules		42
Exhibit 10.78
Exhibit 10.79
Exhibit 10.80
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as well as historical facts. These forward-looking statements include statements relating to the Syntroleum^® Process, Synfining^® Process, and related technologies including, gas-to-liquids (“GTL”), coal-to-liquids (“CTL”) and biomass-to-liquids (“BTL”), our renewable fuels Bio-Synfining™ Technology, plants based on the Syntroleum^® Process and/or Bio-Synfining™, anticipated costs to design, construct and operate these plants, the timing of commencement and completion of the design and construction of these plants, expected production of ultra-clean fuel, obtaining required financing for these plants and our other activities, the economic construction and operation of Fischer-Tropsch (“FT”) and/or Bio-Synfining™ plants, the value and markets for plant products, testing, certification, characteristics and use of plant products, the continued development of the Syntroleum^® Process and Bio-Synfining™ Technology (alone or with co-venturers) and the anticipated capital expenditures, anticipated expense reductions, anticipated cash outflows, anticipated expenses, use of proceeds from our equity offerings, anticipated revenues, availability of catalyst materials, availability of finished catalyst, our support of and relationship with our licensees, and any other forward-looking statements including future growth, cash needs, capital availability, operations, business plans and financial results. When used in this document, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should” and similar expressions are intended to be among the statements that identify forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these kinds of statements involve risks and uncertainties. Actual results may not be consistent with these forward-looking statements. Syntroleum undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. Important factors that could cause actual results to differ from these forward-looking statements are described under “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K.

As used in this Annual Report on Form 10-K, the terms “Syntroleum,” “we,” “our” or “us” mean Syntroleum Corporation, a Delaware corporation, and its predecessors and subsidiaries, unless the context indicates otherwise.

PART I

Item 1. Business

Overview

We began business as GTG, Inc. on November 15, 1984. On April 25, 1994, GTG, Inc. changed its name to Syntroleum Corporation. On August 7, 1998, Syntroleum Corporation merged into SLH Corporation. SLH Corporation was the surviving entity in the merger and was renamed Syntroleum Corporation. Syntroleum Corporation was later re-incorporated in Delaware on June 17, 1999 through its merger into a Delaware corporation that was organized on April 23, 1999.

The focus of Syntroleum Corporation and subsidiaries (the “Company” or “Syntroleum”) is to develop and employ innovative technology to produce synthetic liquid hydrocarbons that are substantially free of contaminants normally found in conventional hydrocarbon products. Our Bio-Synfining™ Technology processes triglycerides and/or fatty acids from fats and vegetable oils with heat (thermal depolymerization), hydrogen and proprietary catalysts to make renewable synthetic fuels, such as diesel, jet fuel (subject to certification), kerosene, naphtha and propane. Syntroleum has quantified in excess of 80 different fats and oils, which cover the spectrum of both cost and quality, for conversion to synthetic fuels via the Bio-Synfining™ Technology.

Bio-Synfining™ is a “flexible feedstock/flexible synthetic fuel” technology. A Bio-Synfining™ facility is designed to process a wide range of feedstocks including vegetable oils, fats and greases into synthetic ultra-clean middle distillate fuels, including summer grade to arctic grade diesel fuel, jet fuel (subject to certification), naphtha and propane. We believe synthetic fuel produced from Syntroleum’s Bio-Synfining™ Technology has superior environmental and performance characteristics similar to those demonstrated by synthetic fuels produced from the Syntroleum^® Process.

We believe the fuels produced from our Bio-Synfining™ Technology offer several advantages (much like Fischer-Tropsch fuels) over other renewable and petroleum-based diesel fuels, including higher cetane levels, lower nitrogen oxide (NOx) levels, near zero sulfur and superior thermal stability. The unblended diesel fuel can be used in existing diesel engines with no modifications. The product can also be upgraded into ultra-clean, high quality synthetic jet fuel (subject to certification), allowing for advanced military applications. Further, the synthetic fuel produced by Bio-Synfining™ facilities may be blended with petroleum based diesel to help those fuels achieve superior environmental and performance characteristics. We believe the fuel will also be completely compatible with existing pipelines, storage facilities and other conventional fuel infrastructures.

The operations of the Company to date have consisted of the research and development of a proprietary process (the “Syntroleum^® Process”) designed to convert natural gas into synthetic liquid hydrocarbons (“gas-to-liquids” or “GTL”) and activities related to the commercialization of the Syntroleum^® Process. Synthetic liquid hydrocarbons produced by the Syntroleum^® Process can be further processed using the Syntroleum Synfining^® Process into high quality liquid fuels. Our Bio-Synfining™ Technology is a renewable fuels application of our Synfining^® product upgrading technology. The Company is also applying its technology to convert synthesis gas derived from coal (“coal-to-liquids” or “CTL”) or bio-feedstocks (“biomass-to-liquids” or “BTL”) into these same high quality products. The Company is centered on being a recognized provider of the Bio-Synfining™ Technology, Syntroleum^® Process and Synfining^® product upgrading technology to the energy industry through strategic relationships and licensing of its technology.

We also are a partner in a joint venture and continue to seek to form other joint ventures for projects and acquire equity interests in these projects. We license our technologies, which we refer to as the “Syntroleum^® Process” the “Synfining^® Process,” and our Bio-Synfining™ Technology to others. We have also participated in government programs for testing of our GTL diesel and jet fuel and renewable jet fuel.

We have incurred substantial research and development costs and continue to incur operating costs with respect to commercializing the Syntroleum^® Process, the Synfining^® Process, and our Bio-Synfining™ Technology, and do not anticipate recognizing any significant revenues from licensing our technology or from production from any plant in which we own an interest in the near future. As a result, we expect to continue to operate at a loss until sufficient revenues are recognized from commercial operation of plants, licensing activities, or non-FT projects we are developing. We may obtain funding through joint ventures, license arrangements and other strategic alliances, as well as various other financing arrangements to meet our capital and operating needs for various projects. Our longer-term survival will depend on our ability to generate operating revenues and obtain additional financing.

Bio-Synfining™ Projects — Dynamic Fuels

On June 22, 2007, we entered into definitive agreements with Tyson Foods, Inc. (“Tyson”) to form a joint venture Limited Liability Company, Dynamic Fuels, LLC, a Delaware limited liability company (“Dynamic”), to construct facilities in the United States using our Bio-Synfining™ Technology. The purpose of Dynamic is to construct multiple stand-alone commercial plants in the United States. The first facility will be located in Geismar, Louisiana and produce approximately 75 million gallons per year of renewable synthetic fuels from 569 million pounds per year of feedstock beginning in 2010. Total project cost is currently estimated to be approximately $158.5 million, of which $135 million is for the plant itself, $15 million working capital and $8.5 million in engineering and project development costs. $8.5 million has been funded prorata by Tyson and Syntroleum. We secured a $12 million capital commitment in November 2007 as part of our initial funding efforts. We expect to seek additional available financing through debt financing, project financing, alternative financing and/or financing through the capital markets.

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Tyson is responsible for supplying feedstock to the plant, which can range from high quality canola or soy vegetable oils to fats and greases, either from its own internal sources or from supplies it procures in the open market. The feedstock supply agreement provides a pricing formula for the feedstock, which is generally equivalent to the market price. The Tyson fat blend feedstock is expected to provide us with a notable cost advantage compared to users of soybean oil feedstock. The feedstock slate will be subject to change based upon market availability and other factors. We currently expect that the first facility will produce approximately 77% diesel, 13% naphtha and 10% liquefied petroleum gases (based on annual gallons of feedstock), although actual production will depend upon market conditions and other factors. We expect that Dynamic will be eligible for a federal excise tax credit of $1.00 per gallon for diesel produced and $0.50 per gallon for naphtha and liquefied petroleum gases produced.

Based upon current pricing of the expected feedstock slate expected to be delivered by Tyson and the natural gas used in the Bio-Synfining™ Process and our expectations regarding other operating costs, we expect unit costs on a per gallon basis for the initial Bio-Synfining™ plant, if it were operating today, to include feedstock costs of approximately $1.99 per gallon and operating costs (excluding depreciation) of $0.38 per gallon of feedstock. Actual costs will vary according to changes in feedstock and other resources, the performance of the plant, plant operating conditions, cost variations in the components of operating costs and other factors, and are likely to fluctuate substantially from these indicative amounts.

Dynamic is organized and operated pursuant to the provisions of its Limited Liability Company Agreement between the Company and Tyson (the “LLC Agreement”). The LLC Agreement provides for management and control of Dynamic to be exercised jointly by representatives of the Company and Tyson equally with no LLC member exercising control. It was initially capitalized on July 13, 2007 with $4.25 million in capital contributed from Tyson and $4.25 million in capital contributions from Syntroleum. Our capital contribution was made from proceeds of a common stock offering which was funded on July 11, 2007. This initial capital contribution was used in part to evaluate potential sites and to complete the process design package by our engineering staff.

Business Strategy

Our objective is to be the leading provider of Fischer-Tropsch and related technologies for the production of synthetic fuels. Our business strategy to achieve this objective involves the following key elements:

Focus on commercialization through project development. The Dynamic Fuels facility is the first of what we plan to be several production facilities over the next ten years. We anticipate hundreds of millions of gallons of production should these plants go online.

License the Syntroleum^® Process. We continue to support our existing and future licensees in their efforts to develop new BTL, GTL and CTL technologies through our engineering support activities and catalyst supply agreements. Our license agreements obligate us to apprise licensees of upgrades and improvements in the Syntroleum^® Process. We believe that the success of the Dynamic Fuels facility and of testing at our demonstration and pilot plant facilities provide advantages over competing and alternative technologies.

Cost structure improvement. We have moved aggressively to lower costs and improve efficiency, which includes lowering the employee headcount to 24 from 62 employees over the last year. Our demonstration plants were mothballed in 2006 following completion of our research and development activities, resulting in significantly lower operating costs. The reduction in cash flows for demonstration plants, analytical testing, and catalyst runs have significantly reduced operating costs. We also focused on reducing overhead costs and will see these costs reduced by half by 2009. We will continue our cost optimization efforts and project an annual cash burn rate of $6.5 million by 2009.

The Syntroleum^® Process

The Syntroleum^® Process produces synthetic liquid hydrocarbons that are substantially free of contaminants normally found in conventional products made from crude oil. These synthetic liquid hydrocarbons can be further processed into fungible products through our Synfining^® Process. These products include:

Ultra-clean liquid fuels for use in internal combustion engines, jet/turbine engines (subject to certification), diesel engines and fuel cells; and

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Specialty products, such as synthetic lubricants, process oils, high melting point waxes, liquid normal paraffins, and chemical feedstocks.

We believe the key advantages of the Syntroleum^® process over other GTL technologies are (1) the use of air in the conversion process, which is inherently safer than using pure oxygen and (2) the use of our proprietary catalysts, which we believe will provide operating cost efficiencies. Based on demonstrated research, including the advancement of our technology from the laboratory to pilot plant and demonstration facility scales and current market conditions, we believe that our single-train design of 17,000 barrels per day (“b/d”) facility can be economically developed. Economies of scale can be achieved with incremental trains.

We believe the advantages afforded by the Syntroleum^® Process together with the worldwide resource base of natural gas, coal and biomass provide market opportunities for the use of this technology by us and our licensees in the development of commercial plants.

The Syntroleum^® Process involves two catalytic reactions: (1) conversion of natural gas into synthesis gas in our proprietary flameless autothermal reformer; and (2) conversion of the synthesis gas or coal-derived syngas into hydrocarbons over our proprietary Fischer-Tropsch catalyst. These reactions are expressed in the following equations:

Step 1
Conversion of Natural Gas to Synthesis Gas

Step 2
Fischer — Tropsch Synthesis

The flameless autothermal reformer (“ATR”) in the Syntroleum^® Process is similar to units used for over 30 years in the ammonia industry. The nitrogen in the gas entering the ATR passes through the reactor essentially unchanged, although very low levels of other nitrogen compounds are produced. These trace contaminants may be removed from the process stream and are not incorporated into the finished products in significant quantities.

The Synfining^® Process

We have also developed refining technology – the Synfining^® Process – for conversion of the Fischer-Tropsch wax into a variety of products including diesel fuels, jet fuels subject to certification, lubricants, naphtha and other materials. The high purity and waxy nature of the Fischer-Tropsch products generally require lower temperature processing conditions than conventional petroleum-derived feedstocks to obtain high yields of the desired products. This refining technology has been used to produce fuels for testing by the Department of Energy (“DOE”) in its Ultra-Clean Fuels Program, automobile manufacturers in the United States and Japan, the Department of Defense (“DOD”) and U.S. Department of Transportation (“DOT”). This refining technology will be utilized in plants we construct and available for license to our Syntroleum^® Process licensees and others.

The Bio-Synfining^® Process

We have also developed an adaptation of Synfining^® to accommodate animal fats, greases and similar grade substances as feedstocks in the production of ultra-clean renewable fuels. Animal fats, greases and vegetable oils are similar in structure to the paraffins produced from the Fischer-Tropsch process. This refining technology will be used to produce jet fuels for testing by the DOD in 2008 and in our Dynamic Fuels Bio-Synfining™ facility in Geismar, Louisiana.

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Syntroleum Technology Implementation

Our Catoosa Demonstration Facility produced ultra-clean diesel fuel and jet fuel (subject to certification) from natural gas using the Syntroleum^® Process and the Synfining^® Process. This was the first plant we had built that incorporated our ATR, Fischer-Tropsch Process and Synfining^® Process on a single site. We completed the DOE Catoosa Project fuel production commitment during 2004. We completed delivery of ultra-clean diesel fuel to other project participants during 2004 and 2005, including the Washington Metropolitan Area Transit Authority and the U.S. National Park Service at Denali National Park in Alaska for testing in bus fleets. We operated the Catoosa Demonstration Facility during 2005 to support additional fuel testing programs including those of the DOD and the DOT and to demonstrate GTL process technology and catalyst enhancements. In September 2006, we completed our technology development program at the Catoosa Demonstration Facility and mothballed the unit.

Different generations of our ATR design have operated since November 2003 in our Catoosa Demonstration Facility and have been operating since 1995 as the sole source of synthesis gas for our two b/d pilot plant facility in Tulsa, Oklahoma. An earlier generation of this reformer design was also operated for over 6,500 hours at a 70 b/d demonstration facility with one of our licensees, ARCO, at its Cherry Point refinery in Washington State.

Our goal in developing the Syntroleum^® Process and Synfining^® Process has been to reduce both the capital and operating costs and the minimum economic size of a GTL, BTL or CTL plant. We have developed variations of our basic process design and have made enhancements to our proprietary Fischer-Tropsch catalyst in an effort to lower costs and increase the adaptability of the Syntroleum^® Process to a wide variety of potential applications.

Although we believe that the Syntroleum^® Process can be utilized in commercial-scale GTL, BTL and CTL plants, there can be no assurance that commercial-scale plants based on the Syntroleum^® Process will be successfully constructed and operated or that these plants will yield the same results as those demonstrated in a laboratory, pilot plant or demonstration plant. See “Item 1A. Risk Factors–Risks Relating to Our Technology.”

In November 2005, Syntroleum contracted with Eastman Chemical Company to provide non-exclusive services and coal-derived syngas for use in a portable Fischer-Tropsch catalyst testing laboratory designed and built by us.  The purpose of this $1+ million lab and testing program was to demonstrate performance of Syntroleum cobalt-based FT catalyst using syngas produced from coal at a commercial gasification facility.  The laboratory construction and installation was completed in November 2006 at Eastman’s coal gasification facility in Kingsport, Tennessee. The testing program, funded 100% by Syntroleum, began in December and continued through mid-2007 to gather catalyst performance data for use in development of reactor designs for future commercial coal-to-liquids plants using Syntroleum technology.   The demonstration proved that Fischer-Tropsch wax made from coal have the same superior synthetic FT qualities as that made from natural gas. The demonstration also proved that our proprietary cobalt-based catalyst performs robustly under real-world CTL conditions.

Syntroleum Advantage

We believe that the Syntroleum^® Process and the Synfining^® Process will be an attractive solution for companies reviewing methods of producing their natural gas or coal reserves using non-traditional methods. We believe the Syntroleum^® Process will enable owners of natural gas or coal reserves to monetize a portion of these resources by converting them into synthetic liquid hydrocarbons in the form of ultra-clean fuels, based on our belief that these products can be:

• produced substantially free of undesirable products normally found in fuels and specialty products made from crude oil;

• used as blending stock to upgrade conventional fuels and specialty products made from crude oil;

• used unblended in traditional internal combustion engines to reduce emissions;

• used in advanced internal combustion engines and fuel-cells that require sulfur-free fuels; and

• transported through existing distribution infrastructures for crude oil and refined products.

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Bio-Synfined™ fuel compared to Biodiesel

Unlike conventional biodiesel and ethanol fuels, our Bio-Synfined™ fuel products can be used as a finished product and do not require blending to be used in existing engines. Our products can also be blended with petroleum-based fuels in any ratio. Our products can be transported through existing distribution infrastructures and used in existing automotive diesel engines and jet engines without modification. Our products emit 75% fewer greenhouse gas emissions compared to petroleum based diesel.

Resource Base

Bio-Feedstocks

Vegetable Oils. Soybeans are the most commonly used feedstock in the U.S., and the most commonly used feedstock in traditional biodiesel refining processes (95%). The Free Fatty Acid (“FFA”) content is less than or equal to 1%, simplifying the biodiesel production process compared to high-FFA feedstocks. More than 19 billion pounds of soybean oil were used in the U.S. in 2004 according to the Agricultural Marketing Services, USDA and the Bureau of the Census. Other vegetable oil feedstocks include rapeseed, which is most common in Europe, in addition palm, cottonseed, corn and many other oils.

Animal Fats. Edible tallow has a FFA content of up to 0.75%, and inedible tallow has a FFA content of up to 10%. Approximately 3.7 billion pounds of inedible tallow were produced in the U.S. in 2004. Other animal fat feedstocks include fish oil, poultry, as well as other fats and lards with high FFA content.

Recycled greases. Yellow grease has a FFA content of up to 15% and brown grease has an FFA content of more than 15%, greatly reducing its use and subsequent demand for biodiesel production. One and a half billion pounds of yellow grease were produced in the U.S. in 2004. Our Bio-Synfining™ process can completely deoxygenate FFA’s and allows us to utilize a much lower valued feedstock to create a high quality product.

Market Demand

We believe significant market potential exists for the Syntroleum^® Process and products because of steadily increasing demand for transportation fuels, the anticipated increased demand for ultra-clean fuels for internal combustion engines, and the existing demand for high-quality specialty products—underpinned by the natural gas, coal, biomass and biofeedstocks worldwide.

We expect demand for products created via Syntroleum technologies to result from the following factors:

Increasing Demand by U.S. Military. The U.S. military has aggressively sought alternative energy sources due to tactical and economic problems posed by reliance on conventional petroleum fuel. By 2016, the U.S. Air Force plans to have at least 50% of its jet fuel derived from renewable sources. We have relationships with the DOE and the DOD, including successful flight tests of a B-52 bomber using our ultra-clean fuel. We have a contract in place to supply the U.S. Air Force with 500 gallons of synthetic fuels to be produced through our Bio-Synfining™, to be used for performance and R&D testing.

Government Legislation. In 2007, the U.S. government enacted the Energy Independence Act of 2007, and in 2005, the U.S. government enacted two other significant pieces of legislation, the “Energy Policy Act of 2005” (EPACT) and the “Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users” (SAFETEA-LU), aimed at addressing a new, comprehensive national energy policy to promote domestic energy security. The Energy Independence Act and Energy Policy Act of 2005 designates a tax credit of $1.00 per gallon for the production of renewable diesel, which is defined as diesel derived from any organic material other than oil, natural gas or coal. Renewable diesel must be produced using a thermal depolymerization process, which is broadly defined by the U.S. government as a process that uses heat and pressure with or without the aid of catalysts. Our Bio-Synfined products are derived from animal fats and other similar feedstock using a process utilizing heat and pressure, making the products eligible for the $1.00 per gallon credit. The $1.00 tax credit applies to both pure and mixed renewable diesel, with the credit calculated according to the percentage of renewable diesel present in the mixture. This credit applies to fuels derived from both virgin and non-virgin feedstocks.

By comparison, biodiesel is derived from plant or animal matter and is produced in a process known as transesterification, in which substances such as fats or oils react with a base catalyst. The Job Creation Act of 2004 and the subsequent Energy Policy Act of 2005 apply a $1.00 per gallon tax credit to biodiesel produced from virgin oil, with a $0.50 per gallon credit if produced from non-virgin oil. In regards to blending, biodiesel credits are calculated in the same manner as renewable diesel credits.

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The renewable fuels tax credit is currently set to expire at the end of fiscal year 2009, however we anticipate the credit to be extended before expiration in order to help support renewable fuel development, and meet mandated production levels. Federal regulation mandates that 36 billion gallons of renewable fuels be used by petroleum refiners in 2022, up from 4.0 billion gallons in 2006.

While the U.S. government did not advance any major Fischer-Tropsch legislative efforts in 2006 and 2007 as were accomplished in 2005, we continue to monitor the actions of the U.S. government in the area of cleaner transportation fuels.

Sales and Marketing

We intend to continue efforts to establish brand recognition for “Syntroleum” through participation in conferences, press releases, and our work with the DOD and DOT and other governmental agencies. “Syntroleum” is a registered trademark and service mark in Argentina, Australia, Bolivia, Chile, the European Union, Japan, Peru, Brazil and the United States.

Research and Development

We have participated in various research and development activities. We have focused on process documentation and improving the efficiency of the Syntroleum^® Process. Our expenditures for research and development activities, including pilot plant and construction and operation of the Catoosa Demonstration Facility, totaled approximately $6.8 million, $17.7 million and $19.8 million in 2007, 2006, and 2005, respectively. We do not expect to expend significant cash flows on research and development activities in the near term and have mothballed selected research and development facilities as we move into commercialization of our Syntroleum^® Process, Synfining and Bio-Synfining™ technologies. We are reviewing how and where best to utilize our research facilities including transferring selected facilities to non-profit organizations. Additionally during 2006 and 2007 we began exploring the applicability of our technologies to renewable energy. We have conducted testing that resulted in the production of research quantities of renewable fuels from a variety of liquid vegetable and animal fat feedstocks.

Intellectual Property

The success of our intellectual property portfolio depends on our ability to foster, invent and develop new ideas, to obtain, protect, and enforce our intellectual property rights, to successfully avoid infringing the intellectual property rights of others and, if necessary, to defend against any alleged infringements. We regard the protection of our proprietary technologies as critical to our future success, so we rely on a combination of patent, copyright, trademark and trade secret law and contractual restrictions to protect our proprietary rights. We protect the Syntroleum^® Process and the Synfining^® Process primarily through patents and trade secrets. It is our policy to seek protection for our proprietary products and processes by filing patent applications, when appropriate, in the United States and selected foreign countries and to encourage or further the efforts of others who have licensed technology to us to file patent applications. Our ability to protect and enforce these rights involves complex legal, scientific and factual questions and uncertainties. Our policy is to honor the valid, enforceable intellectual property rights of others. While we have made efforts to avoid any such infringement, we acknowledge that commercialization of the Syntroleum^® Process may give rise to claims that the technologies infringe upon the patents or other proprietary rights of others. We have not been notified of any claim that our GTL, CTL or BTL technologies infringes on the proprietary rights of any third party. However, we can provide no assurance that third parties will not claim infringement by us with respect to past, present or future GTL, CTL or BTL technologies.

We currently own, or have licensed rights to, more than a combined 160 patents and patent applications pending in the United States and various foreign countries that relate to one or more embodiments of Syntroleum technology. Our patents generally begin to expire in 2009 for the initial patents, which were issued in the late 1980s, and in 2017 for most of our patents that have been issued since the late 1990s. Patent rights are granted for a term of 20 years in the United States and foreign jurisdictions, subject to paying required fees to maintain the patent holder’s rights. The cost of maintaining our patents in the United States and foreign jurisdictions is not material. In addition to patent protection, we also rely significantly on trade secrets, know-how and technological advances, which we seek to protect, in part, through confidentiality agreements with our collaborators, licensees, employees and consultants. If these agreements are breached, we might not have adequate remedies for the breach. In addition, our trade secrets and proprietary know-how might otherwise become known or be independently discovered by others.

In December 2004, we signed an agreement with ExxonMobil whereby we were granted a worldwide license to use ExxonMobil’s patented processes to produce and sell fuels from natural gas or other substances such as coal. In addition we have the right to extend the terms of this agreement to our licensees. The scope of this agreement includes the fields of syngas production, Fischer-Tropsch synthesis, product upgrading to make fuels and various processes that relate to these areas. It includes all existing ExxonMobil patents (which number over 3,000 worldwide) and future improvement patents in these areas over the next several years. This agreement does not include patents covering certain specific catalyst formulations and manufacturing steps. We have agreed that we will not enforce against ExxonMobil and its affiliates any patents that we obtain after the date of the license agreement, to the extent that those patents overlap with any of ExxonMobil’s patents. The ExxonMobil agreement was amended in August 2006 to expand our rights to access the ExxonMobil technology into the areas of lubricating base oils and solvents.

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As part of our intellectual property program, we have reviewed a large amount of Fischer-Tropsch patents and prior art literature. In conjunction with outside patent counsel, our technical staff and management have reviewed thousands of existing patents with respect to our own proprietary position and for patent clearance related to specific projects. Together with licensees, we have spent more than $2.5 million to establish a strong patent position, and we do not believe our technology infringes on the valid enforceable patents of others. In addition to this effort, we have developed a large library of technical information related to the Fischer-Tropsch process and we are able to provide easy access to this literature for the entire industry through the website we founded, http://www.fischer-tropsch.org. This website is currently sponsored by Dr. Anthony Stranges (Publications), Professor of History at Texas A&M University.

In any potential intellectual property dispute involving us, our licensees could also become the target of litigation. Generally, our license agreements require us to indemnify the licensees against specified losses, including the losses resulting from patent and trade secret infringement claims, subject to a cap of 50 percent of the license fees received. Our indemnification and support obligations could result in substantial expenses and liabilities to us. These expenses or liabilities could have a material adverse effect on our business, operating results and financial condition. See “Item 1A. Risk Factors-Risks Relating to Our Technology.”

Employees

As of March 1, 2008, we had 24 employees, none of which is represented by a labor union. We have experienced no work stoppages. We believe our relationship with our employees is good.

Government Regulation

We are subject to extensive federal, state and local laws and regulations relating to the protection of the environment, including laws and regulations relating to the release, emission, use, storage, handling, cleanup, transportation and disposal of hazardous materials, as well as to employee health and safety. Additionally, our GTL, BTL and CTL plants will be subject to environmental, health and safety laws and regulations of any foreign countries in which these plants are located. Violators of these laws and regulations may be subject to substantial fines, criminal sanctions or third-party lawsuits. We may be required to install costly pollution control equipment or, in some extreme cases, curtail operations to comply with these laws. These laws and regulations may also limit or prohibit activities on lands lying within wilderness areas, wetlands or other protected areas.

Our operations in the United States are also subject to the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also know as the “Superfund” law, and similar state laws, which can impose joint and several liability for site cleanup, regardless of fault, upon statutory classes of persons, including our company, with respect to the release into the environment of substances designated under CERCLA as hazardous substances (“Hazardous Substances”). These classes of persons, or so-called potentially responsible parties (“PRPs”), include the current and certain past owners and operators of a facility where there has been a release or threat of release of a Hazardous Substance and persons who disposed of or arranged for the disposal of Hazardous Substances found at a site. CERCLA also authorizes the EPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the PRPs the costs of such action. In the course of our operations, we have generated and will generate wastes that may fall within CERCLA’s definition of Hazardous Substance. We may also be the owner or operator of sites on which Hazardous Substances have been released. To our knowledge, neither we nor our predecessors have been designated as a PRP by the EPA under CERCLA. We also do not know of any prior owners or operators of our properties that are named as PRPs related to their ownership or operation of such properties.

Environmental laws and regulations often require acquisition of a permit or other authorization before activities may be conducted, and compliance with laws, regulations and any requisite permits can increase the costs of designing, installing and operating our GTL, BTL and CTL plants. GTL, BTL and CTL plants generally will be required to obtain permits under applicable environmental laws of the country in which it is situated, as well as various permits for industrial siting and construction. Emissions from a GTL, BTL or CTL plant will contain nitrous oxides and may require the installation of abatement equipment in order to meet applicable permit requirements. Additionally, GTL, BTL or CTL plants will be required to adhere to laws applicable to the disposal of byproducts produced, including waste water and spent catalyst.

Operation of our Tulsa-based pilot plant requires two annual permits regarding air emissions and industrial wastewater discharge to a sanitation sewer.

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Operation of our Catoosa Demonstration Facility requires the following permits: air emissions; air quality minor operating; industrial wastewater discharge; and storm water general.

The following environmental regulations are applicable to the Catoosa Demonstration Facility: Clean Air Act; Clean Water Act; Superfund Amendments and Reauthorization Act; Toxic Substance Control Agency; and Chemical Accident Prevention. We believe we are in substantial compliance with all of these regulations. We currently maintain a risk management plan addressing these regulations. We do not expect the costs associated with this plan to be material.

Although we do not believe that compliance with environmental and health and safety laws in connection with our current operations will have a material adverse effect on us, we cannot predict with certainty the future costs of complying with environmental laws and regulations and containing or remediating contamination. In the future we could incur material liabilities or costs related to environmental matters, and these environmental liabilities or costs (including fines or other sanctions) could have a material adverse effect on our business, operating results and financial condition. We may, in the future, seek to obtain insurance in connection with our participation in the construction and operation of GTL, BTL and CTL plants, if coverage is available at reasonable cost and without unreasonably broad exclusions.

Our subsidiary, Scout Development Corporation (“Scout”), which owned our real estate assets sold in 2003, is subject to several U.S. environmental laws, including the Clean Air Act, CERCLA, the Emergency Planning and Community Right-to-Know Act, the Federal Water Pollution Control Act, the Oil Pollution Act of 1990, the Resource Conservation and Recovery Act, the Safe Drinking Water Act and the Toxic Substances Control Act. Scout is also subject to U.S. environmental regulations promulgated under these acts, as well as state and local environmental regulations that have their foundation in the foregoing U.S. environmental laws. As is the case with many companies, Scout may face exposure to actual or potential claims and lawsuits involving environmental matters with respect to real estate that it has sold. However, no such claims are presently pending. Scout has not suffered and does not anticipate that it will suffer a material adverse effect as a result of any past action by any governmental agency or other party, or as a result of noncompliance with such environmental laws and regulations.

Operating Hazards

Operations at our GTL BTL and CTL plants will involve a risk of incidents involving personal injury and property damage due to the operation of machinery in close proximity to individuals and the highly flammable nature of natural gas and the materials produced at these plants. Depending on the frequency and severity of personal injury and property damage incidents, such incidents could affect our operating costs, insurability and relationships with customers, employees and regulators. Any significant frequency or severity of these incidents, or the general level of compensation awards, could affect our ability to obtain insurance and could have a material adverse effect on our business, operating results and financial condition.

Available Information

Our website address is www.syntroleum.com. We make our website content available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference in this Annual Report on Form 10-K. We make available on this website under “Investor Relations-Financial Information –Filings,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file those materials with, or furnish those materials to, the SEC. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including us. Additionally, the public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.

We have adopted a written Code of Ethics that is applicable to our directors, chief executive officer, principal financial officer, controller and other executive officers. A copy of our Code of Ethics, Audit Committee Charter, and Nominating and Compensation Committee Charters is available on our website at www.syntroleum.com and was included as Exhibit 14 to our Annual Report on Form 10-K for the year ended December 31, 2003 filed with the SEC on March 23, 2004. Investors may request a copy of any of these documents at no charge by writing to Karen L. Gallagher, Senior Vice President, Principal Financial Officer and Corporate Secretary, Syntroleum Corporation, 5416 S. Yale, Suite 400, Tulsa, OK 74135. We will disclose any amendments to the Code of Ethics and any waivers to the Code of Ethics for directors and executive officers by posting such information on our website or in a current report on Form 8-K filed with the SEC.

Item 1A. Risk Factors

You should carefully consider the risks described below. The risks and uncertainties described below encompass many of the risks that could affect our company. Not all risks and uncertainties are described below. Risks that we do not know about could arrive and issues we now view as minor could become more important. If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline and you may lose all or part of your investment in us.

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Risks Relating to Our Technology

We might not successfully commercialize our technology, and commercial-scale plants based on the Syntroleum^® Process or our Technology may never be successfully constructed or operated.

We do not have significant experience managing the financing, design, construction or operation of commercial-scale plants, and we may not be successful in doing so. No commercial-scale plant based on the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology has been constructed to date. A commercial-scale plant based on the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology may never be successfully built either by us or by our licensees. Success depends on our ability and/or the ability of our licensees to economically design, construct and operate commercial-scale plants based on the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology. Successful commercial construction and operation of a plant based on the Syntroleum^® Process or our Bio-Synfining™ Technology depends on a variety of factors, many of which are outside our control.

Commercial-scale plants based on the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology might not produce results necessary for success, including results demonstrated on a laboratory, pilot plant and demonstration basis.

A variety of results necessary for successful operation of the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology could fail to occur at a commercial plant, including reactions successfully tested on a laboratory, pilot plant or demonstration plant basis. Results that could cause commercial-scale plants based on the Syntroleum^® and Synfining^® Processes to be unsuccessful include:

• lower reaction activity than demonstrated in the pilot plant and demonstration plan operations which would decrease the conversion of natural gas into synthesis gas and increase the amount of catalyst, and/or number of reactors required to produce the design synthesis gas rate;

• lower reaction activity than that demonstrated in laboratory, pilot plant and demonstration plant operations, which would increase the amount of catalyst or number of reactors required to convert synthesis gas into liquid hydrocarbons and increase capital and operating costs;

• shorter than anticipated catalyst life, which would require more frequent catalyst regeneration, catalyst purchases, or both, thereby increasing operating costs;

• excessive production of gaseous light hydrocarbons from the FT reaction compared to design conditions, which would lower the anticipated amount of liquid hydrocarbons produced and would lower revenues and margins from plant operations;

• lower reaction activity than that demonstrated in laboratory, pilot plant and demonstration plant operations, which would increase the amount of catalyst or number of reactors required to convert FT products into finished, marketable fuels;

• inability of the gas turbines or heaters integrated into the Syntroleum^® Process to burn the low-heating-value tail gas produced by the Process, which would result in the need to incorporate other methods to generate horsepower for the compression process that may increase capital and operating costs;

• inability of third-party gasification and synthesis gas clean-up technology integrated into the Syntroleum^® Process to produce quantities of quality synthesis gas adequate for economic operation of a CTL or BTL plant; and

• higher than anticipated capital and operating costs to design, construct and operate a commercial scale plant.

Results that could cause commercial-scale plants based on our Bio-Synfining™ Technology to be unsuccessful include:

• higher than anticipated catalyst or hydrogen consumption;

• inadequate removal of feedstock impurities in pre-treatment;

• lower process yields than that demonstrated in laboratory operations; and

• higher than anticipated capital and operating costs to design, construct and operate a commercial scale plant.

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In addition, these plants could experience mechanical difficulties related or unrelated to elements of the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology.

Many of our competitors have significantly more resources than we do, and technologies developed by competitors could become more commercially successful than ours or render our technologies obsolete.

Development of FT and renewable fuels technologies is highly competitive, and other technologies could become more commercially successful than ours. The Syntroleum^® and Synfining^® Processes is based on chemistry that has been used by several companies in synthetic fuel projects over the past 60 years. Our competitors include major integrated oil companies that have developed or are developing competing GTL, CTL, BTL or renewable fuels technologies, including BP, ConocoPhillips, ExxonMobil, Sasol (including its participation in a joint venture with Chevron) and Shell. Each of these companies has significantly more financial and other resources than we do to spend for research and development of their technologies and for funding construction and operation of commercial-scale plants. In addition to using their own GTL, CTL, BTL or renewable fuels technologies in competition with us, these competitors could also offer to license their technology to others. Additionally, several smaller companies have developed and are continuing to develop competing GTL, CTL, BTL or renewable fuels technologies. The DOE has also sponsored a number of research programs relating to GTL, CTL, BTL and renewable fuels technologies that could potentially lower the cost of competitive processes.

As our competitors continue to develop GTL, CTL, BTL and renewable fuels technologies, one or more of our current technologies could become obsolete. Our ability to create and maintain technological advantages is critical to our future success. As new technologies develop, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost. We may not be able to successfully develop or expend the financial resources necessary to acquire new technology.

Our ability to protect our intellectual property rights involves complexities and uncertainties and commercialization of the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology could give rise to claims that our technology infringes upon the rights of others.

Our success depends on our ability to protect our intellectual property rights, which involves complex legal, scientific and factual questions and uncertainties. We rely on a combination of patents, copyrights, trademarks, trade secrets and contractual restrictions to protect our proprietary rights. Additional patents may not be granted, and our existing patents might not provide us with commercial benefit or might be infringed upon, invalidated or circumvented by others. In addition, the availability of patents in foreign markets, and the nature of any protection against competition that may be afforded by those patents, is often difficult to predict and vary significantly from country to country. We, our licensors, or our licensees may choose not to seek, or may be unable to obtain, patent protection in a country that could potentially be an important market for our GTL, CTL, BTL or Bio-Synfining™ Technologies. The confidentiality agreements that are designed to protect our trade secrets could be breached, and we might not have adequate remedies for the breach. Additionally, our trade secrets and proprietary know-how might otherwise become known or be independently discovered by others.

Commercialization of the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology may give rise to claims that our technologies infringe upon the patents or proprietary rights of others. We may not become aware of patents or rights that may have applicability in the GTL, BTL, CTL or renewable fuels industry until after we have made a substantial investment in the development and commercialization of those technologies. Third parties may claim that we have infringed upon past, present or future GTL, BTL, and CTL or renewable fuels technologies. Legal actions could be brought against us, our co-venturers or our licensees claiming damages and seeking an injunction that would prevent us, our co-venturers or our licensees from testing, marketing or commercializing the affected technologies. If an infringement action were successful, in addition to potential liability for damages, our co-venturers, our licensees or we could be required to obtain a license in order to continue to test, market or commercialize the affected technologies. Any required license might not be made available or, if available, might not be available on acceptable terms, and we could be prevented entirely from testing, marketing or commercializing the affected technology. We may have to expend substantial resources in litigation, either in enforcing our patents, defending against the infringement claims of others, or both. Many possible claimants, such as the major energy companies that have or may be developing proprietary GTL, CTL, BTL or renewable fuels technologies competitive with the Syntroleum^® and Synfining^® Processes and Bio-Synfining™ Technology, have significantly more resources to spend on litigation.

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We could have potential indemnification liabilities to licensees relating to the operation of plants based on the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology or intellectual property disputes.

Our indemnification obligations could result in substantial expenses and liabilities to us if intellectual property rights claims were to be made against us or our licensees, or if plants based on the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology were to fail to operate as designed. Generally our license agreements require us to indemnify the licensee, subject to a cap of 50 percent of the license fees we receive, against specified losses relating to, among other things:

• use of patent rights and technical information relating to the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology;

• acts or omissions by us in connection with our preparation of Process design packages for plants; and

• performance guarantees that we may provide.

Industry rejection of our technology would make the construction of plants based on the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology more difficult or impossible and would adversely affect our ability to receive future license fees, product revenue or other economic value.

Demand and industry acceptance for our GTL, CTL, BTL or Bio-Synfining™ Technology are subject to uncertainty. Failure by the industry to accept our technology would make construction of our plants more difficult or impossible, adversely affecting our ability to receive future license fees, product revenue, or other economic value. If any commercial plant based on the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology were to fail to achieve success, other industry participants’ perception of the Syntroleum^® and Synfining^® Processes or our Bio-Synfining™ Technology could be adversely affected.

Risks Relating to Products of the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology

The U.S. renewable fuels industry is highly dependent on a mix of federal and state legislation and regulation and any changes in legislation or regulation could harm our business and financial condition.

Federal tax incentives make the cost of renewable diesel production significantly more competitive with the price of diesel. Currently, under the Energy Independence Act and the Energy Policy Act of 2005, or EPAct, producers of diesel/renewable diesel blends can claim up to a $1.00 tax credit per gallon. This credit is currently scheduled to terminate on December 31, 2009, and there can be no assurance that it will be renewed on similar terms, if at all. Additionally, producers of naphtha and liquid petroleum gases can claim a separate $0.50 per gallon tax credit. There can be no assurance of this credit’s continued existence, and its elimination would be harmful to our business and financial condition. Finally, these credits and other federal and state programs that benefit renewable diesel generally are subject to U.S. government obligations under international trade agreements, including those under the World Trade Organization Agreement on Subsidies and Countervailing Measures, which might in the future be the subject of challenges. The elimination or significant reduction in the renewable diesel tax credit or other programs could harm our results of operations and financial condition.

The Energy Independence Act and EPAct established minimum nationwide levels of renewable fuels, which include biodiesel, ethanol and any liquid fuel produced from biomass or biogas, to be blended into the fuel supply. By the year 2022, these standards require that the national volume of renewable fuels to be blended into the fuel supply equal or exceed 36 billion gallons. While these renewable fuel standards should stimulate demand for renewable fuels generally, there can be no assurance of specific demand for renewable diesel. Additionally, the U.S. Department of Energy, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the renewable fuels mandate with respect to one or more states if the Administrator of the U.S. Environmental Protection Agency, or EPA, determines that implementing the requirements would severely harm the economy or the environment of a state, a region or the U.S., or that there is inadequate supply to meet the requirement. Any waiver of the renewable fuel standards could adversely impact the demand for renewable diesel and may have a material adverse effect on our financial condition and results of operations.

Sufficient markets for the synthetic products of the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology or products that utilize these synthetic products, including fuel cells, may never develop or may take longer to develop than we anticipate.

Sufficient markets may never develop for the synthetic products of the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology, or may develop more slowly than we anticipate. The development of sufficient markets for the synthetic products of the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology may be affected by many factors, some of which are out of our control, including:

• cost competitiveness of the synthetic products of the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology;

• consumer reluctance to try a new product;

• environmental, safety and regulatory requirements; and

• emergence of more competitive products.

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In addition, a new market may fail to develop for products that utilize our synthetic products. For example, the establishment of a market for the use of these products as fuel for fuel cells is uncertain, in part because fuel cells represent an emerging market and we do not know if distributors will want to sell them or if end-users will want to use them.

If sufficient markets fail to develop or develop more slowly than we anticipate, we may be unable to recover the losses we will have incurred in the development of our technology and may never achieve profitability.

Risks Relating to Our Business

We will need to obtain funds from additional financings or other sources for our business activities. If we do not receive these funds, we would need to reduce, delay or eliminate some of our expenditures.

We have sustained recurring losses and negative cash flows from operations. Over the periods presented in the accompanying financial statements, our activities have been funded through a combination of equity and convertible debt financings and the sale of certain assets. As of December 31, 2007, we had approximately $18.4 million of cash and cash equivalents available to fund operations. We review cash flow forecasts and budgets periodically. We believe that we currently have sufficient cash and financing capabilities to meet our funding requirements until the end of 2009. However we will need to obtain additional funding for capital investment related to construction of plants utilizing the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology. In addition, we have experienced, and continue to experience, negative operating margins and negative cash flows from operations.

We expect that we will need to raise substantial additional capital to accomplish our business plan over the next several years. In addition, we may wish to selectively pursue equity partnerships in certain gas or coal monetization projects in order to achieve operating efficiencies. We expect to seek to obtain additional funding through debt or equity financing in the capital markets, joint ventures, license agreements and other strategic alliances, as well as various other financing arrangements. If we obtain additional funds by issuing equity securities, dilution to stockholders may occur. In addition, preferred stock could be issued in the future without stockholder approval, and the terms of our preferred stock could include dividend, liquidation, conversion, voting and other rights that are more favorable than the rights of the holders of our common stock. There can be no assurance as to the availability or terms upon which such financing and capital might be available.

Our agreement with Tyson concerning Dynamic allows the participants to elect not to invest in a plant or to cease making capital contributions in the construction of a plant under certain circumstances. Should a participant in a project elect not to invest or to cease investing in the construction of the plant the other participants in the project will need to raise additional capital from third parties or to take on additional interest in the project and fund the additional capital internally. There can be no assurances that we would be able to raise the additional capital from third parties on terms acceptable to us or to fund the additional capital requirements internally.  

If adequate funds are not available, we may be required to reduce, delay or eliminate expenditures for our plant development and other activities, or seek to enter into a business combination transaction with or sell assets to another company. We could also be forced to license to third parties the rights to commercialize additional products or technologies that we would otherwise seek to develop ourselves. The transactions outlined above may not be available to us when needed or on terms acceptable or favorable to us.

We need to remain listed on the NASDAQ stock market to be able to access adequate funding from time to time. We face de-listing issues that would impair the liquidity of our stock and our availability to access the capital markets.

On January 25, 2008 we received from The NASDAQ Stock Market a letter indicating that we were not in compliance with the market value minimum requirement for its common stock as set forth in Marketplace Rule 4450(b)(1)(A). We were provided 30 calendar days, or until February 25, 2008, to regain compliance. We were unable to meet this requirement and have requested a hearing to appeal the delisting determination to a Listing Qualifications Panel. Pending this decision, we may apply to transfer our common stock to the NASDAQ Capital Market if it satisfies the requirements for continued listing. We also received a NASDAQ Staff Deficiency Letter on February 1, 2008, indicating our common stock had closed below the minimum $1.00 per share requirement for continued inclusion under Marketplace Rule 4450(a)(5). We are provided 180 calendar days, or until July 30, 2008, to regain compliance. During this 180-day period, our shares will continue to trade on The NASDAQ Stock Market assuming our stock is not de-listed for failure to comply with the market value minimum requirement described above. The NASDAQ Stock Market has indicated that if at any time before July 30, 2008, the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will determine if we have achieved compliance with the rule. We can make no assurance that we will be able to remain listed on the NASDAQ Stock Market.

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Construction of plants based on the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology will be subject to risks of delay and cost overruns.

The construction of plants based on the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology will be subject to the risks of delay or cost overruns resulting from numerous factors, including the following:

• shortages of equipment, materials or skilled labor;

• unscheduled delays in the delivery of ordered materials and equipment;

• engineering problems, including those relating to the commissioning of newly designed equipment;

• work stoppages;

• weather interference;

• unanticipated cost increases; and

• difficulty in obtaining necessary permits or approvals.

We have a capital commitment to our joint venture, Dynamic, that requires us to fund our portion of the capital obligation for the plant. This amount is estimated to be $75 million.

We together with our partner, Tyson, must demonstrate in 2008 that we each have the financial resources to complete the first plant, which includes the capital budget for construction and initial operations, estimated to equal $150,000,000 in total. If either party elects not to proceed with the construction of the first plant, then their interest reverts to the other party, who is then free to build the plant. If a member fails to make a capital contribution, it is in default, and its interest is diluted by $1.50 per $1.00 not contributed. The other member(s) can make a loan to the defaulting member at a rate of LIBOR +10% and there is a 40 day cure period. The defaulting member can make a full or partial loan repayment and a pro rata portion of lost interest will be restored. If the loan is not repaid, it will be converted into ownership interest for the member making the loan, diluting the defaulting member at the same rate of $1.00 per $1.00 of the loan. We can not make assurances that will be able to secure financial resources in the time frame allowed by our agreement with Tyson.

We have incurred losses and anticipate continued losses.

As of December 31, 2007, we had an accumulated deficit of $339.5 million. Although we generated net income for 2007, we have not yet achieved profitability from continuing operations and we expect to continue incurring net losses until we recognize sufficient revenues from licensing activities, plants utilizing the Syntroleum^® and Synfining^® Processes or Bio-Synfining™Technology or other sources. Because we do not have an operating history upon which an evaluation of our prospects can be based, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by small companies seeking to develop new and rapidly evolving technologies. To address these risks we must, among other things, continue to attract investment capital, respond to competitive factors, continue to attract, retain and motivate qualified personnel and commercialize and continue to upgrade the Syntroleum^® and Synfining^® Processes and Bio-Synfining™ technologies. We may not be successful in addressing these risks, and we may not achieve or sustain profitability.

Our anticipated expense levels are based in part on our expectations as to future operating activities and not on historical financial data. We plan to continue funding project development activities. Capital expenditures will depend on progress we make in developing various projects on which we are currently working. Increased revenues or cash flows may not result from these expenses.

If prices for crude oil, natural gas, coal, vegetable oils and fats and other commodities are unfavorable, plants based on the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology may not be economical.

Because the synthetic crude oil, liquid fuels and specialty products that plants utilizing the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology are expected to produce will compete in markets with oil and refined petroleum products, and because natural gas, coal, biomass, fats or vegetable oils will be used as the feedstock for these plants, an increase in feedstock prices relative to prices for oil or refined products, or a decrease in prices for oil or refined products relative to feedstock prices, could adversely affect the operating results of these plants. Higher than anticipated costs for the catalysts and other materials used in these plants could also adversely affect operating results. Prices for oil, natural gas, coal, biomass, fats, greases, vegetable oils and refined products are subject to wide fluctuation in response to relatively minor changes in the supply and demand, market uncertainty and a variety of additional factors that are beyond our control. Factors that could cause changes in the prices and availability of oil, natural gas, coal, biomass, fats, vegetable oils and refined products include:

• level of consumer product demand;

• weather conditions;

• domestic and foreign government regulation;

• actions of the Organization of Petroleum Exporting Countries;

• political conditions in countries producing feedstocks for fuels plants;

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• supply of crude oil, natural gas, coal, biomass fats, greases and vegetable oils;

• location of GTL plants relative to natural gas reserves and pipelines;

• location of CTL plants relative to coal reserves and transportation systems;

• location of BTL plants relative to biomass reserves and transportation systems;

• capacities of pipelines;

• fluctuations in seasonal demand;

• crop yields;

• farmer planting decisions;

• output and proximity of crush facilities that convert the crops to oils;

• alternative uses for fats;

• number of animals slaughtered and rendered;

• price and availability of alternative fuels; and

• overall economic conditions.

We cannot predict the future markets and prices for oil, natural gas, coal or other materials used in the Syntroleum^® and Synfining^® Processes and Bio-Synfining™ Technology or refined products.

We believe that the Syntroleum^® and Synfining^® Processes can be cost effective for GTL plants with capacities from 17,000 to over 100,000 b/d depending upon the amount of oil, condensate, and LPG that is produced along with the natural gas. We believe that the Syntroleum^® and Synfining^® Processes can be economic for GTL, BTL and CTL plants given the current world crude oil prices. However, the markets for oil and natural gas have historically been volatile and are likely to continue to be volatile in the future. Although world crude oil prices were approximately $92 per barrel in December 2007, crude oil prices could return to such low levels (i.e., $10 per barrel) in the future.

Adverse effect of seasonal fluctuations could impact operating results.

Operating results could be influenced by seasonal fluctuations in the price of fats, greases, or vegetable oils and the price of crude oil and diesel. The spot prices of vegetable oils tend to rise during the spring planting season in May and June and tend to decrease during the fall harvest in October and November. In addition, we expect our renewable diesel prices to be substantially correlated with the price of crude oil and diesel. The price of crude oil and diesel tends to rise both in summer, due to the summer driving season, and in winter, due to home heating needs. Given the limited history of the industry, the unknown effects of these seasonal fluctuations may affect financial results over time.

Adverse operating conditions could prevent plants based on the Syntroleum^® Process or Bio-Synfining™ technology from operating economically.

The economic application of Syntroleum^® and Synfining^® Processes and Bio-Synfining™ technologies depends on favorable plant operating conditions. Among operating conditions that impact plant economics are the site location, infrastructure, weather conditions, size of equipment, quality of the feedstock, type of plant products and, in the case of GTL plants, whether the natural gas converted by the plant is associated with oil reserves. For example, if a plant were located in an area that requires construction of substantial infrastructure, plant economics would be adversely affected. Additionally, plants that are not designed to produce specialty products or other high margin products, and plants that are not used to convert natural gas that is associated with oil reserves, will be more dependent on favorable natural gas and oil prices than plants designed for those uses.

Plants will depend on the availability of the feedstock used at the plant at economic prices, and alternative uses of the feedstock could be preferred in many circumstances.

Operation of GTL plants will depend on availability of natural gas at economic prices. The market for natural gas is highly competitive in many areas of the world and, in many circumstances, the sale of natural gas for use as a feedstock in a GTL plant will not be the highest value market for the owner of the natural gas. Cryogenic conversion of natural gas to liquefied natural gas may compete with our GTL plants for use of natural gas as feedstocks in many locations. Local commercial, residential and industrial consumer markets, power generation, ammonia, methanol and petrochemicals are also alternative markets for natural gas. Unlike us, many of our competitors also produce or have access to large volumes of natural gas, which may be used in connection with their GTL operations. The availability of natural gas at economic prices for use as a feedstock for GTL plants may also depend on the production costs for the gas and whether natural gas pipelines are located in the areas where these plants are located. New pipelines may be built or existing pipelines may be expanded into areas where GTL plants are built, and this may affect operating margins of these plants as other markets compete for available natural gas.

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Construction and operation of CTL plants will depend on the availability of coal or other carbon-based materials such as pet-coke or vacuum resin at economic prices. The cost of coal varies depending upon the energy value per ton of different types of coal and the type of mining operations. The markets for these feedstocks are highly dependent upon the source, location and availability of transportation systems that are generally tied to the power generation sector. Higher coal prices are generally found closer to major population centers where power plants may have a competitive advantage in converting coal to power for transmission in the local region.

Construction and operation of BTL plants will depend on the availability of biomass or other carbon-based materials, such as tree and wood residues, crop residues, switchgrass or corn stovers, at economic prices. The price of biomass feedstock is influenced by market demand for wood and wood by-products, cost to aggregate and transport biomass to a central facility, weather conditions, forestry decisions, factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. The significance and relative impact of these factors on the price of biomass feedstock is difficult to predict. Any events that tend to negatively impact the supply of biomass feedstock will tend to increase prices and harm our business.

Our Bio-Synfining™ renewable fuels production is dependant on feedstock fats and vegetable oils, which are derived from fats, yellow and brown greases and agricultural commodities such as soybeans. The price of feedstock is influenced by market demand, weather conditions, processing and rendering plant decisions, factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. A significant reduction in the supply of these commodities could result in increased feedstock fat or vegetable oil costs, which would thus increase our cost to produce renewable fuels. The significance and relative impact of these factors on the price of these feedstock fat or vegetable oil commodities is difficult to predict. Any events that tend to negatively impact the supply of feedstock fat or vegetable oil commodities will tend to increase prices and harm our business.

Rising feedstock prices produce lower profit margins for the production of renewable fuels and, therefore, represent unfavorable market conditions. This is especially true when market conditions do not allow us to pass along increased feedstock costs to our customers. The price of fats and greases and other feedstock commodities has fluctuated significantly in the past and may fluctuate significantly in the future. We cannot assure you that we will be able to offset any increase in the price of feedstock by increasing the price of our product. If we cannot offset increases in the price of feedstock oil, our financial performance may be materially and adversely affected.

Our receipt of license fees depends on substantial efforts by our licensees, and our licensees could choose not to construct a plant based on the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology or to pursue alternative technologies.

Our licensees will determine whether we issue any plant site licenses to them and, as a result, whether we receive any additional license fees under our license agreements. To date, no licensee of the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology has exercised its right to obtain a site license. Under most circumstances, a licensee will need to undertake substantial activities and investments before we issue any plant site licenses and receive license fees. These activities may include performing feasibility studies, obtaining regulatory approvals and permits, obtaining preliminary cost estimates and final design and engineering for the plant, obtaining a sufficient dedicated supply of feedstock, obtaining adequate commitments for the purchase of the plant’s products and obtaining financing for construction of the plant. A licensee will control the amount and timing of resources devoted to these activities. Whether licensees are willing to expend the resources necessary to construct plants based on the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology will depend on a variety of factors outside our control, including the prevailing view of price outlook for crude oil, natural gas, coal, biomass, fats, vegetable oils and refined products. In addition, our license agreements may be terminated by the licensee, with or without cause and without penalty, upon 90 days’ notice to us. If we do not receive payments under our license agreements, we may not have sufficient resources to implement our business strategy. Our licensees are not restricted from pursuing alternative FT or renewable fuels technologies on their own or in collaboration with others, including our competitors, with the exception of those restrictions agreed to Tyson in the limited liability company agreement relating to Dynamic.

Our success depends on the performance of our executive officers and key personnel, the loss of who would disrupt our business operations.

We depend to a large extent on the performance of our executive officers, including Edward G. Roth, our Chief Executive Officer, Karen L. Gallagher, our Senior Vice President of Finance and Principal Financial Officer. Our ability to implement our business strategy may be constrained and the timing of implementation may be impacted if we are unable to attract and retain sufficient personnel. As such, retention agreements with key employees were put in place in December, 2006. At December 31, 2007, we had 27 full-time employees. We do not maintain “key person” life insurance policies on any of our employees. We have entered into employment agreements with several key employees.

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We depend on strategic relationships with feedstock suppliers, construction contractors, site owners, manufacturing and engineering companies, and customers. If we are not successful in entering into and achieving the benefits of these relationships, this could negatively impact our business.

Our ability to identify and enter into commercial arrangements with feedstock suppliers, construction contractors, site owners, manufacturing and engineering companies, and customers will depend on developing and maintaining close working relationships with industry participants. Our success in this area will also depend on our ability to select and evaluate suitable projects, as well as to consummate transactions in a highly competitive environment. These relationships may take the form of joint ventures with other private parties or local government bodies, contractual arrangements with other companies, including those that supply feedstock that we will use in our business, or minority investments from third parties. There can be no assurances that we will be able to establish these strategic relationships, or, if established, that the relationships will be maintained. In addition, the dynamics of our relationships with strategic participants may require us to incur expenses or undertake activities we would not otherwise be inclined to incur or undertake in order to fulfill our obligations to these partners or maintain these relationships. If we do not successfully establish or maintain strategic relationships, our business may be negatively affected.

We intend to, and believe our licensees will, utilize third-party component manufacturers in the design and construction of plants based on the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology. If any third-party manufacturer is unable to acquire raw materials or provide components of plants based on the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology in commercial quantities in a timely manner and within specifications, we or our licensees could experience material delays or construction or development plans could be canceled while alternative suppliers or manufacturers are identified. We have no experience in manufacturing and do not have any manufacturing facilities. Consequently, we will depend on third parties to manufacture components for plants based on the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology. We have conducted development activities with third parties for our proprietary catalysts and other equipment, including turbines that may be used in the Syntroleum^® Process and Bio-Synfining™ Technology, and other manufacturing companies may not have the same expertise as these companies.

We also intend to utilize third parties to provide engineering services in connection with our efforts to commercialize the Syntroleum^® and Synfining^® Processes and Bio-Synfining™ Technology. If these engineering firms are unable to provide requisite services or performance guarantees, we or our licensees could experience material delays or construction plans could be canceled while alternative engineering firms are identified and become familiar with the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology. We have limited experience in providing engineering services and have a limited engineering staff. Consequently, we will depend on third parties to provide necessary engineering services, and these firms may be asked by licensees or financial participants in plants to provide performance guarantees in connection with the design and construction of plants based on the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology.

Our operating results may be volatile due to a variety of factors and are not a meaningful indicator of future performance.

We expect to experience significant fluctuations in future annual and quarterly operating results because of the unpredictability of many factors that impact our business. These factors include:

• timing of any construction by us or our licensees of plants;

• demand for licenses of the Syntroleum^® and Synfining^® Processes or Bio-Synfining™ Technology and receipt and revenue recognition of license fees;

• oil and gas prices;

• coal prices;

• fat and vegetable oil prices;

• timing and amount of research and development expenditures;

• demand for synthetic fuels and specialty products;

• introduction or enhancement of FT and renewable fuels technologies by us and our competitors;

• availability of insurance;

• market acceptance of new technologies; and

• general economic conditions.

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As a result, we believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as any indication of future performance. Due to all of the foregoing factors, it may be that in some future year or quarter our operating results will be below the expectations of public market analysts and investors. In that event, the price of our common stock would likely be materially adversely affected.

We are subject to extensive laws relating to the protection of the environment, and these laws may increase the cost of designing, constructing and operating our plants based on the Syntroleum^® Processes or our Bio-Synfining™ Technology or affect demand for the products of these plants.

If we violate any of the laws and regulations relating to the protection of the environment, we may be subject to substantial fines, criminal sanctions or third party lawsuits and may be required to install costly pollution control equipment or, in some extreme cases, curtail operations. Our FT and renewable fuels plants will generally be required to obtain permits under applicable environmental laws and various permits for industrial siting and construction. Compliance with environmental laws and regulations, as well as with any requisite environmental or construction permits, may increase the costs of designing, constructing and operating our plants. We may also face exposure to actual or potential claims and lawsuits involving environmental matters with respect to our previously owned real estate.

Changes in environmental laws and regulations occur frequently, and any changes may have a material adverse effect on our results of operations, competitive position, or financial condition. For instance, in response to studies suggesting that emissions of certain gases, commonly referred to as greenhouse gases and including carbon dioxide and methane, may be contributing to warming of the Earth’s atmosphere, the U.S. Congress is actively considering legislation, and more than a dozen states have already taken legal measures to reduce emission of these gases, primarily through the planned development of greenhouse gas emission inventories and/or regional greenhouse gas cap and trade programs. Moreover, the U.S. Supreme Court only recently held in a case, Massachusetts, et al. v. EPA, that greenhouse gases fall within the federal Clean Air Act’s definition of “air pollutant,” which could result in the regulation of greenhouse gas emissions from stationary sources under certain Clean Air Act programs. New legislation or regulatory programs that restrict emissions of greenhouse gases could have an adverse affect on our operations.

Terrorist threats and U.S. military actions could result in a material adverse effect on our business.

Further acts of terrorism in the United States or elsewhere could occur. These developments and similar future events may cause instability in the world’s financial and insurance markets and could significantly increase political and economic instability in the geographic areas in which we may wish to operate. These developments could also lead to increased volatility in prices for crude oil and natural gas. In addition, these developments could adversely affect our ability to access capital and to successfully implement projects currently under development.

Following the terrorist attacks on September 11, 2001, insurance underwriters increased insurance premiums charged for many coverages and issued general notices of cancellations to their customers for war risk, terrorism and political risk insurance with respect to a variety of insurance coverages. Insurance premiums could be increased further or coverages may be unavailable in the future.

United States government regulations effectively preclude us from actively engaging in business activities in certain countries. These regulations could be amended to cover countries where we may wish to operate in the future. These developments could subject the operations of our company to increased risks and, depending on their magnitude, could have a material adverse effect on our business.

We may not have enough insurance to cover all of the risks we face.

In accordance with customary industry practices, we maintain insurance coverage against some, but not all, potential losses in order to protect against the risks we face. We do not carry a significant amount of business interruption insurance. We may elect not to carry insurance if our management believes that the cost of available insurance is excessive relative to the risks presented. In addition, we cannot insure fully against pollution and environmental risks. The occurrence of an event not fully covered by insurance, such as a leak, fire or explosion could have a material adverse effect on our financial condition and results of operations.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We own a nominal two b/d pilot plant located on approximately three acres leased in Tulsa, Oklahoma. This lease expires in May 2022, and annual lease payments total approximately $9,000. This pilot plant was mothballed in 2006.

We previously leased 4,500 square feet of laboratory space, which had lease payments of approximately $45,000 per year through June 2011. We were released from our lease obligation in February of 2008 as the lab equipment was sold to Emerging Fuels Technology, LLC.

We previously owned a 24,000 square-foot corporate office and technology center located on approximately 25 acres in Tulsa. This facility was sold in March of 2008. The Company leased a new corporate facility in Tulsa, Oklahoma. The lease expires in 2011 and provides for payments of approximately $92,400 annually.

We previously leased office space in Houston, Texas, under a lease that expired in November 2007 and provided for payments of approximately $68,000 per year. This lease was not renewed in 2008 and all personnel are now housed in the corporate facility in Tulsa, Oklahoma.

We lease approximately 10 acres of land at the Port of Catoosa near Tulsa, on which we have constructed a nominal 70 b/d GTL demonstration plant as part of our clean fuels project with the DOE known as the “DOE Catoosa Project.” We added additional equipment to the project for our own work outside of the scope of the DOE Catoosa Project. This lease runs through May 2011 and the rent expense is approximately $47,000 annually. This demonstration plant was mothballed in 2006.

Scout is subject to contingent obligations under leases and other instruments incurred in connection with real estate activities and other operations. See Note 12 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

Item 3. Legal Proceedings

We and our subsidiaries are involved in lawsuits that have arisen in the ordinary course of our business. We do not believe that ultimate liability, if any; resulting from any such lawsuit or other pending litigation will have a material adverse effect on our business or consolidated financial position.

We are not a party to, nor are any of our properties the subject of, any pending legal proceedings that, in the opinion of management, are expected to have a material adverse effect on our consolidated results of operations or financial position.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stock Prices. Our common stock is traded on the National Market System of the NASDAQ Stock Market under the symbol “SYNM.” The table below reflects the high and low closing sales prices for our common stock for each quarter during 2007 and 2006.

	Sales Price
	High		Low
Year Ended December 31, 2007:
First Quarter	$	3.81	$	2.96
Second Quarter	$	3.57	$	2.76
Third Quarter	$	2.79	$	1.60
Fourth Quarter	$	1.80	$	0.80

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	Sales Price
	High		Low
Year Ended December 31, 2006:
First Quarter	$	11.85	$	7.83
Second Quarter	$	8.30	$	4.82
Third Quarter	$	6.05	$	3.96
Fourth Quarter	$	4.91	$	2.45

Record Holders. The 62,574,207 shares of our common stock outstanding at March 1, 2008, were held by approximately 1,200 record holders (including brokerage firms and other nominees).

Dividends. Cash dividends have not been paid since our inception. We currently intend to retain any earnings for the future operation and development of our business and do not currently anticipate paying any dividends in the foreseeable future. Any future determination as to dividend policy will be made, subject to Delaware law, at the discretion of our board of directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition, business prospects and other factors that our board of directors may deem relevant.

Our stock price may continue to be volatile and could decline in the future. Historically, the market price of our common stock has been very volatile. The trading price of our common stock is expected to continue to be subject to substantial volatility in response to numerous factors, including publicity regarding actual or potential results with respect to development of the Syntroleum^® Process and design, construction and commercial operation of plants using our process, announcements of technological innovations by others with competing GTL processes, developments concerning intellectual property rights, including claims of infringement, annual and quarterly variances in operating results, changes in energy prices, competition, changes in financial estimates by securities analysts, any differences in actual results and results expected by investors and analysts, investor perception of our favorable or unfavorable prospects and other events or factors. In addition, the stock market has experienced and continues to experience significant price and volume volatility that has affected the market price of equity securities of many companies. This volatility has often been unrelated to the operating performance of those companies. These broad market fluctuations may adversely affect the market price of our common stock.

We are required to maintain standards for listing of our common stock on the National Market System of the NASDAQ Stock Market, and we cannot assure you that we will be able to do so. On January 25, 2008 we received from The NASDAQ Stock Market a letter indicating that we were not in compliance with the market value minimum requirement for its common stock as set forth in Marketplace Rule 4450(b)(1)(A). We were provided 30 calendar days, or until February 25, 2008, to regain compliance. We were unable to meet this requirement and have requested a hearing to appeal the delisting determination to a Listing Qualifications Panel. Pending this decision, we may apply to transfer our common stock to the NASDAQ Capital Market if it satisfies the requirements for continued listing. We also received a NASDAQ Staff Deficiency Letter on February 1, 2008, indicating our common stock had closed below the minimum $1.00 per share requirement for continued inclusion under Marketplace Rule 4450(a)(5). We are provided 180 calendar days, or until July 30, 2008, to regain compliance. During this 180-day period, our shares will continue to trade on The NASDAQ Stock Market assuming our stock is not de-listed for failure to comply with the market value minimum requirement described above. The NASDAQ Stock Market has indicated that if at any time before July 30, 2008, the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will determine if we have achieved compliance with the rule. We can make no assurance that we will be able to remain listed on the NASDAQ Stock Market.

Future sales of our common stock could adversely affect our stock price. Substantial sales of our common stock in the public market, or the perception by the market that those sales could occur, could lower our stock price or make it difficult for us to raise additional equity capital in the future. These sales could include sales of shares of our common stock by our directors and officers, who beneficially owned approximately 15 percent of the outstanding shares of our common stock as of March 1, 2008. We cannot predict if future sales of our common stock, or the availability of our common stock for sale, will harm the market price for our common stock or our ability to raise capital by offering equity securities.

Issuer Repurchases of Equity Securities

Neither we nor anyone acting on our behalf of an affiliated purchaser purchased shares of our common stock during the three months ended December 31, 2007.

Equity Compensation Plans

The following table provides information concerning securities authorized for issuance under our equity compensation plans as of December 31, 2007.

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Equity Compensation Plan Information

					Number of Securities
					Remaining Available for
	Number of Securities to		Weighted-average Exercise		Future Issuance Under
	be Issued Upon Exercise		Price of Outstanding		Equity Compensation Plans
	of Outstanding Options,		Options, Warrants and		(excluding securities
	Warrants and Rights		Rights		reflected in column (a))
Plan Category	(a)		(b)		(c)
Equity Compensation Plans Approved by Security Holders (1)(2)(3)		6,301,967	$	7.65		1,573,000
Equity Compensation Plans Not Approved by Security Holders (4)(5)(6)		5,258,000	$	2.63		4,597,449
Total		11,559,967	$	5.10		6,170,449

(1)	Includes the 1993 Stock Option and Incentive Plan, the 1997 Stock Incentive Plan, the 2005 Stock Incentive Plan and the Stock Option Plan for Outside Directors.
(2)	Includes 346,253 shares to be issued upon exercise of options with a weighted average exercise price of $12.45 that were granted under our 1993 Stock Option and Incentive Plan and our Stock Option Plan for Outside Directors assumed by us in connection with the merger of Syntroleum Corporation and SLH Corporation on August 7, 1998, which were approved by our stockholders.
(3)	Includes up to 141,250 shares to be issued upon exercise of warrants issued to Sovereign Oil & Gas Company II, LLC, a consulting firm that we previously have retained to assist us in acquiring stranded natural gas fields worldwide, which were approved by our stockholders. The warrants are issuable in varying amounts upon the acquisition of properties of the achievement of third-party participation in a project, and have an exercise price of between $6. 40 and $7.98 per share for warrants issued since March 1, 2004. The issuance of warrants to purchase up to 500,000 shares of our common stock has been approved by our stockholders.
(4)	On August 31, 2002, we granted options to purchase 1,000,000 shares of our common stock at an exercise price of $1.55 to our Chief Executive Officer, John B. Holmes, Jr., as an inducement to his employment with Syntroleum. The rights to exercise the options and purchase 333,334 shares vested on October 1, 2002, the rights to exercise the options and purchase an additional 333,333 shares vested on October 1, 2003, and the rights to exercise the options and purchase an additional 333,333 shares vested on October 1, 2004. The ability to exercise the options will terminate upon the earliest of: (a) the tenth anniversary of the date of the grant.
(5)	On February 3, 1999, we granted options to purchase 8,000 shares of common stock at exercise prices of $6.88, to a Business Development Consultant. The rights to exercise the options and purchase shares vest in three equal installments each year on the anniversary of each grant.
(6)	The Company has registered via S-8 750,000 shares of common stock issuable as matching pursuant to the terms of the Syntroleum 401 (k) Plan. As of December 31, 2007, the Company had issued 152,551 shares under this Plan.

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Performance Graph

The following performance graph compares the performance of our common stock during the period beginning on December 31, 2002 and ending on December 31, 2007 to the NASDAQ Stock Market index consisting of United States companies (the “NASDAQ Composite”) and an index consisting of all U.S. and Foreign publicly traded companies listed as non-financial stocks with Standard Industrial Codes 1100-5999, 7000-9999 for the same period. The graph assumes a $100 investment in our common stock and in each of the indexes at the beginning of the period and a reinvestment of dividends paid on such investments throughout the period.

VALUE OF $100 INVESTMENT
ASSUMING REINVESTMENT OF DIVIDENDS AT DECEMBER 31, 2002, AND
AT THE END OF EVERY FISCAL YEAR, AND THROUGH DECEMBER 31, 2007

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Item 6. Selected Financial Data

The following selected financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in Item 7 of this Annual Report on Form 10-K and our consolidated financial statements and the related notes thereto included in Item 8 of this Annual Report on Form 10-K.

	For the Year Ended December 31,
	2007			2006			2005			2004			2003
	(in thousands, except per share data)
Statement of Operations Data:
Total revenues		16,472			2,700			464			5,682			5,056
Operating income (loss)		(10,362	)		(28,506	)		(25,310	)		(22,256	)		(21,184	)
Investment, interest, other income (expense), foreign currency, taxes and minority interest		518			436			3,473			94			8
Income (loss) from discontinued operations		13,595			(26,555	)		(19,557	)		(20,388	)		(13,462	)
Net income (loss)	$	3,751		$	(54,625	)	$	(41,394	)	$	(42,550	)	$	(34,638	)
Basic and diluted per share amounts -
Income (loss) from continuing operations	$	(0.17	)	$	(0.50	)	$	(0.41	)	$	(0.51	)	$	(0.61	)
Income from discontinued operations	$	0.23		$	(0.48	)	$	(0.36	)	$	(0.47	)	$	(0.39	)
Net income (loss)	$	0.06		$	(0.98	)	$	(0.77	)	$	(0.98	)	$	(1.00	)

	As of December 31,
	2007		2006		2005		2004		2003
	(in thousands)
Balance Sheet Data:
Working capital	$	22,401	$	29,199	$	46,095	$	22,625	$	10,795
Total assets		32,291		43,937		89,795		44,751		67,235
Current maturities of debt and deferred credit		—		—		—		—		13,546
Convertible debt		—		27,641		25,925		24,221		21,842
Deferred revenue		22,578		21,840		20,952		21,702		38,273

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Overview

Our current focus is to develop and employ innovative technology to produce synthetic liquid hydrocarbons that are substantially free of contaminants normally found in conventional hydrocarbon products. Our Bio-Synfining™ Technology processes triglycerides and/or fatty acids from fats and vegetable oils with heat (thermal depolymerization), hydrogen and proprietary catalysts to make renewable synthetic fuels, such as diesel, jet fuel (subject to certification), kerosene, naphtha and propane. Syntroleum has quantified in excess of 80 different fats and oils, which cover the spectrum of both cost and quality, for conversion to synthetic fuels via the Bio-Synfining™ Technology.

Our operations to date have consisted of the research and development of the Syntroleum^® Process designed to convert natural gas into synthetic liquid hydrocarbons, GTL, and activities related to the commercialization of the Syntroleum^® Process. Synthetic liquid hydrocarbons produced by the Syntroleum^® Process can be further processed using the Syntroleum Synfining^® Process into high quality liquid fuels. Our Bio-Synfining™ Technology is a renewable fuels application of our Synfining^® product upgrading technology. The Company is also applying its technology to convert synthesis gas derived from coal, CTL, or bio-feedstocks, BTL, into these same high quality products. The Company is centered on being a recognized provider of the Bio-Synfining™ Technology, Syntroleum^® Process and Synfining^® product upgrading technology to the energy industry through strategic relationships and licensing of its technology.

Operating Revenues

During the periods discussed below, our revenues were primarily generated from licensing revenue from Marathon, reimbursement for research and development activities associated with the Syntroleum^® Process and sales of products for testing purposes. We have also received revenues for engineering services rendered for the process design package for Dynamic. In the future, we expect to receive revenue from sales of engineering technical services, products or fees or royalties for the use of GTL, BTL and CTL plants in which we will own an equity interest, demonstration plant product sales, licensing and royalty fees and the sale of catalyst.

Until the commencement of commercial operation of our Dynamic Fuels facility located in Geismar, Louisiana or until commercial operation of another GTL, BTL or CTL plant in which we own an interest, we expect that cash flow relating to the -Synfining™ Process or Syntroleum^® Process will consist primarily of revenues associated with technical services provided by our engineers. Upon commercial operations of our Dynamic facility we will receive royalty fees based on the production of the facility. Commercial operations are expected to begin in the second half of 2010. We expect to receive additional profits from the operations of the facility based on our proportionate equity ownership of the plant. We will not receive additional license fees until we enter into additional license agreements or existing licensees develop commercial plants. Our future operating revenues and investments in projects will depend on the successful commercial construction and operation of the Dynamic Fuels facility or other GTL, BTL or CTL plants based on the Syntroleum^® Process, the success of competing GTL technologies, and other competing uses for natural gas, biomass or coal. We expect our results of operations and cash flows to be affected by changing crude oil, natural gas, oils, animal fats, fuel and specialty product prices and trends in environmental regulations. If the price of these products increases (decreases), there could be a corresponding increase (decrease) in operating revenues.

We continue to incur substantial operating expenses with respect to commercializing the Syntroleum^® Process and the Bio-Synfining™ and Synfining^® Process and do not anticipate recognizing any significant revenues or investments in projects from production from our Bio-Synfining™ facility until 2010. We do not anticipate recognizing any significant revenues or investments in projects from production from either a GTL, BTL or CTL fuel or specialty plant or from licensing our technology in the near future. As a result, we expect to continue to operate at a loss until sufficient revenues are recognized from licensing activities or commercial operations of the Bio-Synfining™ facility or the commercial operations of GTL, BTL and CTL plants.

Operating Expenses

Our operating expenses historically have consisted primarily of the construction and operation of the Catoosa Demonstration Facility, pilot plant, engineering, including third party engineering, research and development expenses and general and administrative expenses, which include costs associated with general corporate overhead, compensation expense, legal and accounting expenses and expenses associated with other related administrative functions.

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We have also recognized depreciation, depletion and amortization expense related to office and computer equipment, buildings and leasehold improvements and patents. We have incurred significant costs and expenses over the last several years as we have expanded our research and development, engineering and commercial activities. In the third quarter of 2006 with the completion of our research and development efforts related to running the CDF and Pilot Plant, operating costs declined as a result of suspending operations at both plants, reducing our workforce and focusing on cost minimization. In the fourth quarter of 2007, we completed all other research and development activities, including all laboratory work. We once again reduced our work force and focused on cost minimization. Our current workforce has decreased by 34 employees during 2007 to 27 employees as of December 31, 2007. These employees include research and development employees and general and administrative employees. We anticipate these cost saving measures implemented in the fourth quarter of 2007 and in 2006 to have a significant favorable impact on operating expenses on a go-forward basis. We do not expect to rehire any of the employees included in the reductions if we accelerate the development of a commercial project. We paid in full a significant portion of the severance payments related to our staff reduction by the end of 2007. We plan to continue to monitor our expenditures with regards to general and administrative expense throughout 2008 as well. Our operating expenses are not expected to increase further within the near future.

We have incurred costs related specifically to the development and design of the Bio-Synfining™ and Syntroleum^® Process. These costs, which relate primarily to engineers, outside contract services for initial engineering, design, and development are included in engineering costs in our consolidated statements of operations.

If we are successful in developing a Bio-Synfining™ plant in which we own an interest, we expect to incur significant expenses in connection with our share of the engineering design, construction and start-up of the plant. These expenses are expected to be $75 million for the Dynamic facility. Upon the commencement of commercial operations of a plant, we will incur our share of cost of sales expenses relating primarily to the cost of feedstocks for the plant and operating expenses relating to the plant, including labor, consumables and product marketing costs. Due to the substantial capital expenditures associated with the construction of a Bio-Synfining™ plant, we expect the plant will incur significant depreciation and amortization expense in the future.

Discontinued Operations

Research and Development

Our policy is to expense costs associated with the Catoosa Demonstration Facility and pilot plant, and research and development costs as incurred in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 2, Accounting for Research and Development Costs. All of these research and development expenses were associated with the development of our Syntroleum^® Process. The Catoosa Demonstration Facility expenses include costs to construct, maintain, and operate the facility for further research and development as well as for demonstrations for licensees and other customers. Research and development expenses include costs to operate our laboratory and technology center, salaries and wages associated with these operations, research and development services performed by universities, consultants and third parties and additional supplies and equipment for these facilities. Our policy is to expense costs associated with the development of GTL plants or other projects until we begin our front-end engineering and design program on the respective projects. We also capitalize any costs associated with a project that would have economic value for future projects. We have incurred costs related specifically to the development of the Syntroleum^® Process.

We commenced operations at the Catoosa Demonstration Facility in the first quarter of 2004, with production of the initial finished fuels occurring on March 4, 2004. We have produced all of our contractual commitments to the DOE and have delivered all of the required fuels to a fuels testing facility in Detroit, Michigan, Denali National Park in Alaska, the University of Alaska in Fairbanks and the Washington D.C. Area Metropolitan Transit Authority. In September 2006, the Company completed the production of our contract committed volume of fuels to the United States Department of Defense. In addition, we also successfully completed the longest run of our catalyst testing activity at the Tulsa Pilot Plant. We suspended operations at both facilities.

Our laboratory facilities have performed analysis on all of our finished products produced from our demonstration facilities as well have quantified over 80 types of animal fat, greases and oils as feedstock for our Bio-Synfining™ process. These facilities have also enhanced our catalyst through continued testing. Based on these activities we believe our diesel fuel produced from the FT and Bio-Synfining™ processes is inherently cleaner with many benefits over diesel refined from petroleum. As our technology is complete and documented, we have suspended operations at our laboratory facilities and have disposed of these facilities in 2008.

All revenues and costs associated with these activities such as facilities, overhead associated with the facilities, personnel, equipment and outside testing and analytical work have been reported in “Income (Loss) from Discontinued Operations” in the Consolidated Statement of Operations. The total cost of research and development activities, including the operation and construction of the Catoosa Demonstration Facility totaled $6.8 million, $17.7 million and $19.8 million in 2007, 2006, and 2005, respectively. Joint Development Revenues with licensees and the U.S. Government have been reported in “Income (Loss) from Discontinued Operations” in the Consolidated Statement of Operations. Other costs associated with the construction of the Catoosa Demonstration Facility include the funding provided by Marathon are also included in discontinued operations, this includes interest expense and gain on extinguishment of debt.

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We have also reported our Technology Center as “Property and Equipment Held for Sale” in the Consolidated Balance Sheets in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. We sold this facility in March 2008. We have impaired the building to the agreed upon price less closing transaction costs resulting in a $453,000 impairment expense for the year ended December 31, 2007.

International Oil and Gas

Our international oil and gas activities have primarily included the leasehold acquisition, geological and geophysical work covering various areas in Nigeria, and drilling costs for the Aje-3 discovery well (“Aje-3”) in Oil Mining Lease 113 (“OML”) offshore Nigeria. In the fourth quarter of 2006, we decided to exit our international oil and gas activities due to limited access to capital requirements. We sold all the stock of various subsidiaries, including Syntroleum Nigeria Limited which held our interests in the Ajapa and Aje fields offshore Nigeria to African Energy Equity Resources Limited (“AEERL”), a direct wholly owned subsidiary of Energy Equity Resources (Norway) Limited (“EERNL”). The sale was effectuated through a sale share and purchase agreement which was entered into pursuant to a letter of intent dated November 30, 2006. As consideration for the sale, AEERL paid us a $2 million nonrefundable deposit on December 12, 2006. AEERL was to pay us $10,172,000 on the earlier to occur of April 1, 2007 or the date AEERL raised additional capital, $5 million from the first gross revenues AEERL receives from each of the Ajapa and Aje interests (neither well currently producing), and $3 million if third party farmees enter into an agreement to fund at least half of the cost of drilling the proposed Aje-4 well. AEERL paid $2,000,000 of this balance on March 30, 2007 and $1,000,000 on May 9, 2007. On October 31, 2007, we entered into an agreement with African Energy Partners (“AEP”) to acquire a portion of the debt and interest owed to us by AAERL in the amount of $2,000,000. On March 3, 2008 we received the remaining balance of $5,172,000 plus accrued interest and legal fees incurred in connection with collection of the debt on March 3, 2008. The amount of $5 million from the first gross revenues AEERL receives from the Ajapa interests has not yet been reached.

Based on the $7 million proceeds received and the $5.7 million receivable as of December 31, 2007, we recognized a gain on the sale of these entities for the year ended December 31, 2007 of $10,078,000 which is reflected in “Gain (loss) on discontinued operations” in the Consolidated Statement of Operations for the year ended December 31, 2007. Certain other costs associated with the closing of the entity have been incurred and is netted against the total gain in the Consolidated Statement of Operations. The remaining receivable due of $5,172,000 plus accrued interest was received on March 3, 2008. We recognized depreciation, depletion, amortization and impairment expense of $0, $4,783,000 and $4,375,000 for the years ended December 31, 2007, 2006 and 2005, respectively, based on impairment evaluation under the full cost method of accounting. The fair value of the international oil and gas assets was determined using the full cost ceiling test. As of December 31, 2007, the receivable of $5,172,000 was classified as “Current assets of discontinued operations” in the Consolidated Balance Sheet and all significant obligations associated with the international oil and gas operations have been fulfilled and no liabilities are recorded. The international oil and gas assets and liabilities are classified as held for sale as of December 31, 2006. Net international oil and gas properties classified as held for sale is $1,750,000 as of December 31, 2006.

We incurred interest expense of approximately $0 in 2007, $1,457,000 in 2006 and $165,000 in 2005 related to the amortization of the debt issuance costs related to the Stranded Gas Venture. The purpose of the Stranded Gas Venture was to fund oil and gas upstream activities. We included these costs in discontinued operations for the years ended December 31, 2007, 2006 and 2005, respectively.

Domestic Oil and Gas

We were pursuing gas monetization projects in which we were directly involved in gas field development using available gas processing technologies from third parties. We completed an evaluation of potential reserves related to drilled properties in the United States and decided to discontinue further expenditures in the Central Kansas Uplift area based on the results of this evaluation. We recorded depreciation, depletion, amortization and impairment expense of $3,783,000 related to these properties and the associated gas processing plant and equipment during the year ended December 31, 2005. We sold certain leasehold acres during 2005 for $1,000,000. The remaining leasehold acreage, including the wells and equipment, sold for $522,000 in January 2006. We have actively sought prospects for sale of our gas processing plant and related equipment and completed the sale in 2008 in the amount of $95,000. Net domestic oil and gas properties and equipment classified as held for sale is $0 and $610,000 for the year ended December 31, 2007 and 2006, respectively and the results of operations of the domestic oil and gas segment are presented as discontinued operations in the financial statements for the years ended December 31, 2007, 2006 and 2005 in accordance with SFAS No. 144.

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Significant Developments During 2007

Commercial and Licensee Projects

On June 22, 2007, we entered into definitive agreements with Tyson Foods, Inc. (“Tyson”) to form a joint venture Limited Liability Company, Dynamic Fuels, LLC, a Delaware limited liability company (“Dynamic”), to construct facilities in the United States using our Bio-Synfining™ Technology. The purpose of Dynamic is to construct multiple stand-alone commercial plants in the United States. The first facility will be located in Geismar, Louisiana and produce approximately 75 million gallons per year of renewable synthetic fuels from 569 million pounds per year of feedstock beginning in 2010. Total project cost is currently estimated to be approximately $158.5 million, of which $135 million is for the plant itself, $15 million working capital and $8.5 million in engineering and project development costs. $8.5 million has been committed and funded prorata by Tyson and Syntroleum. We secured a $12 million capital commitment in November 2007 as part of our initial funding efforts. We expect to seek additional available financing through debt financing, project financing, alternative financing and/or financing through the capital markets.

Tyson is responsible for supplying feedstock to the plant, which can range from high quality canola or soy vegetable oils to fats and greases, either from its own internal sources or from supplies it procures in the open market. The feedstock supply agreement provides a pricing formula for the feedstock, which is generally equivalent to the market price for the feedstocks. The Tyson fat blend feedstock is expected to provide us with a notable cost advantage compared to users of soybean oil feedstock. The feedstock slate will be subject to change based upon market availability and other factors. We currently expect that the first facility will produce approximately 77% diesel, 13% naphtha and 10% liquefied petroleum gases (based on annual gallons of feedstock), although actual production will depend upon market conditions and other factors. We expect that Dynamic will be eligible for a federal excise tax credit of $1.00 per gallon for diesel produced and $.50 per gallon for naphtha and liquefied petroleum gases produced.

Based upon current pricing of the feedstock slate expected to be delivered by Tyson and the natural gas used in the Bio-Synfining™ Process and our expectations regarding other operating costs, we expect unit costs on a per gallon basis for the initial Bio-Synfining™ plant, if it were operating today, to be feedstock costs of approximately $1.99 per gallon and operating costs (excluding depreciation) of $0.38 per gallon of feedstock. Actual costs will vary according to changes in feedstock and other resources, the performance of the plant, plant operating conditions, cost variations in the components of operating costs and other factors, and are likely to fluctuate substantially from these indicative amounts.

Dynamic is organized and operated pursuant to the provisions of its Limited Liability Company Agreement between the Company and Tyson (the “LLC Agreement”). The LLC Agreement provides for management and control of Dynamic to be exercised jointly by representatives of the Company and Tyson equally with no LLC member exercising control. It was initially capitalized on July 13, 2007 with $4.25 million in capital contributions from Tyson and $4.25 million in capital contributions from Syntroleum. Our capital contribution was made from proceeds of a common stock offering which was funded on July 11, 2007. This initial capital contribution was used in part to evaluate potential sites and to complete the process design package by our engineering staff.

As an incentive for entering into a joint venture Limited Liability Company Agreement, which formed Dynamic, in connection with a transaction with Tyson involving our Bio-Synfining™ Technology and the risk associated with the initial commercial deployment of its technology, Tyson received warrants to buy our common stock. The warrants are allocated in three tranches. The first tranche of 4.25 million shares was awarded upon signing of the LLC Agreement, Feedstock and Master License Agreements in June 2007. The Warrant Agreement provides that the second tranche of 2.5 million shares will be issued upon sanctioning of the second plant and the third tranche of 1.5 million shares will be issued upon sanctioning of the third plant, provided that Tyson has at least a 10% interest in Dynamic. The exercise price of the first tranche of 4.25 million warrants is $2.87 per share, which was the ten-day average closing price prior to the signing of the above referenced agreements on June 22, 2007. The exercise price of the second and third tranches of warrants will be the ten-day average closing price prior to the sanctioning of plants 2 or 3. Vesting requires that Tyson remain at least a 10% equity owner in Dynamic (in the case of the first tranche) and in the applicable plant (in the case of the second and third tranches), and that each plant has commenced commercial operation. Maturity of each tranche of warrants will be on the third anniversary of each respective plant’s start-up date of commercial operations. If 25% or more of the project cost for the third plant is debt financed, then the third warrant tranche will not vest. In the event that Tyson owns a 90% or greater interest in Dynamic the number of shares subject to the second and third warrant tranche doubles subject to a limitation that Tyson will not receive pursuant to all tranches warrants for stock equal to or more than 20% of the outstanding shares of Syntroleum common stock. In the event Tyson defaults by not paying its capital contributions to the plant, Tyson loses the warrants for such plant.

Pursuant to a registration rights agreement, we have granted Tyson demand and piggyback registration rights with respect to the shares of common stock issuable pursuant to the warrants.

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Demonstration Activities

DOE Catoosa Project. The DOE awarded a contract in 2001 to Integrated Concepts and Research Corporation to provide funding for the DOE Ultra Clean Transportation Fuels Project for which we provided the ultra clean fuels (“DOE Catoosa Project”). In May 2002, we signed a participation agreement with Marathon in connection with this project that included the relocation of certain modules from our Cherry Point GTL facility at ARCO’s refinery in Washington State to the Tulsa Port of Catoosa near Tulsa, Oklahoma. These modules formed the basis of our Catoosa Demonstration Facility, a demonstration facility designed to produce up to approximately 70 b/d of synthetic products and demonstrate commercial scale-up of the Syntroleum and Synfining^® Processes. The facility was mechanically completed and dedicated on October 3, 2003, and we achieved startup and commenced fuel deliveries in the first quarter of 2004. The fuels from this facility were tested by others in advanced power train and emission control technologies, and the fuels were also tested in bus fleets by the Washington Metropolitan Area Transit Authority and the U.S. National Park Service at Denali National Park in Alaska. Outside the scope of the DOE Catoosa Project and at our own cost, we installed additional facilities at the Catoosa Demonstration Facility for the purpose of further demonstrating our technology and operational capabilities.

Since this project is not for commercial operations, the costs associated with it have been expensed in accordance with SFAS No. 2, Accounting for Research and Development Costs. The project has been funded by us and the other project participants, including $12.0 million from the DOE for the relocation, engineering, and re-installation of the Cherry Point equipment, labor and cash contributions of $9.3 million by Marathon, and $21.3 million from us provided by a loan agreement between Marathon and us. We completed our fuel production and delivery commitments in connection with the DOE Catoosa Project during 2005 and as a result, we recognized $5,798,000 in joint development revenues for the year ended December 31, 2005.

DOD Projects. Congress appropriated $2.0 million for Phase II development of our proposed Flexible JP-8 single battlefield fuel Pilot Plant Program under fiscal year 2004 DOD appropriations legislation. We received approximately $950,000 under the appropriation. Phase II included expanded engineering and design work for fuel production systems and further single battlefield fuel characterization and demonstration work. Finalization of our contracts occurred in the fourth quarter of 2004 and we began work at that time. We recognized joint development revenue from this project of $0, $250,000 and $435,000 for the years ended December 31, 2007, 2006 and 2005, respectively. The project was completed in September of 2006.

In August 2004, Congress appropriated $4.5 million for Phase III development of our Flexible JP-8 single battlefield fuel Pilot Plant Program under the DOD fiscal 2005 appropriations legislation. We received approximately $2.8 million under the appropriation. Phase III of this program includes expanded engineering and design work for single battlefield fuel production systems for a marine environment and further single battlefield fuel characterization and demonstration work for all branches of the military. We recognized joint development revenue from this project of $498,000, $740,000 and $747,000 for the years ended December 31, 2007, 2006 and 2005 respectively. We completed this contract in September of 2007.

In June 2006, we signed a contract to deliver an initial 100,000 gallons of aviation grade FT research fluid (S-8) to the DOD for evaluation and flight testing. This marked the commencement of the DOD’s larger program aimed at long-term in-flight evaluation of FT aviation fuel, and their examination of the prospects for the domestic manufacture and supply of synthetic aviation fuels from FT plants. We completed production and shipment of approximately 104,000 gallons of our FT aviation fuel commitment in early September 2006. On September 19, 2006, our ultra-clean iso-paraffinic kerosene (“jet fuel”) was successfully tested in a United States Air Force B-52 Stratofortress bomber aircraft. The plane lifted off from Edwards Air Force Base with a 50/50 blend of our FT jet fuel and traditional JP-8 jet fuel which was burned in two of the eight engines on the plane. This marks the first time that FT jet fuel has been tested in a military flight demo, and is the first of several planned test flights. A second successful flight test was performed on December 15, 2006 at Edwards Air Force Base in California. This test used a 50/50 blend of our jet fuel and conventional JP-8 in all eight engines. This marks the first time that a B-52 has flown using a synfuel blend as the only fuel on board. We recognized approximately $2,300,000 in revenue from the sale of jet fuel and labor associated with this contract.

Following on the success of our delivery to the Department of Defense of the Syntroleum S-8 aviation grade FT research fluid, we signed a further contract in June 2007 to produce an initial 500 gallons of aviation grade renewable research fluid (Syntroleum^® R-8, a product of Bio-Synfining™) for analysis by the same group in the Department of Defense that previously tested Syntroleum^® S-8. We expect that the Syntroleum^® R-8 produced by our Bio-Synfining™ Technology will exhibit substantially similar properties to our Syntroleum^® S-8 produced by our Synfining^® Process under comparative analysis of the two products. If successful, we anticipate further requests for evaluation of Syntroleum^® R-8 produced by our Bio-Synfining™ Technology as interest grows in renewable sources of aviation fuel and the prospect for the domestic manufacture and supply of such fuel. We recognized approximately $220,000 in revenue from the sale and labor associated with this contract for the year ended December 31, 2007.

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DOT Fuel Evaluation Program. In November 2005, the DOT awarded an agreement with ICRC to provide funding for demonstration of the operating performance benefits and development of the market acceptance of Ultra-Clean Fischer-Tropsch diesel fuels in transit bus fleet covering a range of climates. Oklahoma and Alabama transit bus fleets were provided with awards to purchase, demonstrate and test our S-2 FT diesel fuel. The Alaskan transit bus fleet was also given an award to purchase, demonstrate and test our S-1 arctic-grade FT diesel fuel. We expect to receive approximately $1.0 million in revenue related to fuel sales and labor for this program. We recognized revenues related to this project of $144,000, $334,000 and $364,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

Coal Derived Synthesis Gas. In November 2005, we announced that we had entered into an agreement with another company to conduct laboratory-scale demonstration of our Fischer-Tropsch (FT) catalyst with coal-derived synthesis gas produced at an established gasification facility. This testing program with Eastman Chemical Company successfully demonstrated the effectiveness of the Syntroleum FT catalysts with proven coal-derived synthesis gas clean-up and treatment processes for use in a CTL application. The testing program, funded 100% by us began in December of 2005 and continued through mid-2007 to gather catalyst performance data for use in development of reactor designs for future commercial coal-to-liquids plants using our technology. The demonstration proved that F-T wax made from coal has the same superior synthetic Fischer-Tropsch qualities as that made from natural gas. The demonstration also proved that our proprietary cobalt-based catalyst performs robustly under real-world CTL conditions.

Results of Operations

Consolidated Results for the Years Ended December 31,

Revenues	2007		2006		2005
	(in thousands)
Licensing Revenue from Marathon	$	13,665	$	—	$	—
Technical Services Revenue		1,948		—		—
Other Revenue		859		2,700		464
Total Revenues	$	16,472	$	2,700	$	464

2007 vs. 2006

Licensing Revenue from Marathon. Licensing revenue was $13,665,000 for the year ended December 31, 2007 related to the new Consolidation and License Agreement granted to Marathon in January 2007 of $12,665,000 and the recognition of previously deferred license fee credits of $1,000,000. There was no licensing revenue for the years ended December 31, 2006 and 2005. We do not anticipate receiving additional licensing revenue from Marathon in the near term.

Technical Services Revenue. Revenues from contracted engineering services for a process design package for Dynamic and other separately contracted engineering services for technical work were $1,948,000 for the year ended December 31, 2007. There was no revenue received from technical services for the years ended December 31, 2006 and 2005. We expect to continue to earn revenues for the process design package for Dynamic in 2008 as well as we will provide additional engineering services to other customers on an individual contract basis.

Other Revenue. Other revenues were $859,000 in 2007 compared to $2,700,000 in 2006. These revenues consisted of GTL fuel sales to the Tulsa Transit Authority in Oklahoma and Alaska in accordance with our sub-agreement with the Department of Transportation of approximately $144,000 in 2007 compared to $334,000 in 2006. We will continue to deliver fuels under this contract in 2008 similar to the 2007 volume delivery. In 2007, we also received payment for initial testing of 500 gallons of renewable jet fuel in the amount of $220,000. We will receive additional funds under this contract in 2008. In 2006 we completed the delivery of 104,000 gallons of S-8 synthetic diesel to the DOD for testing in aircraft and vehicle engines in 2006 related to a DOD fuel delivery contract completed in 2006 in the amount of approximately $2,300,000. We have nearly sold all of our Fischer Tropsch fuel from our demonstration facility and have remaining amounts left to fulfill current contracts.

2006 vs. 2005

Other Revenue. Other revenues were $2,700,000 in 2006 compared to $464,000 in 2005. These revenues consisted of delivery of 104,000 gallons of S-8 synthetic diesel to the DOD for testing in aircraft and vehicle engines in 2006 related to a DOD fuel delivery contract completed in 2006 in the amount of approximately $2,300,000. We have recognized GTL fuel sales to the Tulsa Transit Authority in Oklahoma and Alaska in accordance with our sub-agreement with the Department of Transportation of approximately $334,000 and $364,000 in 2006 and 2005, respectively. We have also recognized GTL fuel sales for shipments to various customers for further research on fuel capabilities in 2006 and 2005.

Operating Costs and Expenses	2007		2006		2005
	(in thousands)
Engineering		5,753		3,381		2,665
Depreciation, depletion, amortization		745		816		686
Non-cash equity compensation		4,980		7,859		4,686
General and administrative and other		15,356		19,150		17,737
Total Operating Costs and Expenses	$	26,834	$	31,206	$	25,774

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2007 vs. 2006

Engineering Expense. Expenses from engineering activities were $5,753,000 in 2007 compared to $3,381,000 in 2006. The increase in expenditures resulted primarily from:

• increased expenditures associated with outside engineering firms for work on mechanical reactor designs,

• increased salaries and wages and for the engineering group based on current market prices,

• and retention bonuses were paid and accrued for in 2007 as an incentive to retain key engineers.

Non-Cash Equity Compensation. Equity compensation expense for the vesting of stock compensation awards to employees and consultants totaled $4,980,000 in 2007 compared to $7,859,000 in 2006. The decrease resulted primarily from performance related vesting of restricted stock awards for executives based on achieving certain milestones associated with the Bio-Synfining™ Technology project resulting in lower grant date fair values and expense previously recognized reversed out for modifications to performance/market based stock options. Due to the decreased number of employees and management’s plan to grant restricted stock awards with performance vesting, non-cash equity compensation expense is expected to continue this decrease in expense in 2008.

General and Administrative and Other. General and administrative expenses for 2007 were $15,356,000 compared to $19,150,000 in 2006. The decrease resulted primarily from:

• significant reductions in professional fees such as attorney fees and business development consulting fees;

• a reduction in general and administrative staffing expenses, such as, communications expenses, general office costs and employee benefits;

• a reduction in travel expenditures;

• a reduction in liability and director and officer insurance premiums, but

• decreases were offset by increased severance and retirement expense for several executive officers in accordance with individual retirement or separation agreements with the Company.

Continued monitoring of general and administrative expenses will occur throughout 2008 and we expect to continue to see declines in these expenditures, including employee expenditures and termination expenses.

2006 vs. 2005

Engineering Expense. Expenses from engineering activities were $3,381,000 in 2006 compared to $2,665,000 in 2005. The increase in expenditures resulted primarily from studies and documentation by outside engineering firms for the process design of a GTL plant and increased salaries for the engineering group related to market prices.

Non-Cash Equity Compensation. Equity compensation expense for the vesting of stock compensation awards to employees and consultants totaled $7,859,000 in 2006 and $4,686,000 in 2005. The increase resulted primarily from the adoption of SFAS 123(R), Share-Based Payment, and the continuing effect of SFAS 123(R) for new employee grants, which changes the valuation technique for all share based compensation for employees and requires that value of the shares to be expensed, and higher restricted stock-based compensation in 2006 when compared to 2005.

General and Administrative and Other. General and administrative expenses for 2006 were $19,150,000 compared to $17,737,000 in 2005. The increase resulted primarily from:

• increased expenses in 2006 related to business development professional consultants and higher insurance premiums in 2006,

• increased travel expenses associated with international business development efforts, and

• settlement of dispute with a vendor in 2005 that resulted in the reversal of a $680,000 contingency accrual.

Other Income and Expenses	2007			2006			2005
	(in thousands)
Investment and Interest Income	$	1,454		$	2,528		$	2,554
Other Income (Expense)		(327	)		(1,200	)		174
Foreign Currency Exchange		(1,315	)		(892	)		745
Minority Interest		706			—			—
Income (Loss) From Discontinued Operations		13,595			(26,555	)		(19,557	)

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2007 vs. 2006

Investment and Interest Income. Investment and interest income was $1,454,000 in 2007 compared to $2,528,000 in 2006. This decrease in investment and interest income is due to a lower average cash balance in 2007 compared to the average balance in 2006. A majority of investment and interest income is generated from money market accounts with our current cash balances. We expect to see decreased returns in 2008 as well, due to a lower average cash balance and decreasing interest rates.

Other Income (Expense) and Foreign Exchange. Other income (expense), including foreign exchange loss, was expense of $1,642,000 in 2007, compared $2,092,000 during 2006. The decrease in expense resulted primarily from other expense of $1,200,000 related to financing costs previously capitalized that were expensed in 2006 offset by increased foreign currency losses recorded in 2007 due to the decreased value of the U.S. Dollar. An additional expense was incurred in 2007 resulting from our investment in Dynamic. Dynamic losses result from project development, site selection, equipment evaluation, and government relations. We expect the joint venture to capitalize costs associated with the construction of the plant and expect to see income from this investment in 2010.

Income (Loss) from Discontinued Operations. Income from discontinued operations was $13,595,000 in 2007 compared to a loss of ($26,555,000) in 2006. The increase in income resulted from:

Oil and Gas

• international oil and gas gains of $10,078,000 recognized for the sale of stock in our Nigerian subsidiary for our interests in Aje and Ajapa assets in 2007, $5,766,000 of this gain was collected in March of 2008,

• offset by the domestic oil and gas impairment expense in the amount of $604,000 related to the gas processing plant and related equipment held for sale throughout 2007,

• this compares to amortization expense of $1,457,000 related to the termination of the stranded gas venture in 2006, and

• an increase in impairment for domestic oil and gas assets sold in January of 2006.

Research and Development

• decrease in expenditures for research and development activities associated with the demonstration plants due to completion of operations of plants offset by increased expenditures associated with laboratory facilities, personnel and termination expenditures in 2007 resulting in expenditures associated with activities of $6,813,000 compared to;

• expenditures of $17,748,000 for activities at both pilot plant facilities for nine months of the year and additional expenses associated with increased staffing levels for operation of demonstration facilities in 2006; and

• a one time gain in 2007 resulting from the extinguishment of debt related to the Marathon note for the construction of the demonstration facility in the amount of $11,793,000 contributed to the income recognized in 2007.

We do not expect to incur significant expenses related to our oil and gas activities in the future. We do not expect to incur significant expenses related to our research and development activities in the future as all liabilities associated with the discontinuance of activities have been incurred in 2007.

2006 vs. 2005

Investment and Interest Income. Investment and interest income was $2,528,000 in 2006, compared to $2,554,000 in 2005.

Other Income (Expense) and Foreign Exchange. Other income (expense), including foreign exchange loss, was expense of $2,092,000 in 2006, compared to income of $919,000 during 2005. The increase in expense resulted primarily from:

• other expense of $1,200,000 related to financing costs previously capitalized that were expensed in 2006, and

• foreign currency losses recorded in 2006 compared to foreign currency gains recorded in 2005 due to the fluctuation in the value of the Australian dollar compared to the U.S. Dollar between periods.

Loss from Discontinued Operations. Loss from discontinued operations was $(26,555,000) in 2006 and $(19,557,000) in 2005. The increase in the loss resulted from:

Oil and Gas

• the absence of $3,556,000 gain recognized in 2005 from conveyance of a portion of our participating interest in the Aje field,

• amortization expense of $1,457,000 related to the termination of the stranded gas venture in 2006 compared to $165,000 in 2005, and

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• higher impairment in 2005 due to impairment of domestic oil and gas assets that were sold in January 2006.

Research and Development

• expenditures for research and development activities in 2006 and 2005 were $17,748,000 and $19,779,000, respectively,

• the 2005 expenditures were offset by the recognition of revenue of previously deferred revenue related to fuel delivery commitment associated with the DOE Ultra Clean Fuels Demonstration project in the amount of $5,798,000.

Net Income (Loss)	2007		2006			2005
	(in thousands)
Net Income (Loss)	$	3,751	$	(54,625	)	$	(41,394	)

2007 vs. 2006

In 2007, we experienced a net income of 3,751,000 compared to a net loss of $54,625,000 in 2006. The increase in net income relates primarily to factors stated above, including decreases in operating expenses, recognition of Marathon licensing revenue, recognition of a gain on the extinguishment of debt, and gains recognized for the sale of our Nigerian assets compared to lower joint development revenues coupled with increased general and administrative expenses and other income (expense) in 2006.

2006 vs. 2005

In 2006, we experienced a net loss of $54,625,000 compared to a net loss of $41,394,000 in 2005. The increase in net loss relates primarily to factors stated above, including lower joint development revenues coupled with increased general and administrative expenses, other income (expense), and foreign currency when compared to 2005.

Liquidity and Capital Resources

General

As of December 31, 2007, we had $18,405,000 in cash. Our current liabilities totaled $2,631,000 as of December 31, 2007.

At December 31, 2007, we had $420,000 in accounts receivable outstanding relating to our Technical Services provided to Dynamic and GTL fuel sales and $5,766,000 in accounts receivable relating to the sale of stock in our Nigerian subsidiary for the interests in our international oil and gas assets. We believe that all of the receivables currently outstanding will be collected and have collected the receivable related to our oil and gas assets in March of 2008 and therefore we have not established a reserve for bad debts.

Cash flows used in operations were $23,078,000 during the year ended December 31, 2007, compared to $35,807,000 during the year ended December 31, 2006. The decrease primarily results from lower cash used in discontinued operations of research and development associated with the demonstration plants activities in 2007 when compared to 2006. Cash flows associated with continuing operations remained relatively the same compared to 2006. The decreases in cash flows associated with 2007 expenses were offset by employee termination expenditures in connection with our reduction in force. We expect 2008 cash flows used in continuing operations to decrease based on our current expenditures rate and significantly lower cash expenditures associated with employee terminations. Future cash flows to be used in discontinued operations are expected to be minimal and relate to the dismantlement of and closure of all research and development facilities.

Cash flows provided by investing activities were $1,484,000 during the year ended December 31, 2007, compared to cash flows used in investing activities of $419,000 during the year ended December 31, 2006. The change was primarily related to the receipt of payments of $5,000,000 from AEERL, offset by the investment in Dynamic of $4,250,000 in 2007, compared to the increase of oil and gas capital expenditures in 2006, offset by the receipt in 2006 of proceeds of $1,802,000 for a note receivable. We received an additional $5,172,000 for the sale of the stock of the subsidiaries that held our interests in Ajapa and Aje fields to AEERL in March of 2008. The Company expects to invest significant amounts into Dynamic in 2008 and 2009. The Company is currently exploring alternatives for sources of funds for this investment.

Cash flows provided by financing activities were $6,534,000 during the year ended December 31, 2007, compared to $34,000 provided by financing activities during the year ended December 31, 2006. The change in cash flows was primarily due to net proceeds received from a draw-down of $12,800,000 under our Common Stock Purchase offset by payments to Marathon for early repayment of discounted debt and payments to joint venturers in connection with termination of the Stranded Gas Venture.

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We have expended a significant amount of funds on the research and development of the Syntroleum^® Process and Bio-Synfining™ Technology, and will continue to spend significant amounts to market the Syntroleum^® Process, the Synfining^® Process and Bio-Synfining™ Technology, to design and construct plants, and to develop our other commercial projects. We intend to obtain additional funds through collaborative or other arrangements with strategic partners and others, and through debt and equity financing. We also intend to obtain additional funding through joint ventures, license agreements and other strategic alliances, as well as various other financing arrangements to meet our capital and operating cost needs for various projects.

We have an effective registration statement for proposed offerings from time to time of shares of our common stock, preferred stock, debt securities, depository shares or warrants for a remaining aggregate offering price of approximately $89 million as of December 31, 2007. We entered into a Common Stock Purchase agreement on November 20, 2006 which provides for the purchase of common stock up to $40 million over the twenty-four months of the agreement, of which $5 million and $8 million were drawn-down on March 1, 2007 and July 11, 2007, respectively. Of the $8 million draw-down on July 11, 2007, $4.25 million was used to capitalize Dynamic. No draw-downs can be made under this facility when our stock price is less than $1.37 per share. If we obtain additional funds by issuing equity securities, dilution to stockholders may occur. In addition, preferred stock could be issued in the future without stockholder approval and the terms of the preferred stock could include dividend, liquidation, conversion, voting and other rights that are more favorable than the rights of the holders of our common stock. There can be no assurance as to the availability or terms upon which such financing and capital might be available.

On January 25, 2008 we received from The NASDAQ Stock Market a letter indicating that we were not in compliance with the market value minimum requirement for its common stock as set forth in Marketplace Rule 4450(b)(1)(A). We were provided 30 calendar days, or until February 25, 2008, to regain compliance. We were unable to meet this requirement and have requested a hearing to appeal the delisting determination to a Listing Qualifications Panel. Pending this decision, we may apply to transfer our common stock to the NASDAQ Capital Market if it satisfies the requirements for continued listing. We also received a NASDAQ Staff Deficiency Letter on February 1, 2008, indicating our common stock had closed below the minimum $1.00 per share requirement for continued inclusion under Marketplace Rule 4450(a)(5). We are provided 180 calendar days, or until July 30, 2008, to regain compliance. During this 180-day period, our shares will continue to trade on The NASDAQ Stock Market assuming our stock is not de-listed for failure to comply with the market value minimum requirement described above. The NASDAQ Stock Market has indicated that if at any time before July 30, 2008, the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will determine if we have achieved compliance with the rule.

We are currently exploring alternatives for raising capital to commercialize the growth of our businesses, including the formation of joint ventures and other strategic alliances. If adequate funds are not available, or if we are not successful in establishing a strategic alliance, we may be required to reduce, delay or eliminate expenditures for our plant development and other activities or may seek to enter into a business combination transaction with or sell assets to another company. We could also be forced to license to third parties the rights to commercialize additional products or technologies that we would otherwise seek to develop ourselves. The transactions we outlined above may not be available to us when needed or on terms acceptable or favorable to us.

Assuming the commercial success of the plants based on the Syntroleum^® Process, we expect that license fees, catalyst sales and sales of products from plants in which we own an interest will be a source of revenues. In addition, we could receive revenues from other commercial projects we are pursuing. However, we may not receive any of these revenues, and these revenues may not be sufficient for capital expenditures or operations and may not be received within the expected time frame. If we are unable to generate funds from operations, our need to obtain funds through financing activities will be increased.

We have sought and intend to continue to temporarily invest our assets, pending their use, so as to avoid becoming subject to the registration requirements of the Investment Company Act of 1940. These investments are likely to result in lower yields on the funds invested than might be available in the securities market generally. If we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation that could materially and adversely affect us.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2007:

	Payments Due by Period
			Less than 1						After 5
Contractual Obligations	Total		year		1-3 years		4-5 years		years
Capital (Finance) Lease Obligations		35		35		—		—		—
Operating Lease Obligations		1,095		329		674		18		74
Asset Retirement Obligations		1,504		546		958		—		—
Total	$	2,634	$	910	$	1,632	$	18	$	74

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Our operating leases include leases for corporate equipment and software such as, servers, copiers and printers. In February 2008, the Company was released of its lease obligation of $152,000 related to the lease for the lab sold to Emerging Fuels Technology, LLC. This amount is included in the above table.

In accordance with the lease agreements for the pilot plant and the Catoosa Demonstration Facility, we have accrued an asset retirement obligation for the dismantlement of the plants upon completion of research and development documentation

We have entered into employment agreements, which provide severance benefits to several key employees. Commitments under these agreements totaled approximately $3,084,000 at December 31, 2007. Expense is not recognized until an employee is severed.

We implemented a retention incentive agreement plan on December 8, 2006 where certain employees were granted stock options, restricted shares and/or cash awards. We paid $745,000 to employees on June 29, 2007 and $323,000 in the fourth quarter of 2007 pursuant to these retention agreements. If all of the employees remain employed through the date specified under the terms of the agreement, we have a commitment to pay $868,000 on July 1, 2008, which amount will be recognized over the requisite service period starting July 2007. We have the option to grant shares of restricted stock for the 2008 commitment in lieu of making a cash payment. We have no obligation if the employee leaves before the date specified in the agreement.

During 2007, we entered into retirement and severance agreements with several officers. Pursuant to the terms of the agreements, we made one time payments to certain retiring officers on their effective retirement date totaling $400,000 and made monthly cash payments for a total of approximately $1,740,000 through December 31, 2007. We also entered into consulting agreements for a total of $560,000. All consulting expenditures were completed in July of 2007.

Our Dynamic facility requires us to provide 50% of the required capital for the plant. Current requirements for capital are $158.5 million, of which $135 million is for the plant itself $15 million working capital and $8.5 million in engineering support and project development costs. $8.5 million has been funded prorata by Tyson and Syntroleum. Our next capital contribution obligation to the plant is estimated to be approximately $75 million. If either party elects not to proceed with the construction of the first plant, then their interest reverts to the other party, who is then free to build the plant. If a member fails to make a capital contribution, it is in default, and its interest is diluted by $1.50 per $1.00 not contributed. The other member(s) can make a loan to the defaulting member at a rate of LIBOR +10% and there is a 40 day cure period. The defaulting member can make a full or partial loan repayment and a pro rata portion of lost interest will be restored. If the loan is not repaid, it will be converted into ownership interest for the member making the loan, diluting the defaulting member at the same rate of $1.00 per $1.00 of the loan. We have secured a $12 million capital commitment in November 2007 as part of our initial funding efforts. This commitment is subject to various conditions, including that our stock remain listed on the NASDAQ Global Market which is in doubt by reason of failure to meet certain continued listing criteria. We can not make assurances that will be able to secure all of the necessary financial resources. We expect to seek additional available financing through debt financing, project financing, alternative financing and/or financing through the capital markets.

We are also in discussions with various parties regarding joint venture projects. If these discussions progress, we could enter into additional commercial commitments. These discussions currently relate to projects to be located in the United States and various other countries.

Equity Lines of Credit

On November 20, 2006, we entered into a Common Stock Purchase Agreement (sometimes termed an equity line of credit agreement) with Azimuth Opportunity Ltd (“Azimuth”). The Common Stock Purchase Agreement provides that, upon the terms and subject to the conditions set forth in the agreement, Azimuth is committed to purchase up to $40,000,000 of common stock, or one share less than 20 percent of the issued and outstanding shares of common stock as of November 20, 2006, whichever occurs first, over the twenty-four month term of the agreement. No shares of stock were issued in connection with the execution of the Purchase Agreement. At our discretion, we may present Azimuth with draw-down notices requiring Azimuth to purchase common stock over eleven consecutive trading days or such other period mutually agreed upon by us and Azimuth, with each draw-down subject to limitations based on the price of our common stock and a limit of 2.5% of our market capitalization at the time of such draw-down. We can present Azimuth up to 24 draw-down notices during the term of the Purchase Agreement, with a minimum of five trading days required between each draw-down period. Once presented with a draw-down notice, Azimuth is required to purchase a pro- rata portion of the shares on each trading day on which the daily volume weighted average price of our common stock exceeds a threshold price determined by us for such draw-down, which will not be less than $1.37 per share. The per share purchase price for these shares equals the daily volume weighted average price of our common stock on each date during the draw-down period on which shares are purchased, less a discount ranging from 3.125% to 6.25%, based on the threshold price. If the daily volume weighted average price of our stock falls below the threshold price on any trading day during a draw-down period, Azimuth is not required to purchase the pro-rata portion of shares of common stock allocated to that day. However, at its election, Azimuth can buy the pro- rata portion of shares allocated to that day at the threshold price less the discount. As of December 31, 2007, our common stock share price was less than the threshold price.

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The Purchase Agreement also provides that at the our sole discretion, we may grant Azimuth the right to exercise one or more options to purchase additional shares of common stock during each draw-down pricing period for an amount that we specify. Upon Azimuth’s exercise of the option, we can sell to Azimuth the shares of common stock subject to the option at a price equal to the greater of the daily volume weighted average price of common stock on the day Azimuth notifies us of its election to exercise its option or the threshold price for the option determined by us in each case, less a discount ranging from 3.125% to 6.25%, based on the volume weighted average price of common stock. Our ability to draw-down on equity could be reduced or eliminated by material, adverse changes to our business or delisting of our common stock from the NASDAQ market.

On November 18, 2007, we entered into an agreement (the “Purchase Agreement”) with Fletcher International, Ltd. (“Fletcher”) pursuant to which Fletcher, subject to the terms and conditions set forth in the Purchase Agreement, has agreed to purchase $12 million of the Company’s common stock (capped at a maximum of 19.99% of the outstanding shares of common stock as of November 14, 2007) over the period of 24 months following November 18, 2007. The stock issued by the Company to Fletcher will be issued under the Company’s currently effective registration statement on Form S-3 (Registration No. 333-62290) as amended or replaced. Fletcher will make an initial $3 million investment at the market price of our common stock determined over a specified ten business-day period plus $0.60 per share. The initial investment will be made on a date chosen by Fletcher between March 24, 2008 and April 8, 2008. Subject to the terms and conditions set forth in the Purchase Agreement, Fletcher will make later investments of $9 million in months 7 through 24 following November 18, 2007 at the market price of our common stock determined over a specified 40 business-day period (but capped at the average price for any three business days during that period) minus $0.20 per share (the “Later Investments”). Subject to certain exceptions, purchases by Fletcher will be adjusted for our issuances or public announcements of issuances occurring within 135 days of a Fletcher investment at prices below the prices paid by Fletcher. We have agreed that prior to June 30, 2008, except for certain specified issuances, we will not, in conjunction with debt, issue capital stock at prices less than the daily market price on the date of the issuance or, if earlier, the date that we agree to the issuance. Warrants will be issued to Fletcher for 50% of the shares of common stock purchased in the Later Investments, with an exercise price equal to the price per share of the first Later Investment plus $0.40. The term of the warrants is seven years after the date of the final Later Investment closing date. The warrants shall be issued at the closing of the initial $3 million investment.

The terms and conditions set forth in the Purchase Agreement include representations from the Company that it is has disclosed all items and events that could have a material adverse affect, as defined in the Purchase Agreement. The Company must notify Fletcher of any changes or events that may qualify as material adverse effects. Additionally, the Company is required to use its best efforts to maintain listing on the Nasdaq Global Market. As discussed in Note 2, the Company has been notified that they are not in compliance with the market value minimum requirement for its common stock. However, the Company’s stock will still be trading on the Nasdaq Global Market during the initial investment period and will likely still be trading, but on the Nasaq Capital Market, during the later investment period, which is acceptable under the Purchase Agreement.

Equity Issuances

In May 2004, we completed the sale of 5,916,000 shares of common stock and warrants to purchase 887,400 shares of common stock pursuant to a public offering at a price to the public of $5.60 per share and 15 percent of a warrant. Each warrant is initially exercisable at a price of $7.60 per share of common stock beginning on the date of issuance and ending on May 26, 2008. The warrants were deemed to have a fair market value of approximately $1.9 million at the date of issuance and were recorded as additional paid-in-capital. We received net proceeds of approximately $31.1 million after underwriting discount and offering expenses.

In March 2005, we completed the sale of 7,000,000 shares of common stock at a price of $10.00 per share. We sold all of these shares directly to Legg Mason Opportunity Trust, a series of Legg Mason Investment Trust, Inc., a registered investment company. The sale resulted in net proceeds to us of approximately $69,950,000.

In April 2005 we completed the sale of 1,000,000 shares of our common stock at a price of $10.00 per share directly to Dorset Group Corporation. The sales resulted in net proceeds to us of approximately $9,968,000.

On March 1, 2007, a draw-down under our equity line of credit of $5 million was consummated at an average stock price of $3.23 per share. On July 11, 2007, a second draw-down of $8 million was consummated at an average stock price of $2.71 per share.

New Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109 (“FIN 48”). FIN 48 clarifies that an entity’s tax benefits recognized in tax returns must be more likely than not of being sustained prior to recording the related tax benefit in the financial statements. As required by FIN 48, the Company adopted this new accounting standard effective January 1, 2007. Since the Company has no unrecognized tax benefits, the adoption of FIN 48 did not impact the Company’s consolidated results of operations and financial condition. Open tax years are December 31, 2003 forward for both federal and state jurisdictions.

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In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS 157 is effective in the first quarter of 2008 and the Company does not expect the adoption to have a material impact on its financial position and results of operations.

In November 2006, the FASB ratified a consensus opinion reached by the Emerging Issues Task Force (“EITF”) on EITF Issue 06-6, Debtor’s Accounting for a Modification (or Exchange) of Convertible Debt Instruments, which supersedes EITF Issue 05-7, Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues, and amends EITF Issue 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments. Under the guidance in EITF Issue 06-6, when the Company modifies or exchanges debt instruments that affect the terms of an embedded conversion option, debt extinguishment accounting would apply under certain conditions. Guidance is also provided for modifications or exchanges that are not treated as extinguishments. The consensus in EITF Issue 06-6 was effective for modifications and exchanges of debt instruments that occur in interim or annual reporting periods beginning after November 29, 2006. The adoption of this EITF had no impact on the Company’s consolidated financial statements.

In December 2006, the FASB issued FASB Staff Position (FSP) EITF 00-19-2 (“FSP EITF 00-19-2”), Accounting for Registration Payment Arrangements. The FSP specifies the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement should be recognized and measured separately in accordance with FASB No. 5, Accounting for Contingencies. FSP EITF 00-19-2 further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles without regard to the contingent obligation to transfer consideration. The FSP was effective immediately for registration payment arrangements that are entered into or modified subsequent to December 21, 2006. The adoption of this FSP had no impact on the Company’s consolidated results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment to FASB Statement No. 115 (“SFAS 159”). SFAS 159 allows companies to choose to measure eligible assets and liabilities at fair value with changes in value recognized in earnings. Fair value treatment for eligible assets and liabilities may be elected either prospectively upon initial recognition, or if an event triggers a new basis of accounting for an existing asset or liability. SFAS 159 is effective in the first quarter of 2008 and the Company does not expect the adoption to have a material impact on its financial position and results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations” and SFAS No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulleting No. 51.” SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interest and classified as a component of equity. SFAS 141R and SFAS 160 are effective beginning the first fiscal quarter of 2009. Early adoption is not permitted. The Company is currently evaluating the impact the adoption of either SFAS 141R or SFAS 160 will have on the Company’s consolidated financial statements.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and use assumptions that affect reported amounts. We believe that the following items represent our critical accounting policies and estimates:

Revenue Recognition. We recognize revenues from technical services provided as time and expenses for services or support associated with a contract or license are incurred. The license agreements require us to develop a site-specific plant design in accordance with licensee specifications; this design package is called the Process Design Package, or “PDP,” and allows for a 100 percent cost recovery of services rendered. Technical service revenues resulted from the preparation of our process design package to Dynamic in 2007. The preparation of our process design package includes engineering labor and necessary materials for completion of the package.

We have conducted research and development activities in order to improve the conversion efficiency and reduce the capital and operating costs of GTL and CTL plants based on the Syntroleum^® Process. We have received joint development revenues primarily through two initiatives: (1) prospect assessment and feasibility studies and (2) formal joint development arrangements with our licensees and others. Through these joint development arrangements, we have received revenue as reimbursement for specified portions of our research and development or engineering expenses. Under some of these agreements, the joint development participant may receive credits against future license fees for monies expended on joint research and development. During the periods presented, joint development revenues consisted primarily of amounts received from the DOE and DOD. These projects required us to deliver results from development activities such as non-proprietary analysis of plant processes, flow diagrams, chemical analysis and fuel production plans that were jointly shared by each party.

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The customers benefit from paying for these development activities as they are obtaining access to information pertaining to the Syntroleum^® Process. Revenue is recognized when final delivery of the shared technology has occurred. Under some of these agreements, the joint development participant may receive credits against future license fees for monies expended on joint development. The value of these credits is a fixed amount stated in the contract and reflected as deferred revenue until the credit is utilized. The revenues recognized in the future from these contracts are deemed to be fixed and determinable under the criteria specified in Staff Accounting bulletin, Topic 13 and SOP 97-2, Software Revenue Recognition. To date, our revenues and costs have been related to certain projects and are wholly dependent upon the nature of our projects. The various sizes and timing of these projects, including the demonstration plant (the “Catoosa Demonstration Facility”) used as part of the DOE Ultra-Clean Fuels Production and Demonstration Project with Marathon affect the comparability of the periods presented.

License fee deposits received as cash upon the sale of master volume or regional license agreements are recorded as deferred revenue in the consolidated balance sheets until recognized as revenue in the consolidated statements of operations. We recognize revenue on the sale of license agreements by recording 50 percent of the license fee deposit as revenue when: (1) a site license agreement has been formally executed, (2) the license fee deposit has been paid in cash and (3) we have delivered to the licensee the process design package for the licensee’s initial licensed plant. Since 50 percent of the license fee deposit is subject to the our indemnity obligation with respect to the performance guarantee on the related plant, the remaining license fee deposit will be recognized as revenue in the consolidated statements of operations after the related plant has passed certain performance tests. Option fees, which provide licensees the right to include additional geographic areas in its license agreement territory, are deferred until the earlier of the option being exercised or lapsing. We are under no obligation to return these deferred revenues except in the case when a licensee builds a plant and the plant does not pass certain performance tests. In this situation, the licensee would be able to receive a refund of 50 percent of the license fees paid. The license agreements have a 15-year life and, after this time, the deferred revenue will be recorded as license revenue in the statements of operations unless a site license has been executed. Our current licenses generally begin to expire in 2011 and the initial deposits will be recognized as licensing revenue as the licenses expire should a licensee not purchase a site license and begin construction of a plant prior to expiration of the license.

We provide synthetic ultra-clean diesel fuel, such as our S-2 diesel fuel and S-8 jet fuel (subject to certification), produced from natural gas and FC-1 naphtha fuels to various customers for their use in further research and testing upon their request. The ultra-clean S-2 diesel fuel and S-8 jet fuel (subject to certification) is a paraffinic, high-cetane distillate fuel that is essentially free of sulfur, olefins, metals, aromatics or alcohols. The fuels have been produced at the Catoosa Demonstration Facility. Revenues are recognized upon delivery of the requested fuels and are recorded as other revenue.

Research and Development. We have incurred significant costs for research and development programs. Expenses classified as research and development include salaries and wages, rent, utilities, equipment, engineering and outside testing and analytical work associated with our research, development and engineering programs. Since these costs are for research and development purposes, and not commercial or revenue producing, they are charged to expense when incurred in accordance with SFAS No. 2, Accounting for Research and Development Costs. These costs are reported in “Income (Loss) from Discontinued Operations” in the Consolidated Statement of Operations. These costs have been classified as discontinued operations in as we have completed the necessary research and development and intend to commercialize the technology. Significant cash flows will not be associated with these activities in the future.

Stock-Based Compensation. Prior to January 1, 2006, we accounted for share-based compensation to employees in accordance with the Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees and related interpretations. We also followed the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation. Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R) Share-Based Payment, which requires that we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized in the consolidated statement of operations over the period during which an employee is required to provide service in exchange for the award.

We adopted the modified prospective transition method as provided by SFAS No. 123(R). Accordingly, the financial statement amounts for the prior periods have not been restated to reflect the fair value method of expensing share-based compensation. In accordance with the modified prospective transition method, all outstanding deferred compensation at the time of adoption was reclassified to additional paid-in capital. For the year ended December 31, 2007, we recorded a total of $4,980,000 or ($0.08) per basic and diluted share of share-based compensation expense. At January 1, 2006, we had no cumulative effect associated with adopting SFAS 123 (R).

Non-Employee Stock-Based Compensation. The Company also grants stock-based incentives to certain non-employees. These stock based incentives are accounted for in accordance with Emerging Issues Task Forces Issue 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. Any stock options granted to non-employees that are not related to specific performance criteria are expensed over the period of vesting. Stock options that are tied to performance criteria are expensed at the time the performance goals are met.

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Oil and Gas Properties. We follow the full cost method of accounting for exploration, development, and acquisition of gas and oil reserves. Under this method, all such costs (productive and nonproductive) including salaries, benefits, and other internal costs directly attributable to these activities are capitalized and amortized on an aggregate basis over the estimated lives of the properties using the units-of-production method. We exclude all costs of unevaluated properties from immediate amortization. Our unamortized costs of oil and gas properties are limited to the sum of the future net revenues attributable to proved oil and gas reserves discounted at 10 percent plus the lower of cost or market value of any unproved properties. If our unamortized costs in oil and gas properties exceed this ceiling amount, a provision for additional depreciation, depletion and amortization is required.

Discontinued Operations and Impairment of Assets. We follow the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”) for assets, other than oil and gas properties, including for the presentation and disclosure of discontinued operations. We make assessments of impairment on a project-by-project basis. Management reviews assets for impairment when certain events have occurred that indicate that the asset may be impaired. An asset is considered to be impaired when the estimated undiscounted future cash flows are less than the carrying value of the asset. The impairment provision is based on the excess of carrying value over fair value. Fair value is defined as the present value of the estimated future cash flows of a project.

We follow the full cost method of accounting for the exploration, development and acquisition of oil and reserves as stated above. All unamortized costs of oil and gas properties are limited to the sum of future net revenues attributable to proved oil and gas reserves discounted at 10 percent plus the lower of cost or market value of any unproved properties. We completed an evaluation of the potential reserves and the economics related to our domestic oil and gas properties in 2005 and decided to focus our efforts on aligning the Company with specific goals and projects that have GTL and CTL potential. As a result, we discontinued further expenditures in the Central Kansas Uplift area and began disposing of these properties. We disposed of the majority of these properties in 2005. The final transaction occurred in January 2006. In December 2006, we entered into an agreement to sell the common stock of the subsidiary that holds our interest in our international oil and gas projects. The transaction closed in January 2007 with the execution of a common stock purchase agreement. Accordingly, we have also classified our international oil and gas activities in discontinued operations for the years ended December 31, 2007, 2006 and 2005. The net effect of the United States oil and gas activities, including the related gas processing plant and equipment, and international oil and gas activities, are presented in discontinued operations in the financial statements for the years ended December 31, 2007 and 2006 in accordance with SFAS No. 144.

Critical Estimates. Some of the more significant estimates made by management include, but are not limited to, valuation of stock-based compensation, estimates for accrued liabilities and impairment of property and equipment. Actual results have not been materially different than the estimates made by management in the past. Management bases these estimates on the most current information available. These estimates are subject to change in the future as a result of changes in the fair values of the assets.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We had approximately $18,405,000 in cash and cash equivalents in the form of money market instruments at December 31, 2007. This compares to approximately $33,469,000 in cash and cash equivalents at December 31, 2006. Our cash and cash equivalents balances are subject to fluctuations in interest rates and we are restricted in our options for investment by our short-term cash flow requirements. Our cash and cash equivalents are held in a few financial institutions; however, we believe that our counter-party risks are minimal based on the reputation and history of the institutions selected.

Foreign exchange risk currently relates to deferred revenue, a portion of which is denominated in Australian dollars. Financial statement assets and liabilities may be translated at prevailing exchange rate and may result in gains or losses in current income. Monetary assets and liabilities are translated into United States dollars at the rate of exchange in effect at the balance sheet date. Transaction gains and losses that arise from exchange rate fluctuations applicable to transactions denominated in a currency other than the United States dollar are included in the results of operations as incurred. The portion of deferred revenue denominated in Australian currency was U.S. $13,150,500 at December 31, 2007. The deferred revenue is converted to U.S. dollars for financial reporting purposes at the end of every reporting period. To the extent that conversion results in gains or losses, such gains or losses will be reflected in our statements of operations. The exchange rate of the Australian dollar to the United States dollar was $0.88 and $0.79 at December 31, 2007 and December 31, 2006, respectively.

We do not have any purchased futures contracts or any derivative financial instruments, other than warrants issued to purchase common stock at a fixed price in connection with consulting agreements, private placements and other equity offerings.

38

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements, together with the report thereon of Grant Thornton LLP dated March 17, 2008, are set forth on pages F-1 through F-29 hereof. See Item 15 for an index to our consolidated financial statements.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Principal Officer concluded that our disclosure controls and procedures were effective as of December 31, 2007 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Changes in Internal Controls. There has been no change in our internal control over financial reporting that occurred during the three months ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007 based on the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria set forth in “Internal Control-Integrated Framework”, our management believes that our internal control over financial reporting was effective as of December 31, 2007.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Grant Thornton LLP, an independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has issued an attestation report of our internal control over financial reporting. Such attestation is included below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Syntroleum Corporation

We have audited Syntroleum Corporation’s (a Delaware Corporation) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Syntroleum Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on Syntroleum Corporation’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

39

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Syntroleum Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Syntroleum Corporation and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2007 and our report dated March 17, 2008, expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Tulsa, Oklahoma
March 17, 2008

Item 9B. Other Information

None.

40

PART III

Item 10. Directors, Executive Officers and Corporate Governance of the Registrant

The information required by Item 10 is incorporated herein by reference to the section entitled “Proposal 1—Election of Directors” in our definitive proxy statement for our 2008 annual meeting of stockholders, which will be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days of December 31, 2007.

Item 11. Executive Compensation

The information required by Item 11 is incorporated herein by reference to the section entitled “Executive Compensation” in our definitive proxy statement for our 2008 annual meeting of stockholders, which will be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days of December 31, 2007. Certain information with respect to our executive officers is set forth in Item 4 of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is incorporated herein by reference to the section entitled “Security Ownership of Management and Certain Beneficial Owners” in our definitive proxy statement for our 2008 annual meeting of stockholders, which will be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days of December 31, 2007. Information required by Item 201(d) of Regulation S-K is set forth in Item 5 of this Annual Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 is incorporated herein by reference to the section entitled “Certain Transactions” in our definitive proxy statement for our 2008 annual meeting of stockholders, which will be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days of December 31, 2007.

Item 14. Principal Accountant Fees and Services

The information required by Item 14 is incorporated herein by reference to the sections entitled “Independent Public Accountant Fees” in our definitive proxy statement for our 2008 annual meeting of stockholders, which will be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days of December 31, 2007.

41

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

Consolidated Financial Statements for the Three Years Ended December 31, 2007:

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of December 31, 2007 and 2006	F-2
Consolidated Statements of Operations for each of the Three Years in the Period Ended December 31, 2007	F-3
Consolidated Statements of Stockholders’ Equity (Deficit) for each of the Three Years in the Period Ended December 31, 2007	F-4
Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended December 31, 2007	F-5
Notes to Consolidated Financial Statements	F-6

(a)(2) Financial Statement Schedules

All schedules and other statements for which provision is made in the applicable regulations of the SEC have been omitted because they are not required under the relevant instructions or are inapplicable.

(a)(3) Index of Exhibits

Exhibit
No.		Description of Exhibit
	*3.1	Certificate of Incorporation of the Company (incorporated by reference to Appendix B to the Company’s Proxy Statement filed with the Securities and Exchange Commission on May 12, 1999 (File No. 0-21911)).
	*3.2	Amended and Restated Certificate of Designations of Series A Junior Participating Preferred Stock of the Company dated October 24, 2004 (incorporated by reference to Exhibit 4.5 to Amendment No. 2 to the Company’s Current Report on Form 8-K dated June 17, 1999 and filed with the Securities and Exchange Commission on October 28, 2004 (File No. 0-21911)).
	*3.3	Bylaws of the Company (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission on March 7, 2006 (File No. 0-21911)).
	*3.3.1	Amendment to the Bylaws of the Company (incorporated by reference to Exhibit 3.3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission on March 7, 2006 (File No. 0-21911)).
	*4.1	Second Amended and Restated Rights Agreement dated as of October 28, 2004 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2004 (File No. 0-21911)).
	*4.2	Warrant Agreement, dated as of November 4, 2003, between the Company and American Stock Transfer and Trust Company, as warrant agent (including form of warrant certificate) (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2003 filed with the Securities and Exchange Commission on November 14, 2003 (File No. 0-21911)).
	*4.3	Warrant Agreement, dated as of May 26, 2004, between the Company and American Stock Transfer and Trust Company, as warrant agent (including form of warrant certificate) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 25, 2004 (File No. 0-21911)).

*4.4 Warrant Agreement, dated as of June 22, 2007, between the Company and Tyson Foods, Inc. a Delaware Corporation (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 filed with the Securities and Exchange Commission on May 10, 2007 (File No. 0-21911)).

42

Exhibit
No.		Description of Exhibit
	*4.5	Registration Rights Agreement dated as of June 22, 2007, between the Company and Tyson Foods, Inc. a Delaware Corporation (incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 filed with the Securities and Exchange Commission on May 10, 2007 (File No. 0-21911)).
	+* 10.2	Form of Amended and Restated Indemnification Agreement between the Company and each of its officers and directors (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission on March 22, 2001 (File No. 0-21911)).
	+*10.3	Form of Option Agreement under the Stock Option Plan for Outside Directors of the Company (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission on March 16, 2005 (File No. 0-21911)).
	*10.4	Master Preferred License Agreement dated March 7, 1997 between the Company and Marathon Oil Company (incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-4/A (Registration No. 333-50253) filed with the Securities and Exchange Commission on June 8, 1998).
	*10.5	Master Preferred License Agreement dated April 10, 1997 between the Company and Atlantic Richfield Company (incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-4/A (Registration No. 333-50253) filed with the Securities and Exchange Commission on June 8, 1998).
	*10.6	Volume License Agreement dated August 1, 1997 between the Company and YPF International, Ltd. (incorporated by reference to Exhibit 10.25 to the Company’s Registration Statement on Form S-4/A (Registration No. 333-50253) filed with the Securities and Exchange Commission on June 8, 1998).
	*10.7	Volume License Agreement dated February 4, 1998 between the Company and Kerr-McGee Corporation (incorporated by reference to Exhibit 10.26 to the Company’s Registration Statement on Form S-4/A (Registration No. 333-50253) filed with the Securities and Exchange Commission on June 8, 1998).
	*10.8	Consolidation and License Agreement dated as of January 16, 2007 between the Company and Marathon Oil Company (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission on March 16, 2007 (File No. 0-21911)).
	+ *10.9.1	SLH Corporation 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10(c) to Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 1997 filed with the Securities and Exchange Commission on April 13, 1998 (File No. 0-21911)).
	+ *10.9.2	Form of Option Agreement with certain executive officers under the SLH Corporation 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10(e) to Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 1997 filed with the Securities and Exchange Commission on April 13, 1998 (File No. 0-21911)).
	+ *10.9.3	Form of Option Agreement with directors under the SLH Corporation 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10(f) to Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 1997 filed with the Securities and Exchange Commission on April 13, 1998 (File No. 0-21911)).
	+ *10.10	Form of Consent to Adjustment to Option Agreements called for by Section 2.1(c) of the Agreement and Plan of Merger dated as of March 30, 1998 by and between SLH and the Company (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-4 (Registration No. 333-50253) filed with the Securities and Exchange Commission on April 16, 1998).
	*10.11	License Agreement dated April 26, 2000 between the Company and Ivanhoe Energy Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 filed with the Securities and Exchange Commission on May 12, 2000 (File No. 0-21911)).
	*10.12	License Agreement dated August 2, 2000 between the Company and Syntroleum Australia Licensing Corporation (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 filed with the Securities and Exchange Commission on August 14, 2000 (File No. 0-21911)).

43

Exhibit
No.		Description of Exhibit
	*10.13	License Agreement dated August 3, 2000 between Syntroleum Australia Licensing Corporation and the Commonwealth of Australia (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 filed with the Securities and Exchange Commission on August 14, 2000 (File No. 0-21911)).
	*10.14.1	Amendment No. 1 to Volume License Agreement dated October 11, 2000 between the Company and Ivanhoe Energy Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 filed with the Securities and Exchange Commission on November 14, 2000 (File No. 0-21911)).
	*10.14.2	Amendment No 3 to Volume License Agreement dated July 1, 2003 between the Company and Ivanhoe Energy, Inc. (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission on March 16, 2007 (File No. 0-21911)).
	*10.15	Transfer of Participating Interest in Oil Mining Lease 113 from Syntroleum Nigeria Limited to Energy Equity Resources Oil and Gas Limited, a subsidiary of Energy Equity Resources Limited. (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission on March 16, 2008 (File No. 0-21911)).
	+*10.23	Employment Agreement dated September 17, 2002 between the Company and Jeffrey M. Bigger (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2002 filed with the Securities and Exchange Commission on November 14, 2002 (File No. 0-21911)).
	+*10.24	Indemnification Agreement dated September 16, 2002 between the Company and Jeffrey M. Bigger (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2002 filed with the Securities and Exchange Commission on November 14, 2002 (File No., 0-21911)).
	+*10.25	Indemnification Agreement dated as of March 13, 2003 between the Company and Ronald E. Stinebaugh (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report of Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission on March 31, 2003 (File No. 0-21911)).
	+*10.16	Employment Agreement dated February 17, 2003 between the Company and Ronald E. Stinebaugh (incorporated by reference to Exhibit 10.43 to the Company’s Annual Report of Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission on March 31, 2003 (File No. 0-21911)).
	+*10.27	Stock Option Agreement dated October 1, 2002 between the Company and John B. Holmes, Jr. (incorporated by reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission on March 31, 2003 (File No. 0-21911)).
	*10.33	Warrant Agreement dated as of November 28, 2005 between the Company and Sovereign Oil and Gas Company II, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-3 (Registration No. 333-138487) filed with the Securities and Exchange Commission on November 7, 2006).
	*10.34	Warrant Agreement dated as of July 26, 2006 between the Company and Sovereign Oil and Gas Company II. LLC (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-3 (Registration No. 333-138487) filed with the Securities and Exchange Commission on November 7, 2006).
	+*10.35	Director Stock Option Agreement dated December 20, 2002 between the Company and James R. Seward (incorporated by reference to Annex D to the Company’s proxy statement filed with the Securities and Exchange Commission on March 29, 2004 (File No. 0-21911)).
	*10.39	Amendment to Option Deed dated July 26, 2006, entered into August 10, 2006, between Syntroleum Nigeria Limited and Energy Equity Resources Oil and Gas Limited (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission on March 16, 2007 (File No. 0-21911)).
	+*10.40	Employment Agreement dated as of July 6, 2004 between the Company and Edward G. Roth (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2004 filed with the Securities and Exchange Commission on August 13, 2004 (File No. 0-21911)).

44

Exhibit
No.		Description of Exhibit
	+*10.41	Indemnification Agreement dated as of July 6, 2004 between the Company and Edward G. Roth (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2004 filed with the Securities and Exchange Commission on August 13, 2004 (File No. 0-21911)).
	*10.48	Common Stock Purchase Agreement dated November 20, 2006 by and between Syntroleum Corporation and Azimuth Opportunity Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 21, 2006 (File No. 0-21911)).
	*10.49	Share Sale and Purchase Agreement dated January 19, 2007 between Syntroleum International Corporation, Syntroleum Corporation, African Energy Equity Resources Limited and Energy Equity Resources (Norway) Limited ((incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2007 (File No. 0-21911)).
	+*10.50	Syntroleum Corporation 2005 Stock Incentive Plan, effective as of April 25, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2005 (File No. 0- 21911)).
	+*10.51	Summary of Performance Objectives and Target Payouts under the Syntroleum Corporation Annual Incentive Plan (incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2005 filed with the Securities and Exchange Commission on May 10, 2005 (File No. 0-21911)).
	+*10.52	Form of Performance Vested Non-Qualified Option Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 5, 2005 (File No. 0-21911)).
	+*10.53	Form of Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 8, 2005 (Registration No. 333-126427)).
	+*10.54	Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 6, 2005 (Registration No. 333-126427)).
	+*10.58	Form of Service Vested Incentive Stock Option Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 27, 2006 (File No. 0-21911).
	*10.59	Syntroleum Corporation Retention Incentive Agreement dated December 8, 2006 (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission on March 16, 2007 (File No. 0-21911)).
	*10.60	Dynamic Fuels Limited Liability Company Agreement dated June 22, 2007 (incorporated by reference to Exhibit 10.60 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 filed with the Securities and Exchange Commission on August 9, 2007 (File No. 0-21911).
	*10.61	Syntroleum Corporation Bio-Synfining Master License Agreement with Dynamic Fuels dated June 22, 2007. (incorporated by reference to Exhibit 10.61 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 filed with the Securities and Exchange Commission on August 9, 2007 (File No. 0-21911).
	*10.62	Syntroleum Corporation Participation Agreement with Tyson Foods, Inc. dated June 22, 2007 (incorporated by reference to Exhibit 10.62 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 filed with the Securities and Exchange Commission on August 9, 2007 (File No. 0-21911).
	*10.63	Resignation and Compromise Agreement dated as of August 6, 2007 between the Company and Mr. Ziad Ghandour and TI Capital Management (incorporated by reference to Exhibit 10.63 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007 filed with the Securities and Exchange Commission on November 8, 2007 (File No. 0-21911).

45

Exhibit
No.		Description of Exhibit
	*10.64	Restricted Stock Agreement dated April 24, 2007 between the Company and Mr. Edward G. Roth (incorporated by reference to Exhibit 10.64 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007 filed with the Securities and Exchange Commission on November 8, 2007 (File No. 0-21911).
	*10.65	Restricted Stock Agreement dated March 19, 2007 between the Company and Mr. John B. Holmes, Jr. (incorporated by reference to Exhibit 10.65 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007 filed with the Securities and Exchange Commission on November 8, 2007 (File No. 0-21911).
	*10.66	Employment Agreement dated June 13, 2007 between the Company and Ms. Karen L. Gallagher (incorporated by reference to Exhibit 10.66 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007 filed with the Securities and Exchange Commission on November 8, 2007 (File No. 0-21911).
	*10.67	Restricted Stock Agreement dated July 12, 2007 between the Company and Ms. Karen L. Gallagher (incorporated by reference to Exhibit 10.67 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007 filed with the Securities and Exchange Commission on November 8, 2007 (File No. 0-21911).
	*10.68	Amendment to Option Deed dated August 13, 2007, between Syntroleum Corporation, Syntroleum International Corporation, African Energy Equity Resources Limited and Energy Equity Resources Limited (incorporated by reference to Exhibit 10.67 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007 filed with the Securities and Exchange Commission on November 8, 2007 (File No. 0-21911).
	*10.69	Syntroleum Corporation Stock Purchase and Sale of Common Stock with Fletcher International Ltd. Dated November 18, 2007 (incorporated by reference to Exhibit 10.68 to the Company’s Form 8-K filed with the Securities and Exchange Commission on November 21, 2007 (File No. 0-21911)).
	*10.70	Syntroleum Corporation and Marathon Oil Corporation Settlement of Consolidation and License Agreement dated December 20, 2007 (incorporated by reference to Exhibit 10.70 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 27, 2007 (File No. 0-21911)).
	*10.71	Separation Agreement dated December 20, 2007 between the Company and Richard L. Edmonson (incorporated by reference to Exhibit 10.71 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 27, 2007 (File No. 0-21911)).
	*10.72	Restricted Stock Agreement dated December 20, 2007 between the Company and Mr. Richard L. Edmonson (incorporated by reference to Exhibit 10.72 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 27, 2007 (File No. 0-21911)).
	*10.73	Syntroleum Corporation Asset Lease and Purchase Agreement with Emerging Fuels Technology, LLC dated January 10, 2008 (incorporated by reference to Exhibit 10.73 to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 16, 2007 (File No. 0-21911)).
	*10.74	Amendment Deed between Syntroleum Corporation, Syntroleum International, African Energy Equity Resources, Ltd, and Energy Equity Resources (Norway) Ltd dated March 30, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007 filed with the Securities and Exchange Commission on May 10, 2007 (File No. 0-21911).
	*10.75	Termination Agreement between Syntroleum International Corporation and Sovereign Oil and Gas Company II, LLC dated March 29, 2007 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007 filed with the Securities and Exchange Commission on May 10, 2007 (File No. 0-21911).
	*10.76	Employment Agreement dated April 24, 2007 between the Company and Mr. Edward G. Roth (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007 filed with the Securities and Exchange Commission on May 10, 2007 (File No. 0-21911).
	*10.77	Retirement Agreement dated April 30, 2007 between the Company and Mr. Greg Jenkins (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007 filed with the Securities and Exchange Commission on May 10, 2007 (File No. 0-21911).
	**10.78	Retirement Agreement dated November 15, 2007 between the Company and Jack B. Holmes, Jr.

46

Exhibit
No.		Description of Exhibit
	**10.79	Retirement Agreement dated November 16, 2007 between the Company and Ken Agee.
	**10.80	Restricted Stock Agreement dated November 16, 2007 between the Company and Ken Agee.
	**14	Code of Ethics (incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission on March 23, 2004 (File No. 0-21911)).
	**21	Subsidiaries of Syntroleum
	**23	Consent of Grant Thornton LLP
	**31.1	Section 302 Certification of Chief Executive Officer
	**31.2	Section 302 Certification of Chief Financial Officer
	**32.1	Section 906 Certification of Chief Executive Officer
	**32.2	Section 906 Certification of Chief Financial Officer

*	Incorporated by reference as indicated.
**	Filed herewith
+	Compensatory plan or arrangement.

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SYNTROLEUM CORPORATION
Dated: March 17, 2008	By:	/s/ Edward G. Roth
		Edward G. Roth
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Capacity	Date
/s/ Edward G. Roth Edward G. Roth	Chief Executive Officer and Director (Principal Executive Officer)	March 17, 2008
/s/ Karen L. Gallagher Karen L. Gallagher	Senior Vice President of Finance and Principal Financial Officer (Principal Financial Officer)	March 17, 2008
/s/ Robert B. Rosene, Jr.	Chairman of the Board	March 17, 2008
Robert B. Rosene, Jr.
/s/ Alvin R. Albe, Jr.	Director	March 17, 2008
Alvin R. Albe, Jr.
/s/ Frank M. Bumstead	Director	March 17, 2008
Frank M. Bumstead
/s/ P. Anthony Jacobs	Director	March 17, 2008
P. Anthony Jacobs
/s/ James R. Seward	Director	March 17, 2008
James R. Seward

48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Syntroleum Corporation

We have audited the accompanying consolidated balance sheets of Syntroleum Corporation (a Delaware corporation) and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 Syntroleum Corporation and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, during the year ended December 31, 2006, the Company changed its method of accounting for stock-based compensation to conform to Financial Accounting Standards Board Statement No. 123 (Revised 2004), “Share-Based Payments”.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Syntroleum Corporation’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 17, 2008 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

Tulsa, Oklahoma
March 17, 2008

F-1

SYNTROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

	December 31,			December 31,
	2007			2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	18,405		$	33,469
Restricted cash		—			166
Accounts receivable		420			500
Other current assets		441			1,674
Current assets of discontinued operations		5,766			1,663
Total current assets		25,032			37,472
OIL AND GAS PROPERTIES, USING FULL COST METHOD AND PROPERTY AND EQUIPMENT HELD FOR SALE		1,162			4,024
PROPERTY AND EQUIPMENT — at cost, net		508			932
INVESTMENT IN DYNAMIC FUELS, LLC		3,910			—
OTHER ASSETS, net		1,679			1,509
	$	32,291		$	43,937
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	625		$	2,096
Accrued employee costs		1,275			1,191
Accrued corporate insurance		—			1,161
Other accrued liabilities		35			82
Current liabilities of discontinued operations		696			3,743
Total current liabilities		2,631			8,273
NONCURRENT LIABILITIES OF DISCONTINUED OPERATIONS		958			—
NONCURRENT CONVERTIBLE DEBT		—			27,641
OTHER NONCURRENT LIABILITIES		—			35
DEFERRED REVENUE		22,578			21,840
COMMITMENTS AND CONTINGENCIES MINORITY INTERESTS		—			706
STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred stock, $0.01 par value, 5,000 shares authorized, no shares issued		—			—
Common stock, $0.01 par value, 150,000 shares authorized, 62,523 and 56,020 shares issued and outstanding at December 31, 2007 and 2006, respectively		625			560
Additional paid-in capital		339,277			322,411
Accumulated deficit		(333,778	)		(337,529	)
Total stockholders’ equity (deficit)		6,124			(14,558	)
	$	32,291		$	43,937

The accompanying notes are an integral part of these consolidated balance sheets.

F-2

SYNTROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	For the Year Ended December 31,
	2007			2006			2005
REVENUES:
Licensing revenue from Marathon	$	13,665		$	—		$	—
Technical services revenue		1,948			—			—
Other revenues		859			2,700			464
Total revenues		16,472			2,700			464
COSTS AND EXPENSES:
Engineering		5,753			3,381			2,665
Depreciation, depletion and amortization		745			816			686
General, administrative and other (including non-cash equity compensation of $4,980, $7,859 and $4,686 for the years ended December 31, 2007, 2006 and 2005, respectively.)		20,336			27,009			22,423
OPERATING INCOME (LOSS)		(10,362	)		(28,506	)		(25,310	)
INTEREST INCOME		1,454			2,528			2,554
OTHER INCOME (EXPENSE)		(327	)		(1,200	)		174
FOREIGN CURRENCY EXCHANGE		(1,315	)		(892	)		745
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(10,550	)		(28,070	)		(21,837	)
MINORITY INTEREST		706			—			—
INCOME TAXES		—			—			—
INCOME (LOSS) FROM CONTINUING OPERATIONS		(9,844	)		(28,070	)		(21,837	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS		13,595			(26,555	)		(19,557	)
NET INCOME (LOSS)	$	3,751		$	(54,625	)	$	(41,394	)
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
Income (loss) from continuing operations	$	(0.17	)	$	(0.50	)	$	(0.41	)
Income (loss) from discontinued operations		0.23			(0.48	)		(0.36	)
Net income (loss)	$	0.06		$	(0.98	)	$	(0.77	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		59,731			55,850			53,554
Diluted		60,383			55,850			53,554

The accompanying notes are an integral part of these consolidated statements.

F-3

SYNTROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

	Common Stock						Additional
	Number						Paid-in			Deferred			Accumulated			Treasury			Stockholders’
	of Shares			Amount			Capital			Compensation			Deficit			Stock			Equity (Deficit)
Balance, January 1, 2005		54,482			545			228,295			(577	)		(241,510	)		(77	)		(13,324	)
Stock options exercised		256			3			794			—			—			—			797
Stock warrants exercised		233			3			1,074			—			—			—			1,077
Stock-based compensation for consultants		—			—			4,150			—			—			—			4,150
Issuance of common stock		8,000			80			79,838			—			—			—			79,918
Stock-based bonuses		330			3			3,829			(2,850	)		—			—			982
Vesting/cancellation of restricted common stock units		—			—			(31	)		838			—			—			807
Purchase and retirement of treasury stock		(7,733	)		(78	)		(599	)		—			—			77			(600	)
Net income (loss)		—			—			—			—			(41,394	)		—			(41,394	)
Balance, December 31, 2005		55,568			556			317,350			(2,589	)		(282,904	)		—			32,413
Adoption of SFAS 123 (R)		—			—			(2,589	)		2,589			—			—			—
Stock options exercised		186			2			412			—			—			—			414
Stock warrants exercised		2			—			12			—			—			—			12
Vesting of awards granted		146			1			6,100			—			—			—			6,101
Stock-based bonuses and match to 401(k)		195			2			1,811			—			—			—			1,813
Retirement of treasury stock		(77	)		(1	)		(685	)		—			—			—			(686	)
Net income (loss)		—			—			—			—			(54,625	)		—			(54,625	)
Balance, December 31, 2006		56,020		$	560		$	322,411		$	—		$	(337,529	)	$	—		$	(14,558	)
Stock options exercised		22			—			36			—			—			—			36
Draw-down under common stock purchase agreement		4,496			45			12,755			—			—			—			12,800
Vesting of awards granted		646			6			4,369			—			—			—			4,375
Stock-based bonuses and match to 401(k)		1,735			17			855			—			—			—			872
Cancellation of restricted shares		(100	)		—			(267	)		—			—			—			(267	)
Retirement of treasury stock		(296	)		(3	)		(882	)		—			—			—			(885	)
Net income (loss)		—			—			—			—			3,751			—			3,751
Balance, December 31, 2007		62,523		$	625		$	339,277		$	—		$	(333,778	)	$	—		$	6,124

The accompanying notes are an integral part of these consolidated statements.

F-4

SYNTROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	For the Year Ended December 31,
	2007			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	3,751		$	(54,625	)	$	(41,394	)
Income (loss) from discontinued operations		13,595			(26,555	)		(19,557	)
Loss from continuing operations		(9,844	)		(28,070	)		(21,837	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization		745			816			686
Foreign currency exchange		1,311			888			(750	)
Non-cash compensation expense		4,980			7,859			4,686
Loss on sale of assets		14			—			—
Minority interest release of project equity contribution		(706	)		—			—
Non-cash loss in equity method investee		340			—			—
Non-cash licensing revenue		(13,665	)		—			—
Changes in assets and liabilities:
Accounts receivable		80			521			(428	)
Other assets		928			1,061			(234	)
Accounts payable		(1,467	)		(535	)		(250	)
Accrued liabilities and other		(1,159	)		(500	)		597
Deferred revenue		372			—			(75	)
Net cash used in continuing operations		(18,071	)		(17,960	)		(17,605	)
Net cash used in discontinued operations		(5,007	)		(17,847	)		(20,865	)
Net cash used in operating activities		(23,078	)		(35,807	)		(38,470	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(162	)		(380	)		(1,116	)
Proceeds from disposal or conveyance of property		—			—			169
Proceeds from note receivable		—			1,802			7
Investment in Dynamic Fuels, LLC		(4,250	)		—			—
(Increase) decrease in restricted cash		166			(166	)		—
Net cash provided by (used in) continuing operations		(4,246	)		1,256			(940	)
Net cash provided by (used in) discontinued operations		5,730			(1,675	)		(7,002	)
Net cash provided by (used in) provided by investing activities		1,484			(419	)		(7,942	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, warrants and option exercises		36			426			81,792
Proceeds from common stock purchase agreement		12,800			—			—
Payment of debt		(3,750	)		—			—
Purchase and retirement of treasury stock		(885	)		(686	)		(600	)
Net cash (used in) provided by continuing operations		8,201			(260	)		81,192
Net cash (used in) provided by discontinued operations		(1,667	)		294			3,315
Net cash provided by financing activities		6,534			34			84,507
FOREIGN EXCHANGE EFFECT ON CASH		(4	)		(2	)		(5	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(15,064	)		(36,194	)		38,090
CASH AND CASH EQUIVALENTS, beginning of period		33,469			69,663			31,573
CASH AND CASH EQUIVALENTS, end of period	$	18,405		$	33,469		$	69,663

The accompanying notes are an integral part of these consolidated statements.

F-5

SYNTROLEUM CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature of Operations

The focus of Syntroleum Corporation and subsidiaries (the “Company” or “Syntroleum”) is to develop and employ innovative technology to produce synthetic liquid hydrocarbons that are substantially free of contaminants normally found in conventional hydrocarbon products. Our Bio-Synfining™ Technology processes triglycerides and/or fatty acids from fats and vegetable oils with heat (thermal depolymerization), hydrogen and proprietary catalysts to make renewable synthetic fuels, such as diesel, jet fuel (subject to certification), kerosene, naphtha and propane. Syntroleum has quantified in excess of 80 different fats and oils, which cover the spectrum of both cost and quality, for conversion to synthetic fuels via the Bio-Synfining™ Technology. On June 22, 2007, the Company entered into definitive agreements with Tyson Foods, Inc. (“Tyson”) to form Dynamic Fuels LLC, a Delaware limited liability company (“Dynamic”), to construct facilities in the United States using its Bio-Synfining™ Technology. See note 5, “Investment in Dynamic”, for further detail.

The operations of the Company to date have consisted of the research and development of a proprietary process (the “Syntroleum^® Process”) designed to convert natural gas into synthetic liquid hydrocarbons (“gas-to-liquids” or “GTL”) and activities related to the commercialization of the Syntroleum^® Process. Synthetic liquid hydrocarbons produced by the Syntroleum^® Process can be further processed using the Syntroleum Synfining^® Process into high quality liquid fuels. Our Bio-Synfining™ Technology is a renewable fuels application of our Synfining^® product upgrading technology. The Company is also applying its technology to convert synthesis gas derived from coal (“coal-to-liquids” or “CTL”) or bio-feedstocks (“biomass-to-liquids” or “BTL”) into these same high quality products. The Company is centered on being a recognized provider of the Bio-Synfining™ Technology, Syntroleum^® Process and Synfining^® product upgrading technology to the energy industry through strategic relationships and licensing of its technology. The Company has completed all activities associated with research and development. See note 3 “Discontinued Operations and Assets Held for Sale” for further detail.

Consolidation

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. Investments in affiliated companies of 20 percent to 50 percent in which Syntroleum does not have a controlling interest are accounted for by the equity method. The Company owns 50 percent and has a non-controlling interest in Dynamic. The entity is accounted for under the equity method and is not required to be consolidated in the Company’s financial statements; however, the Company’s share of the activities is reflected in “Other Income (Expense)” in the Consolidated Statements of Operations. The Company’s carrying value in Dynamic is reflected in “Investment in Dynamic Fuels LLC” in the Company’s Consolidated Balance Sheets. The Company had no investments in affiliated companies of 20 percent to 50 percent as of December 31, 2006. Investments in affiliated companies of less than 20 percent are accounted for by the cost method.

Revenue Recognition

The Company recognizes revenues from technical services provided as time and expenses for services or support associated with a contract or license are incurred. The license agreements require the Company to develop a site-specific plant design in accordance with licensee specifications; this design package is called the Process Design Package, or “PDP,” and allows for a 100 percent cost recovery of services rendered. Technical service revenues resulted from the preparation of our process design package to Dynamic in 2007. The preparation of our process design package includes engineering labor and necessary materials for completion of the package.

The Company recognizes revenues from joint development activities when contract deliverables are completed. Proceeds received prior to the completion of contractual obligations are deferred with revenues recognized upon the Company’s completion of its obligations specified under the contract.

Substantially all of the Company’s joint development revenues during the periods presented have been from joint development activities with several major oil companies (see Note 14), the Department of Energy (“DOE”) and the Department of Defense (“DOD”). All such joint development activities were pursuant to joint research and development agreements where the Company expenses its research and development costs as incurred. These projects require the Company to deliver results from development activities such as non-proprietary analysis of plant processes, flow diagrams, chemical analysis and fuel production plans that will be jointly shared by each party. The customers benefit from paying for these development activities as they are obtaining access to information pertaining to the Syntroleum^® Process. Revenue is recognized when final delivery of the shared technology has occurred. Under some of these agreements, the joint development participant may receive credits against future license fees for monies expended on joint research and development. The value of these credits is a fixed amount stated in the contract and reflected as deferred revenue until the credit is utilized. The revenues to be recognized in the future from these contracts are deemed to be fixed and determinable under the criteria specified in Staff Accounting Bulletin, Topic 13 and SOP 97-2, Software Revenue Recognition. These revenues are reported in “Income (Loss) from Discontinued Operations” in the Consolidated Statement of Operations.

F-6

License fee deposits received as cash upon the sale of master volume or regional license agreements are recorded as deferred revenue in the consolidated balance sheets until recognized as revenue in the consolidated statements of operations. The Company recognizes revenue on the sale of license agreements by recording 50 percent of the license fee deposit as revenue when: (1) a site license agreement has been formally executed, (2) the license fee deposit has been paid in cash and (3) the Company has delivered to the licensee the process design package for the licensee’s initial licensed plant. Since 50 percent of the license fee deposit is subject to the Company’s indemnity obligation with respect to the performance guarantee on the related plant, the remaining license fee deposit will be recognized as revenue in the consolidated statements of operations after the related plant has passed certain performance tests. Option fees, which provide licensees the right to include additional geographic areas in its license agreement territory, are deferred until the earlier of the option being exercised or lapsing. The license agreements currently allow the Company to develop a PDP and allow for a 100 percent cost recovery plus a 10 percent mark-up from the licensee. To date, the Company has not delivered any PDP’s for initial licensed plants. The Company is under no obligation to return these deferred revenues except in the case when a licensee builds a plant and the plant does not pass certain performance tests. In this situation, the licensee would be able to receive a refund of 50 percent of the license fees paid. The license agreements have a 15-year life and, after this time, the deferred revenue will be recorded as license revenue in the statements of operations unless a site license has been executed. The Company’s current licenses generally begin to expire in 2011 and the initial deposits will be recognized as licensing revenue as the licenses expire should a licensee not purchase a site license and begin construction of a plant prior to expiration of the license.

The purpose of a volume license is to allow the licensee access to Syntroleum’s technology for potential projects over the entire geographic area covered under the license but with a volume limitation of product that can be produced. In a regional license agreement, the licensee gets access to Syntroleum’s technology for projects in a more restricted geographic area but with no volume limitation on the amount of product that can be produced. The master license provides the broadest scope in geography and no limit on volume of product to be produced. Under each type of license, the licensee is granted access to use Syntroleum’s autothermal reformer and Fischer-Tropsch (“FT”) technology, the right to consult with Syntroleum’s technology staff concerning the technology, potential support for the licensee’s business development activities upon request, the preparation of a PDP once a project has been developed and a specific site chosen by the licensee, and the right to request a site license be executed for the specific project. The site license would be executed to cover the project at that specific site to and would include performance guarantees provided by Syntroleum which take into account the specific physical conditions of the project and feedstock being used. The licensee can also gain access to the Company’s Synfining technology which provides product upgrading capability through any of the license types.

Preparation of the process design package can take varying amounts of time depending on the size of the project and could take a period of time, ranging six months to two years from the notice to proceed. Construction time will depend on the size of the project, site location conditions and the availability of construction services, necessary materials and labor. Current estimates for construction times for large capital projects in excess of one billion dollars in cost are from three to five years from completion of the front end engineering design and financing.

The Company provides synthetic ultra-clean diesel fuel, such as its S-2 diesel fuel and S-8 jet fuel (subject to certification), produced from natural gas and FC-1 naphtha fuels to various customers for their use in further research and testing upon their request. The ultra-clean S-2 diesel fuel and S-8 jet fuel (subject to certification) is a paraffinic, high-cetane distillate fuel that is essentially free of sulfur, olefins, metals, aromatics or alcohols. The fuels have been produced at the Catoosa Demonstration Facility. Revenues are recognized upon delivery of the requested fuels and are recorded as other revenue.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash and highly liquid investments with an original maturity of three months or less, primarily in the form of money market instruments. The Company’s cash and cash equivalents are held in a few financial institutions; however, management believes that the Company’s counter-party risks are minimal based on the reputation and history of the institutions selected.

The Company had no restrictions on cash as of December 31, 2007. The Company had restricted cash held in escrow at December 31, 2006 related to its agreement with Sovereign Oil and Gas Company II, LLC (“Sovereign”), a consulting firm that assisted the Company in acquiring oil and natural gas fields worldwide, in the amount of $1,573,000. This balance is reported in “Current Assets of Discontinued Operations” as of December 31, 2006. The Company also has restricted cash held in escrow pending the release of a ground lease with the city of Reno (see Note 4) of $166,000 at December 31, 2006.

Accounts Receivable

The majority of the Company’s accounts receivable is due from technical service agreements and joint development agreements with licensees. Accounts receivable are typically due within 30 days and are stated as amounts due from customers. Accounts outstanding longer than the contractual payment terms are considered past due. The Company writes off accounts receivable when they become uncollectible. Management determines accounts to be uncollectible when the Company has used all reasonable means of collection and settlement. Management believes that all amounts included in accounts receivable at December 31, 2007 will be collected and therefore no allowance for uncollectible accounts has been recorded. There was also no allowance at December 31, 2006.

F-7

Research and Development

The Company has incurred significant costs for research and development programs. Expenses classified as research and development include salaries and wages, rent, utilities, equipment, and outside testing and analytical work associated with our research and development programs. Since these costs are for research and development purposes, and not commercial or revenue producing, they are charged to expense when incurred in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 2, Accounting for Research and Development Costs. These costs are reported in “Income (Loss) from Discontinued Operations” in the Consolidated Statement of Operations. The cost been classified as discontinued operations as the Company has completed the necessary research and development and intends to commercialize the technology. The total cost of research and development activities, including the operation and construction of the Catoosa Demonstration Facility totaled $6,813,000, $17,748,000 and $19,779,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Maintenance, repairs and replacement of minor items are expensed and major additions, expansions and betterments to physical properties are capitalized, except those related to research and development activities, including the Catoosa Demonstration Facility and the Tulsa Pilot Plant, which were expensed and reported as discontinued operations. When assets are sold or retired, the cost and accumulated depreciation related to those assets are removed from the accounts and any gain or loss is recognized. Depreciation of property and equipment is computed on the straight-line method over the estimated useful lives of three to seven years. Property and equipment consists of the following (in thousands):

	December 31,			December 31,
	2007			2006
Furniture and office equipment	$	6,094		$	5,958
Leasehold improvements		405			405
		6,499			6,363
Less — accumulated depreciation		(5,991	)		(5,431	)
	$	508		$	932

Oil and Gas Properties

The Company follows the full cost method of accounting for exploration, development, and acquisition of oil and gas reserves. Under this method, all such costs (productive and nonproductive) including salaries, benefits, and other internal costs directly attributable to these activities are capitalized. These costs plus future development costs of undeveloped properties are amortized on an aggregate basis over the estimated lives of the properties using the units-of-production method on a country-by-country basis. The Company excludes all costs of unevaluated properties from immediate amortization. All of the costs that were unevaluated for the year ended December 31, 2006 related to either leasehold, geological and geophysical or acquisition-type costs. The Company evaluates these costs at least quarterly, or when circumstances warrant, to determine if any of the costs should be included in the amortization computation. In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 106, Interaction of Statement of SFAS No. 143, Accounting for Asset Retirement Obligations, with the Full Cost Accounting Rules in Article 4-10 of Regulation S-X, the Company excludes the future cash outflows associated with asset retirement obligations accrued on the balance sheets, if any, from the present value of future net revenues used in the ceiling limitation calculation. For purposes of computing depreciation, depletion and amortization, the Company includes the estimated future expenditures for dismantlement and abandonment costs, net of salvage values, of proved undeveloped properties, if any, in the costs to be amortized. For each cost center, the Company’s unamortized costs of oil and gas properties are limited to the sum of the future net revenues attributable to proved oil and gas reserves discounted at 10 percent plus the lower of cost or market value of any unproved properties. If the Company’s unamortized costs in oil and gas properties exceed this ceiling amount, a provision for additional depreciation, depletion, amortization and impairment is required.

The Company classified its Domestic and International Oil and Gas operations as discontinued operations for the years ended December 31, 2007, 2006 and 2005 (see Note 3).

Asset Retirement Obligations

The Company follows SFAS No. 143, Accounting for Asset Retirement Obligations, which requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The standard requires that the Company record the discounted fair value of the retirement obligation as a liability at the time the plants are constructed. The asset retirement obligations consist primarily of costs associated with the future plant dismantlement of the Company’s pilot plants. As the pilot plants are directly related to research and development activities and have been expensed accordingly, no corresponding amount is capitalized as part of the related property’s carrying amount. The liability accretes over time with a charge to accretion expense. The Company has recognized an asset retirement obligation of approximately $1,504,000 using a 10 percent discount rate over the estimated dismantlement period at December 31, 2007 in “Current and Other Non-Current Liabilities of Discontinued Operations” in the Company’s Consolidated Balance Sheets. Accretion expense in the amount of approximately $39,000 has been incurred for the year ended December 31, 2007 in “Income (Loss) from Discontinued Operations” in the Consolidated Statement of Operations as the liability was incurred as of September 30, 2007. There is no asset retirement obligation as of December 31, 2006 and 2005.

F-8

Other Assets

Other assets consist primarily of costs associated with patents and are amortized using the straight-line method over their estimated period of benefit, ranging from fifteen to seventeen years. All costs are capitalized and amortization begins in the period in which the patent application is approved. Amortization expense for the years ended December 31, 2007, 2006 and 2005 was $136,000, $122,000 and $112,000, respectively. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. Future amortization expense for patents as of December 31, 2007 is estimated to be $134,000 per year through 2020. Other assets consist of the following (in thousands):

	December 31,			December 31,
	2007			2006
Patents	$	2,399		$	2,093
Less — accumulated amortization		(720	)		(584	)
	$	1,679		$	1,509

Income Taxes

Income taxes are accounted for using the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and of net operating loss carry-forwards. Deferred tax assets and liabilities are measured using the enacted tax rates and laws in effect or that will be in effect when the differences are expected to reverse. The Company records a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Impairment of Assets

The Company follows the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), for assets other than its oil and gas properties. The Company makes assessments of impairment on a project-by-project basis. Management reviews assets for impairment when certain events have occurred that indicate that the asset may be impaired. An asset is considered to be impaired when the estimated undiscounted future cash flows are less than the carrying value of the asset. The impairment provision is based on the excess of carrying value over fair value. Fair value is defined as the present value of the estimated future cash flows of a project.

Accounting for Guarantees

The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Interpretation 45, Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”) for any guarantees entered into after December 2002. Under FIN 45, the Company is required to record a liability for the fair value of the obligation undertaken in issuing the guarantees. No liabilities have been recognized for any of the guarantees described in Note 12 under FIN 45, because all of these items were entered into prior to December 2002 and there have been no modifications requiring recognition.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (R), Share-Based Payment (“SFAS No. 123 (R)”), which establishes accounting for equity instruments exchanged for employee and non-employee services. Under the provisions of SFAS No. 123(R), share-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period, which is generally the vesting period of the equity grant. Prior to January 1, 2006, the Company accounted for share-based compensation to employees in accordance with the Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company also followed the disclosure requirements of the SFAS No. 123, Accounting for Stock-Based Compensation.

The Company adopted the modified prospective transition method as provided by SFAS No. 123(R). Accordingly, financial statement amounts for the periods prior to 2006 have not been restated to reflect the fair value method of expensing share-based compensation. In accordance with the modified prospective transition method, all outstanding deferred compensation at the time of adoption was reclassified to additional paid-in capital. For the year ended December 31, 2007 and 2006, the Company recorded a total of $4,980,000 and $7,859,000 or $(0.08) and $(0.14) per basic and diluted share of share-based compensation expense, respectively. At January 1, 2006, the Company had no cumulative effect associated with adopting SFAS No. 123(R).

Prior to adoption of SFAS No. 123(R), the Company did not recognize compensation expense for employee stock option grants, when the exercise price of the Company’s employee stock options equaled the market price of the underlying stock on the date of grant.

F-9

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to its stock option plan prior to January 1, 2006 (in thousands, except per share data):

	December 31,
	2005
Net income (loss), as reported	$	(41,394	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for awards granted, modified, or settled, net of related tax effects, if any		(3,534	)
Pro forma net income (loss)	$	( 44,928	)
Earnings (loss) per share:
Basic and diluted- as reported	$	(0.77	)
Basic and diluted- pro forma	$	(0.84	)

The fair values of options have been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Year Ended
	December 31, 2005
Expected dividend yield		0	%
Expected volatility		52	%
Risk-free interest rate		3.84	%
Expected life	5 yrs.

Non-Employee Stock-Based Compensation. The Company also grants stock-based incentives to certain non-employees. These stock based incentives are accounted for in accordance with Emerging Issues Task Forces Issue 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. Any stock awards granted to non-employees that are not related to specific performance criteria are expensed over the period of vesting. Stock awards that are tied to performance criteria are expensed at the time the performance goals are met.

Earnings Per Share

Basic and diluted earnings (losses) per common share were computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the reporting period. Diluted earnings per common share for each of the three years ended December 31, 2007 are calculated by dividing net income by weighted-average common shares outstanding during the period plus dilutive potential common shares, which are determined as follows:

	Year ended December 31,
	2007		2006		2005
	(in thousands)
Basic weighted-average shares		59,731		55,850		53,554
Effect of dilutive securities:
Unvested restricted stock units (1)		100		—		—
Stock options		552		—		—
Dilutive weighted-average shares		60,383		55,850		53,554

(1) The unvested restricted stock units outstanding at December 31, 2007 are expected to vest over the period from January 2008 to December 2010.

The table below includes information related to stock options, warrants and restricted stock that were outstanding at December 31 of each respective year, but have been excluded from the computation of weighted-average stock options due to (i) the option exercise price exceeding the twelve-month weighted-average market price of our common shares or (ii) their inclusion would have been anti-dilutive to our earnings /(loss) per share.

F-10

	Twelve Months Ended,
	December 31,		30, December		30, December
	2007		2006		2005
Options and warrants (in thousands)		10,713		10,949		11,277
Restricted stock excluded		1,082		426		410
Weighted-average exercise prices of options and warrants	$	5.49	$	6.43	$	6.88
Period weighted average market price	$	2.46	$	6.04	$	10.20

The number of shares that could have been issued as a result of the convertible debt outstanding at December 31, 2006 and 2005 totals 4,606,822 and 4,320,794 shares of common stock, respectively, based on the minimum conversion rate of $6.00 per common share. These shares are excluded from this computation as they are anti-dilutive. On January 16, 2007, this agreement was terminated and the convertible debt was eliminated (see Note 6).

Defined Contribution Plan — 401(k)

The Company sponsors a defined contribution plan, named the Syntroleum 401(k) Plan (the “401(k) Plan”), covering virtually all employees of Syntroleum Corporation and its wholly-owned subsidiaries who have met the eligibility requirements. Employees of the Company may participate in the 401(k) Plan upon employment with the Company. Participants become eligible for Company matching and profit sharing contributions upon employment on the last day of the 401(k) Plan quarter.

Effective July 1, 2006, the Plan adopted an amendment to allow the Company the option to make contributions in the form of shares of common stock of the Company (“Syntroleum Stock”). The Company contributes a matching contribution equal to 50 percent of employees’ contributions quarterly. No employee purchase of Syntroleum Stock is permitted. The Company recorded expense of $252,000 and $282,500 from issuing 130,307 and 69,340 shares of Syntroleum Stock for the year ended December 31, 2007 and 2006, respectively, of which 47,752 shares were issued in January 2008.

The Company elected not to make any contributions to the 401(k) Plan for the year ended December 31, 2005.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates made by management include, but are not limited to, the valuation of stock-based compensation, estimates for accrued liabilities and impairment of property and equipment. Actual results could differ from these estimates.

Foreign Currency Transactions

All of the Company’s subsidiaries use the U.S. dollar for their functional currency. Assets and liabilities denominated in other currencies are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Transaction gains and losses that arise from exchange rate fluctuations applicable to transactions denominated in a currency other than the U.S. dollar are included in the consolidated results of operations as incurred.

New Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109 (“FIN 48”). FIN 48 clarifies that an entity’s tax benefits recognized in tax returns must be more likely than not of being sustained prior to recording the related tax benefit in the financial statements. As required by FIN 48, the Company adopted this new accounting standard effective January 1, 2007. Since the Company has no unrecognized tax benefits, the adoption of FIN 48 did not impact the Company’s consolidated results of operations and financial condition. Open tax years are December 31, 2003 forward for both federal and state jurisdictions.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS 157 is effective in the first quarter of 2008 and the Company does not expect the adoption to have a material impact on its financial position and results of operations.

In November 2006, the FASB ratified a consensus opinion reached by the Emerging Issues Task Force (“EITF”) on EITF Issue 06-6, Debtor’s Accounting for a Modification (or Exchange) of Convertible Debt Instruments, which supersedes EITF Issue 05-7, Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues, and amends EITF Issue 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments. Under the guidance in EITF Issue 06-6, when the Company modifies or exchanges debt instruments that affect the terms of an embedded conversion option, debt extinguishment accounting would apply under certain conditions. Guidance is also provided for modifications or exchanges that are not treated as extinguishments. The consensus in EITF Issue 06-6 was effective for modifications and exchanges of debt instruments that occur in interim or annual reporting periods beginning after November 29, 2006. The adoption of this EITF had no impact on the Company’s consolidated financial statements.

F-11

In December 2006, the FASB issued FASB Staff Position (FSP) EITF 00-19-2 (“FSP EITF 00-19-2”), Accounting for Registration Payment Arrangements. The FSP specifies the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement should be recognized and measured separately in accordance with FASB No. 5, Accounting for Contingencies. FSP EITF 00-19-2 further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles without regard to the contingent obligation to transfer consideration. The FSP was effective immediately for registration payment arrangements that are entered into or modified subsequent to December 21, 2006. The adoption of this FSP had no impact on the Company’s consolidated results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment to FASB Statement No. 115 (“SFAS 159”). SFAS 159 allows companies to choose to measure eligible assets and liabilities at fair value with changes in value recognized in earnings. Fair value treatment for eligible assets and liabilities may be elected either prospectively upon initial recognition, or if an event triggers a new basis of accounting for an existing asset or liability. SFAS 159 is effective in the first quarter of 2008 and the Company does not expect the adoption to have a material impact on its financial position and results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), Business Combinations and SFAS No. 160 (“SFAS 160”), Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulleting No. 51. SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interest and classified as a component of equity. SFAS 141R and SFAS 160 are effective beginning the first fiscal quarter of 2009. Early adoption is not permitted. The Company is currently evaluating the impact the adoption of either SFAS 141R or SFAS 160 will have on the Company’s consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the 2006 balance sheet and the 2006 and 2005 statements of operations and cash flows to conform to the 2007 presentation. These reclassifications had no impact on net income (loss). The reclassifications relate to the discontinued operations of research and development activities and domestic and international oil and gas activities (see Note 3).

2. OPERATIONS AND LIQUIDITY

Although the Company generated net income for 2007 it has previously sustained recurring losses and negative cash flows from continuing operations. Over the periods presented in the accompanying financial statements, the Company’s operations have been funded through a combination of equity and convertible debt financings, and the sale of certain assets. As of December 31, 2007, the Company had approximately $18,405,000 of cash and cash equivalents and $5,766,000 in a receivable from our international oil and gas operations available to fund operations. The Company reviews cash flow forecasts and budgets periodically. Management believes that the Company currently has sufficient cash and financing capabilities to meet its funding requirements over the next year. The Company has implemented cash expense reductions in overhead activities including personnel reductions. The Company has discontinued research and development activities, as the Company pursues commercial deployment of its technology. The Company has experienced significant reductions in overhead and research and development expenditures over the last twelve months and expects to continue this downward trend in expenditures. However, the Company has experienced, and continues to experience, negative operating margins and negative cash flows from operations, as well as, an ongoing requirement for substantial additional capital investment related to construction of plants, and other activities in which the Company participates.

The capital budget for Dynamic’s construction and initial operations of the first plant to use the Company’s Bio-Synfining Technology is estimated to equal $158.5 million in total. If adequate funds are not available, the Company may be required to reduce, delay or eliminate expenditures for plant development and other activities, or seek to enter into a business combination transaction with or sell assets to another company.

If either Tyson or the Company elects not to proceed with the construction of the first plant, then their interest in Dynamic reverts to the other party, who is then free to build the plant. If a member fails to make a capital contribution, it is in default, and its interest in Dynamic is diluted by $1.50 per $1.00 not contributed. The other member can make a loan to the defaulting member at a rate of LIBOR +10% with a 40 day cure period. The defaulting member can make a full or partial loan repayment and a pro rata portion of lost interest will be restored. If the loan is not repaid, it will be converted into ownership interest for the member making the loan, diluting the defaulting member at the same rate of $1.00 per $1.00 of the loan.

F-12

The Company expects that it will need to raise substantial additional capital to accomplish its business plan over the next several years. The Company expects to seek to obtain additional funding through debt or equity financing in the capital markets, as well as, various other financing arrangements. The Company has an effective registration statement for the proposed offering from time to time of shares of its common stock, preferred stock, debt securities, depository shares or warrants for a remaining aggregate offering price of approximately $89 million as of December 31, 2007. The Company entered into a Common Stock Purchase Agreement on November 20, 2006 which provides for the purchase of common stock up to $40 million over the twenty-four months of the agreement, of which $5 and $8 million were drawn-down on March 1, 2007 and July 11, 2007, respectively. Of the $8 million drawn-down on July 11, 2007, $4.25 million was used to capitalize Dynamic. No draw-downs can be made under this facility when the Company’s the stock price is less than $1.37 per share. If the Company obtains additional funds by issuing equity securities, dilution to stockholders will occur. In addition, preferred stock could be issued in the future without stockholder approval and the terms of the preferred stock could include dividend, liquidation, conversion, voting and other rights that are more favorable than the rights of the holders of the Company’s common stock. There can be no assurance as to the availability or terms upon which such financing and capital might be available. As of December 31, 2007, the Company’s common stock share price was less than the threshold price.

The Company entered into an agreement (the “Purchase Agreement”) with Fletcher International, Ltd. (“Fletcher”) on November 18, 2007 pursuant to which Fletcher, subject to the terms and conditions set forth in the Purchase Agreement has agreed to purchase $12 million of the Company’s common stock. See note 8, “Common Stock Purchase Agreement,” for further detail.

The Company is currently exploring alternatives for raising capital to commercialize the growth of its businesses, including the formation of joint ventures and other strategic alliances. If adequate funds are not available, the Company may be required to reduce, delay or eliminate expenditures for its plant development and other activities, or may seek to enter into a business combination transaction with or sell assets to another company. The transactions outlined above may not be available to the Company when needed or on terms acceptable or favorable to the Company.

On January 25, 2008 the Company received from The NASDAQ Stock Market a letter indicating that the it was not in compliance with the market value minimum requirement for its common stock as set forth in Marketplace Rule 4450(b)(1)(A). The Company was provided 30 calendar days, or until February 25, 2008, to regain compliance. The Company was unable to meet this requirement and has requested a hearing to appeal the delisting determination to a Listing Qualifications Panel. Pending this decision, the Company may apply to transfer it’s common stock to the NASDAQ Capital Market if it satisfies the requirements for continued listing. The Company also received a NASDAQ Staff Deficiency Letter on February 1, 2008, indicating it’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion under Marketplace Rule 4450(a)(5). The Company was provided 180 calendar days, or until July 30, 2008, to regain compliance. During this 180-day period, its shares will continue to trade on The NASDAQ Stock Market assuming its stock is not de-listed for failure to comply with the market value minimum requirement described above. The NASDAQ Stock Market has indicated that if at any time before July 30, 2008, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will determine if the Company has achieved compliance with the rule.

3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

International Oil and Gas

The Company’s international oil and gas activities have primarily included the leasehold acquisition, geological and geophysical work covering various areas in Nigeria, and drilling costs for the Aje-3 discovery well (“Aje-3”) in Oil Mining Lease 113 (“OML”) offshore Nigeria. In the fourth quarter of 2006, the Company decided to exit its international oil and gas activities due to limited access to capital requirements. On January 19, 2007, the Company sold all the stock of various subsidiaries, including Syntroleum Nigeria Limited which held the Company’s interests in the Ajapa and Aje fields offshore Nigeria to African Energy Equity Resources Limited (“AEERL”), a direct wholly owned subsidiary of Energy Equity Resources (Norway) Limited (“EERNL”). The sale was effectuated through a sale share and purchase agreement which was entered into pursuant to a letter of intent dated November 30, 2006. As consideration for the sale, AEERL paid the Company a $2 million nonrefundable deposit on December 12, 2006. AEERL was to pay Syntroleum $10,172,000 on the earlier to occur of April 1, 2007 or the date AEERL raised additional capital, $5 million from the first gross revenues AEERL receives from each of the Ajapa and Aje interests, and $3 million if third party farmees enter into an agreement to fund at least half of the cost of drilling the proposed Aje-4 well. AEERL paid $2,000,000 of this balance on March 30, 2007 and $1,000,000 on May 9, 2007 On October 31, 2007, the Company entered into an agreement with African Energy Partners (“AEP”) to acquire a portion of the debt and interest owed to the Company by AAERL in the amount of $2,000,000. On March 3, 2008 the Company collected the remaining amount owed of $5,172,000 plus accrued interest and reimbursement of legal expenses incurred to collect the debt. The amount of $5 million from the first gross revenues AEERL receives from the Ajapa interests has not yet been reached. The indigenous owner of the Aje Field has reclaimed the block due to a failure of the partners to drill the Aje-4 well within the required timeframe. As a result, the amounts that would have been payable for the third party farmee milestones payments related to Aje-4 will not be received.

Based on the $12.8 million proceeds received or accrued as of December 31, 2007, the Company recognized a gain on the sale of these entities for the year ended December 31, 2007 of $10,078,000 which is reflected in “Income (loss) from discontinued operations” in the Consolidated Statement of Operations for the year ended December 31, 2007. Certain other costs associated with the closing of the entity have been incurred and is netted against the total gain in the Consolidated Statement of Operations. The receivable of $5,172,000 plus accrued interest was collected on March 3, 2008. The Company recognized depreciation, depletion, amortization and impairment expense of $0, $4,790,000 and $4,378,000 for the years ended December 31, 2007, 2006 and 2005, respectively, based on impairment evaluation under the full cost method of accounting. As of December 31, 2007, the receivable of $5,766,000 was classified as “Current assets of discontinued operations” in the Consolidated Balance Sheets. All significant obligations associated with the international oil and gas operations have been fulfilled and no liabilities are recorded. The international oil and gas assets and liabilities are classified as held for sale as of December 31, 2006. Net international oil and gas properties classified as held for sale is $1,750,000 as of December 31, 2006.

The Company incurred interest expense of approximately $0 in 2007, $1,457,000 in 2006 and $165,000 in 2005 related to the amortization of the debt issuance costs related to the Stranded Gas Venture. The purpose of the Stranded Gas Venture was to fund oil and gas upstream activities of the Company. The Company included these costs in discontinued operations for the years ended December 31, 2006 and 2005, respectively.

F-13

Domestic Oil and Gas

The Company’s oil and gas activities in the United States have included the acquisition of oil and gas leases in the Central Kansas Uplift, geological and geophysical work, drilling and completion of eight wells and the re-entry of three wells. The Company also acquired gas processing equipment, including a gas processing plant that was intended to be used in the Central Kansas Uplift. In October 2005, management completed an evaluation of the potential reserves and the economics related to these properties and decided to discontinue its efforts based on the conclusions of the evaluation. As a result, management decided to discontinue further expenditures in the Central Kansas Uplift area and began disposing of these properties. The results of operations of the domestic oil and gas segment are presented as discontinued operations in the consolidated financial statements for the years ended December 31, 2007, 2006 and 2005 in accordance with SFAS No. 144.

Oil and Gas Properties. Certain leasehold acres in the area were sold in November 2005 for $1,000,000. The proceeds from this sale were accounted for as a reduction in the full cost pool. The remaining leasehold acreage, including the wells and well equipment, was sold for $522,000 in January 2006.

The Company had recognized depreciation, depletion, amortization and impairment expense of $3,045,000 related to these properties during the year ended December 31, 2005 based on the limited production during the year and the proved reserves using the units-of-production method and impairment evaluation under the full cost method of accounting. This is included in “Income (Loss) from Discontinued Operations” in the consolidated statement of operations for the years ended December 31, 2007, 2006 and 2005.

Gas Processing Equipment. The Company recorded an impairment of approximately $610,000, $595,000 and $692,000 related to its gas processing plant and equipment during the year ended December 31, 2007, 2006 and 2005, respectively, which is reflected in “Income (Loss) from Discontinued Operations” in the consolidated statement of operations. The Company’s gas processing plant and related equipment are classified as held for sale and were fully impaired, as of December 31, 2007. The carrying value of this plant and equipment at December 31, 2007 and 2006 was $0 and $610,000, respectively. The Company determined the fair value of these assets was impaired due to the length of time to market these assets. Management has actively sought interested parties for the sale of this plant and related equipment and, has finalized the sale subsequent to the year end in the amount of $95,000 in February of 2008. Additional write downs in 2006 and 2005 included costs associated with engineering, design, the gas processing plant and other gas processing equipment.

Research and Development

The Company has completed the necessary testing and demonstration associated with its pilot plants as well as completion of catalyst formulation and deactivation studies. Analytical testing of finished fuels has supported conclusions with regards to lower emissions and higher cetane ratings. The Company has documented the conclusions from all of these activities and does not intend to further fund other research and development activities. All revenues and costs associated with these activities such as; facilities, overhead associated with the facilities, personnel, equipment and outside testing and analytical work have been reported in “Income (Loss) from Discontinued Operations” in the Consolidated Statement of Operations. The total cost of research and development activities, including the operation and construction of the Catoosa Demonstration Facility totaled $6,813,000, $17,748,000 and $19,779,000 for the years ended December 31, 2007, 2006 and 2005, respectively. Joint Development Revenues with licensees and the U.S. Government have been reported in “Income (Loss) from Discontinued Operations” in the Consolidated Statement of Operations. Other costs associated with the construction of the Catoosa Demonstration Facility include the funding provided by Marathon (see Note 6) are also included in discontinued operations, this includes interest expense and gain on extinguishment of debt.

The Company reviewed all assets for impairment for the year ended December 31, 2007. The Company is actively marketing the Technology Center for sale and has also reported its Technology Center as “Property and Equipment Held for Sale” in the Consolidated Balance Sheets in accordance with SFAS No. 144. The Company has sold this facility in March of 2008. The Company has impaired the building to the contract price less closing transaction costs resulting in a $453,000 impairment expense recorded in “Income (Loss) from Discontinued Operations” for the year ended December 31, 2007.

A summary by segment of the results of discontinued operations is as follows for the three-year period ended December 31, 2007 (in thousands):

	December 31,
	2007			2006			2005
INTERNATIONAL OIL AND GAS
Revenues		—			—			—
Costs and Expenses:
Depreciation, depletion, amortization and impairment		—			4,790			4,378
General, administrative and other		241			922			648
Operating Income (Loss)	$	(241	)	$	(5,712	)	$	(5,026	)
Interest Expense		—			(1,457	)		(165	)
Other Income (Expense)		10,078			(240	)		3,555
Income (Loss) before income taxes		9,837			(7,409	)		(1,636	)
Income (Loss) from Discontinued Operations	$	9,837		$	(7,409	)	$	(1,636	)

F-14

	December 31,
	2007			2006			2005
DOMESTIC OIL AND GAS
Revenues		—			—			70
Costs and Expenses:
Depreciation, depletion amortization and impairment		610			608			3,784
General, administrative and other		—			13			173
Operating Income (Loss)	$	(610	)	$	(621	)	$	(3,887	)
Interest Expense		—			—			5
Other Income (Expense)		5			68			—
Income (Loss) before income taxes		(605	)		(553	)		(3,882	)
Income (Loss) from Discontinued Operations	$	(605	)	$	(553	)	$	(3,882	)

	December 31,
	2007			2006			2005
RESEARCH AND DEVELOPMENT
Revenues		498			1,089			7,444
Costs and Expenses:
Research and Development		6,813			17,748			19,779
Depreciation, depletion amortization and impairment		492			—			—
General, administrative and other		—			217			—
Operating Income (Loss)	$	(6,807	)	$	(16,876	)	$	(12,335	)
Interest Expense		(622	)		(1,717	)		(1,704	)
Gain on Extinguishment of Debt		11,792			—			—
Income (Loss) before income taxes		4,363			(18,593	)		(14,039	)
Income (Loss) from Discontinued Operations	$	4,363		$	(18,593	)	$	(14,039	)

4. NOTE RECEIVABLE

In February 2000, the Company sold its parking garage in Reno, Nevada to Fitzgerald’s Reno, Inc. (“FRI”), a Nevada corporation doing business as Fitzgerald’s Hotel & Casino Reno, for $3,000,000. FRI paid $750,000 in cash and executed a promissory note in the original principal amount of $2,250,000 and interest rate of 10 percent per year (based on a twenty-year amortization). The note was payable in monthly installments of principal and interest, with the entire unpaid balance due on February 1, 2010. The note was secured by a deed of trust, assignment of rents and security interest in favor of the Company on the parking garage. FRI also executed an Assumption and Assignment of Ground Lease dated February 1, 2000, under which FRI agreed to make the lease payments due under the ground lease. FRI’s obligations under the Assumption and Assignment of Ground Lease were secured by the deed of trust, assignment of rents and security interest in the parking garage and the ground lease.

In December 2000, FRI, along with several affiliates, filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court, District of Nevada. On August 28, 2003, the bankruptcy plan filed by FRI went into effect and FRI agreed to pay the Company $50,000 to be applied towards the outstanding principal balance of the promissory note. FRI then issued a new note in the amount of $2,068,000, which was the balance outstanding on the original note at that time, under the same terms and conditions as the original promissory note, except that the maturity date was accelerated to August 28, 2006 and the interest rate was reduced to 5 percent, with principal payments prior to maturity based on a 16-year amortization schedule. The Company received payment from FRI under the note in 2006 and was officially released from the ground lease on February 2, 2007.

5. INVESTMENT IN DYNAMIC

On June 22, 2007, the Company entered into definitive agreements with Tyson to form Dynamic, to construct and operate facilities in the United States using our Bio-Synfining™ Technology, converting bio-feedstocks into high quality liquid fuels, such as diesel, jet fuel (subject to certification), kerosene and naphtha. Dynamic is organized and operated pursuant to the provisions of its Limited Liability Company Agreement between the Company and Tyson (the “LLC Agreement”). The LLC Agreement provides for management and control of Dynamic to be exercised jointly by representatives of the Company and Tyson equally with no LLC member exercising control. This entity is accounted for under the equity method and is not required to be consolidated in the Company’s financial statements; however, the Company’s share of the activities is reflected in “Other Income (Expense)” in the Consolidated Statements of Operations. Dynamic has a different fiscal year than the Company. The Dynamic fiscal year ends on September 30. The Company’s carrying value in Dynamic is reflected in “Investment in Dynamic Fuels LLC” in the Company’s Consolidated Balance Sheets. Dynamic was initially capitalized on July 13, 2007 with $4.25 million in capital contributions from Tyson and $4.25 million in capital contributions from the Company. The Company’s capital contribution was made from proceeds of a common stock offering which was funded on July 11, 2007. The joint venture reported total assets of $8,118,000 and total liabilities of $298,000 as of December 31, 2007, and expenses of $680,000 for the period ended December 31, 2007. As of December 31, 2007, Syntroleum’s total estimate of maximum exposure to loss as a result of its relationships with this entity was approximately $3,910,000, which represents Syntroleum’s equity investment in this entity.

F-15

During 2007, the Company prepared a process design package for Dynamic in accordance with the technical services agreement between the Company and Dynamic. The Company recognized revenue associated with this work in the amount of $1,554,000 for the year ended December 31, 2007. This revenue is reported in “Technical Services Revenue” in the Consolidated Statement of Operations.

6. MARATHON PARTICIPATION AND LOAN AGREEMENT

Marathon Oil Corporation (“Marathon”) provided project funding in connection with the DOE Catoosa Project pursuant to advances under two secured, convertible promissory notes totaling $21.3 million (collectively, the “Note”) with the Company. The Note bears interest at a rate of eight percent per year and the balance owed under this agreement, including accrued interest was $27.6 million as of December 31, 2006. The maturity date was extended to December 15, 2006 with a notification period extending to January 18, 2007.

On January 16, 2007, the Company entered into a Consolidation and License Agreement which grants Marathon the non-exclusive right to use its FT process to produce synthetic crude. Revenue to the Company under this agreement would be in the form of royalties based upon actual production volumes from any licensed plants constructed and operated by Marathon. As part of this agreement, Marathon terminated and eliminated all of its rights under the Note in the amount of $27.6 million. In exchange, the Company agreed to pay Marathon $3 million in both December 2008 and 2009. On December 21, 2007, the Company and Marathon agreed to a modification of the Consolidation and License Agreement. The modification required the Company to make a payment of $3,750,000 in immediately available funds to Marathon on or before December 28, 2007. On December 28, 2007 the Company satisfied the terms of the agreement with payment of $3,750,000. As of December 31, 2007, the liability to Marathon is $0. In accordance with SFAS No. 6, Classification of Short Term Obligations Expected to be Refinanced, the $27.6 million liability to Marathon is reflected as a Noncurrent Liability as of December 31, 2006 due to the refinancing of the short term obligation subsequent to December 31, 2006.

As a result of the Consolidation and License Agreement and modification to the Agreement, the Company recognized a non-cash gain on the extinguishment of the debt under the Note of $11.8 million and recorded non-cash licensing revenue of $12.7 million in the consolidated statement of operations for the year ended December 31, 2007. License fee credits of $1 million previously recorded in deferred revenue were also recognized as licensing revenue. The Company accounted for the extinguishment of debt in accordance with EITF 96-16, Accounting for a Modification or Exchange of Debt Instruments, by recognizing the difference between the reacquisition price and the net carrying amount of the extinguished debt as a gain for the year ended December 31, 2007. The value attributable to the new agreement was recognized as revenue in the year ended December 31, 2007. Unlike previous license agreements where up-front proceeds are deferred until certain milestones are achieved, revenue attributable to the new agreement was recognized upon the execution of the agreement because the Company has no future indemnification obligations to Marathon. The Company recorded deferred revenue of $55,000 related to a specific performance obligation to Marathon under the agreement.

7. DEFERRED REVENUE

In August 2000, the Company signed a non-exclusive license agreement with the Commonwealth of Australia, granting the Commonwealth the right to utilize the Syntroleum^® Process. As of December 31, 2007 and 2006, the Company has a remaining license agreement with the Commonwealth of Australia that includes credits against future license fees in the amount of AUD $15 million. This license has been recorded as deferred revenue of $13.2 million and $11.9 million as of December 31, 2007 and 2006, respectively. The license agreement is denominated in Australian dollars and is subject to changes in foreign currency. During the years ended December 31, 2007, 2006 and 2005, the foreign currency effect on the Company’s deferred revenues was a change of ($1,311,000), $888,000 and ($750,000), respectively, as a result of changes in the exchange rate between the United States and Australian dollars.

The Company recognized joint development revenues previously recorded in deferred revenue related to the completion of the fuel production and delivery commitments in connection with the DOE Catoosa Project in the amount of $5,798,000 during the year ended December 31, 2005. The Company has recorded deferred revenue of $1,000,000 as of December 31, 2006 related to its agreement with Marathon. This amount was recognized in 2007 as a result of the new Marathon agreement discussed in Note 6.

8. COMMON STOCK PURCHASE AGREEMENT

On November 20, 2006, the Company entered into a Common Stock Purchase Agreement (sometimes termed an equity line of credit agreement) with Azimuth Opportunity Ltd (“Azimuth”). The Common Stock Purchase Agreement provides that, upon the terms and subject to the conditions set forth in the agreement, Azimuth is committed to purchase up to $40,000,000 of common stock, or one share less than 20 percent of the issued and outstanding shares of common stock as of November 20, 2006, whichever occurs first, over the twenty-four month term of the agreement. No shares of stock were issued in connection with the execution of the Purchase Agreement.

F-16

At the Company’s discretion, the Company may present Azimuth with draw-down notices requiring Azimuth to purchase common stock over eleven consecutive trading days or such other period mutually agreed upon by the Company and Azimuth, with each draw-down subject to limitations based on the price of the Company’s common stock and a limit of 2.5% of the Company’s market capitalization at the time of such draw-down. The Company can present Azimuth up to 24 draw-down notices during the term of the Purchase Agreement, with a minimum of five trading days required between each draw-down period. Once presented with a draw-down notice, Azimuth is required to purchase a pro-rata portion of the shares on each trading day on which the daily volume weighted average price of Syntroleum common stock exceeds a threshold price determined by the Company for such draw-down, which will not be less than $1.37 per share. The per share purchase price for these shares equals the daily volume weighted average price of Syntroleum common stock on each date during the draw-down period on which shares are purchased, less a discount ranging from 3.125% to 6.25%, based on the threshold price. If the daily volume weighted average price of the Company’s stock falls below the threshold price on any trading day during a draw-down period, Azimuth is not required to purchase the pro-rata portion of shares of common stock allocated to that day. However, at its election, Azimuth can buy the pro- rata portion of shares allocated to that day at the threshold price less the discount. As of December 31, 2007, the Company’s common stock share price was less than the threshold price.

The Purchase Agreement also provides that at the Company’s sole discretion, the Company may grant Azimuth the right to exercise one or more options to purchase additional shares of common stock during each draw-down pricing period for an amount that the Company specifies. Upon Azimuth’s exercise of the option, the Company can sell to Azimuth the shares of common stock subject to the option at a price equal to the greater of the daily volume weighted average price of common stock on the day Azimuth notifies the Company of its election to exercise its option or the threshold price for the option determined by the Company in each case, less a discount ranging from 3.125% to 6.25%, based on the volume weighted average price of common stock. The Company’s ability to draw-down on equity could be reduced or eliminated by material, adverse changes to the Company’s business. The Company’s ability to draw-down on equity could be reduced or eliminated by material, adverse changes to the Company’s business or delisting of the Company’s common stock from the NASDAQ market.

On March 1, 2007, a draw-down of $5 million was consummated at an average stock price of $3.23 per share. On July 11, 2007, a second draw-down of $8 million was consummated at an average stock price of $2.71 per share.

The Company entered into an agreement (the “Purchase Agreement”) with Fletcher International, Ltd. (“Fletcher”) on November 18, 2007 pursuant to which Fletcher, subject to the terms and conditions set forth in the Purchase Agreement, has agreed to purchase $12 million of the Company’s common stock (capped at a maximum of 19.99% of the outstanding shares of common stock as of November 14, 2007) over the period of 24 months following November 18, 2007. The stock issued by the Company to Fletcher will be issued under the Company’s currently effective registration statement on Form S-3 (Registration No. 333-62290) as amended or replaced. Fletcher will make an initial $3 million investment at the market price of the Company’s common stock determined over a specified ten business-day period plus $0.60 per share. The initial investment will be made on a date chosen by Fletcher between March 24, 2008 and April 8, 2008. Subject to the terms and conditions set forth in the Purchase Agreement, Fletcher will make later investments of $9 million in months 7 through 24 following November 18, 2007 at the market price of Syntroleum common stock determined over a specified 40 business-day period (but capped at the average price for any three business days during that period) minus $0.20 per share (the “Later Investments”). Subject to certain exceptions, purchases by Fletcher will be adjusted for Company issuances or public announcements of issuances occurring within 135 days of a Fletcher investment at prices below the prices paid by Fletcher. The Company has agreed that prior to June 30, 2008, except for certain specified issuances, it will not, in conjunction with debt, issue capital stock at prices less than the daily market price on the date of the issuance or, if earlier, the date the Company agrees to the issuance. Warrants will be issued to Fletcher for 50% of the shares of common stock purchased in the Later Investments, with an exercise price equal to the price per share of the first Later Investment plus $0.40. The term of the warrants is seven years after the date of the final Later Investment closing date. The warrants shall be issued at the closing of the initial $3 million investment.

The terms and conditions set forth in the Purchase Agreement include representations from the Company that it is has disclosed all items and events that could have a material adverse affect, as defined in the Purchase Agreement. The Company must notify Fletcher of any changes or events that may qualify as material adverse effects. Additionally, the Company is required to use its best efforts to maintain listing on the Nasdaq Global Market. As discussed in Note 2, the Company has been notified that they are not in compliance with the market value minimum requirement for its common stock. However, the Company’s stock will still be trading on the Nasdaq Global Market during the initial investment period and will likely still be trading, but on the Nasaq Capital Market, during the later investment period, which is acceptable under the Purchase Agreement.

9. STOCKHOLDERS’ EQUITY

Private Placements and Public Offerings. In May 2004, the Company completed the sale of 5,916,000 shares of common stock and warrants to purchase 887,400 shares of common stock pursuant to a public offering at a price to the public of $5.60 per share and 15 percent of a warrant. Each warrant is initially exercisable at a price of $7.60 per share of common stock beginning on the date of issuance and ending on May 26, 2008. The warrants were deemed to have a fair market value of approximately $1.9 million at the date of issuance and were recorded as additional paid-in-capital. The Company received net proceeds of approximately $31.1 million after underwriting discount and offering expenses.

On March 17, 2005, the Company completed the sale of 7,000,000 shares of common stock at a price of $10.00 per share. The Company sold all of these shares directly to Legg Mason Opportunity Trust, a series of Legg Mason Investment Trust, Inc., a registered investment company. The sale resulted in net proceeds to the Company of approximately $69,950,000.

On April 14, 2005, the Company completed the sale of 1,000,000 shares of common stock at a price of $10.00 per share. The Company sold all of these shares directly to Dorset Group Corporation (“Dorset”). The sales resulted in net proceeds to the Company of approximately $9,968,000.

Retirement of Treasury Stock. The Company offers its employees the option to swap shares of common stock issued for compensation to settle the employees’ tax liability. The shares that are traded are subsequently cancelled by the Company. The Company repurchased and cancelled 296,930 shares for $885,000, 77,716 shares for $686,000 and 58,036 shares for $600,000 during the years ended December 31, 2007, 2006 and 2005 at the then current market prices.

F-17

The Company held 7,675,000 shares in treasury as of December 31, 2004, which were cancelled during the year ended December 31, 2005.

Tyson. As an incentive for entering into a joint venture Limited Liability Company Agreement, which formed Dynamic, in connection with a transaction with Tyson involving our Bio-Synfining™ Technology and the risk associated with the initial commercial deployment of its technology, Tyson received warrants to buy the Company’s common stock. The warrants are allocated in three tranches. The first tranche of 4.25 million shares was awarded upon signing of the LLC Agreement, Feedstock and Master License Agreements in June 2007. The Warrant Agreement provides that the second tranche of 2.5 million shares will be issued upon sanctioning of the second plant and the third tranche of 1.5 million shares will be issued upon sanctioning of the third plant, provided that Tyson has at least a 10% interest in Dynamic. The exercise price of the first tranche of 4.25 million warrants is $2.87 per share, which was the ten-day average closing price prior to the signing of the above referenced agreements on June 22, 2007. The exercise price of the second and third tranches of warrants will be the ten-day average closing price prior to the sanctioning of plants 2 or 3. Vesting requires that Tyson remain at least a 10% equity owner in Dynamic (in the case of the first tranche) and in the applicable plant (in the case of the second and third tranches), and that each plant has commenced commercial operation. Maturity of each tranche of warrants will be on the third anniversary of each respective plant’s start-up date of commercial operations. If 25% or more of the project cost for the third plant is debt financed, then the third warrant tranche will not vest. In the event that Tyson owns a 90% or greater interest in Dynamic the number of shares subject to the second and third warrant tranche doubles subject to a limitation that Tyson will not receive pursuant to all tranches warrants for stock equal to or more than 20% of the outstanding shares of Syntroleum common stock. In the event Tyson defaults by not paying its capital contributions to the plant, Tyson loses the warrants for such plant. These warrants are accounted for in accordance with Emerging Issues Task Force Issue 96-18 Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. Warrants that are granted to non-employees that are tied to performance criteria are expensed at the time the performance goals are met.

Pursuant to a registration rights agreement, we have granted Tyson demand and piggyback registration rights with respect to the shares of common stock issuable pursuant to the warrants.

TI Capital Management. The Company was authorized to issue warrants to purchase up to 2,170,000 shares of the Company’s common stock to TI Capital Management, a firm owned by Mr. Ziad Ghandour, a director of and consultant to the Company, pursuant to an amended and restated consulting agreement. Mr. Ziad Ghandour was a director and employee of the Company. Mr. Ghandour resigned from all positions in August 2007. These warrants vested upon the achievement of various criteria in the agreement. All warrants outstanding associated with the consulting agreement expired on November 4, 2007.

On July 26, 2007, TI Capital Management and Mr. Ghandour filed a lawsuit against the Company and Mr. Jack Holmes, the Company’s former chief executive officer, alleging breach of contract and other causes of action relating to TI Capital Management’s consulting relationship with the Company and Mr. Ghandour’s employment with and position as a director with the Company. Pursuant to the Resignation and Compromise Agreement (collectively the “Compromise Agreement”), Mr. Ghandour and the Company have exchanged waivers and releases of claims. On August 13, 2007, TI Capital Management and Mr. Ghandour dismissed their lawsuit against the Company and Mr. Holmes without the right to refile the lawsuit. In settlement of all claims, Mr. Ghandour received in cash $1,393,550. In addition, he will have the right to receive, prior to December 31, 2011, a payment of three percent (3%) of the first net cash received by the Company or its subsidiaries of which the Company has an equity participation (the “Additional Fees”) for access to its gas to liquids technology from five potential commercial projects. In computing the Additional Fees, royalties paid per unit of production over the life of the plant and for preparation of a process design package shall not be included. The Additional Fee earned is a minimum of $1.5 million for each project. In the event of a change of control of the Company, Mr. Ghandour will have the option to terminate the potential for earning Additional Fees in exchange for the one time payment of $2 million in cash.

Pursuant to the Compromise Agreement entered into effective August 6, 2007 and an amendment dated as of August 8, 2007, Mr. Ziad Ghandour resigned as a director of the Company, effective August 14, 2007. Mr. Ghandour also terminated his employment with the Company on August 14, 2007. In addition, pursuant to the Compromise Agreement, TI Capital Management terminated all consulting arrangements with the Company, effective August 14, 2007.

Sovereign Oil & Gas Company II, LLC. In March 2004, the Company entered into a joint development agreement (“JDA”) with Sovereign, a geological and reservoir engineering firm that the Company retained to assist it in acquiring rights to previously discovered oil and natural gas that may lead to commercial production, including the potential deployment of Syntroleum GTL Technology.

Under the agreement, the Company agreed, under certain circumstances, to issue Sovereign warrants to purchase shares of the Company’s common stock. These warrants are exercisable for five years beginning on the date of stockholder approval, which was received on April 26, 2004. In addition, under the agreement, the Company is required to issue warrants to purchase 25,000 shares each upon the acquisition of an interest in a property subject to certain conditions and if the Company and Sovereign do not receive a cash bonus or overriding royalty interest subject to certain conditions. The Company will issue an additional 50,000 warrants exercisable for five years from the date of first production of hydrocarbons from the property. The Company is required under the agreement to issue warrants to Sovereign to purchase 12,500 shares upon the Company’s acquisition of an interest in a property proposed by the Company and accepted by Sovereign and other conditions, exercisable for five years from the acquisition or agreement date.

F-18

The Company agreed to amend the joint development agreement with Sovereign to change the exercise price of warrants issued to the closing per share sale price of common stock as of December 1 prior to a contract year in which warrants are issued. This amendment was made because this is the day that Syntroleum must give notice to Sovereign of continuation or termination of the joint development agreement for the next contract year. This amendment was approved at the Company’s annual meeting in April 2006. For the 2005 and 2006 contract years, the exercise price is $6.94 and $7.98 per share, respectively. This resulted in a change in the valuation for these warrants of approximately $26,000, which was expensed.

No more than 2,000,000 shares of the Company’s common stock are issuable upon exercise of the warrants issued pursuant to the agreement. Sovereign has assisted in acquiring interest in properties, resulting in a certain number of warrants to be granted.

Sovereign has been granted warrants to purchase 25,000 shares of the Company’s common stock in September 2004 and an additional 25,000 warrants to purchase shares of common stock in April 2005 for work completed on OML 113 offshore Nigeria. Sovereign was granted warrants to purchase 25,000 shares of common stock in November 2005 in connection with the signing of a Heads of Agreement on OML 90 offshore Nigeria, and an additional 25,000 warrants in July 2006 in connection with agreements to transfer a portion of our participating interest in the Ajapa Field. Upon approval of the joint development agreement with Sovereign in April 2004, the Company issued Sovereign warrants to purchase 50,000 shares of common stock.

The Company notified Sovereign on November 15, 2006 that it did not intend to renew the JDA at the conclusion of the current contract year. The JDA terminated in March 2007.

The following tables summarize the equity-based compensation related to the Company’s agreements with Sovereign.

Warrants Granted							Warrants Exercised
Date of	Warrants		Exercise		Valuation at		Date		Warrants
Grant	Granted		Price		Grant		Exercised		Exercised		Proceeds
7/26/2006		25,000	$	7.98	$	79,000				—	$	—
11/28/2005		25,000	$	6.94		75,000				—		—
4/14/2005		25,000	$	6.40		157,000				—		—
9/7/2004		25,000	$	6.40		75,000				—		—
4/26/2004		50,000	$	6.40		165,000		1/28/2005		8,750		56,000
Total		150,000			$	551,000				8,750	$	56,000

10. STOCK-BASED COMPENSATION

The Company’s share-based incentive plans permit the Company to grant restricted stock units, restricted stock, incentive or non-qualified stock options, and certain other instruments to employees, directors, consultants and advisors of the Company. Stock options generally vest over three years. Certain restricted stock units vest in accordance with the achievement of specific company objectives. The exercise price of options granted under the plan must be at least equal to the fair market value of the Company’s common stock on the date of grant. All options granted vest at a rate determined by the Nominating and Compensation Committee of the Company’s Board of Directors and are exercisable for varying periods, not to exceed ten years. Shares issued under the plans upon option exercise or stock unit conversion are generally issued from authorized but previously unissued shares. As of December 31, 2007, approximately 1,573,000 shares of common stock were available for grant under the Company’s current plan. The Company is authorized to issue up to approximately 8,742,000 plan equivalent shares of common stock in relation to stock options or restricted shares outstanding or available for grant under the plans.

Stock Options

The number and weighted average exercise price of stock options outstanding are as follows:

	Shares			Weighted
	Under			Average Price
	Stock Options			Per Share
OUTSTANDING AT DECEMBER 31, 2006		7,423,419		$	6.77
Granted at market price		33,899		$	3.19
Exercised		(22,666	)	$	1.62
Expired or forfeited		(1,447,935	)	$	7.27
OUTSTANDING AT DECEMBER 31, 2007		5,986,717		$	6.65

F-19

The following table summarizes information about stock options outstanding at December 31, 2007:

Options Outstanding							Options Exercisable
									Weighted
			Weighted		Weighted Average				Average
Range of	Options		Average		Remaining		Options		Exercise Price
Exercise Price	Outstanding		Exercise Price		Contractual Life		Exercisable		Per Share
$1.49 - $1.49		10,666	$	1.49		4.84		10,666	$	1.49
$1.55 - $1.55		1,000,000		1.55		4.75		1,000,000		1.55
$1.62 - $2.89		1,246,028		2.34		6.61		1,033,528		2.23
$3.19 - $6.88		1,237,220		6.31		5.73		1,228,888		6.32
$7.10 - $10.14		1,216,974		9.27		7.69		413,665		8.58
$10.51 - $19.88		1,275,829		12.73		5.37		525,163		15.89
		5,986,717	$	6.65				4,211,910	$	5.59

A total of 1,774,807 stock options with a weighted average exercise price of $9.18 were outstanding at December 31, 2007 which had not vested. A total of 3,155,820 stock options with a weighted average exercise price of $8.23 were outstanding at December 31, 2006 which had not vested.

The fair value of options granted during the year ended December 31, 2007 and 2006 was estimated on the grant date using the Black-Scholes option pricing model. The model utilizes certain information, such as the interest rate on a risk-free security maturing generally at the same time as the option being valued, and requires certain assumptions, such as the expected amount of time an option will be outstanding until it is exercised or it expires and the volatility associated with the price of the underlying shares of common stock, to calculate the fair value of stock options granted. Expected volatilities are based on historical stock prices and historical volatilities. The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. A forfeiture rate of five percent has been estimated to reduce the expense for awards expected to not be exercised because of termination or expiration. The Company believes that this valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options granted in the twelve months ended December 31, 2007 and 2006. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

The weighted average grant date fair value of stock options granted during the years ended December 31, 2007, 2006 and 2005 was approximately $1.90 per stock option (total grant date fair value of $64,000), $4.06 per stock option (total grant date fair value of $5,115,000) and $5.29 per stock option (total grant date fair value of $15,212,000), respectively. The fair value of these options was estimated with the following weighted average assumptions:

	Year Ended			Year Ended
	December 31, 2007			December 31, 2006
Expected dividend yield		0	%		0	%
Expected volatility		73	%		81	%
Risk-free interest rate		4.54	%		4.61	%
Expected life	4.38 yrs.			5.83 yrs.

Non-cash compensation cost related to stock and stock options and restricted stock recognized during the year ended December 31, 2007 and 2006 was $4,980,000 and $7,859,000, respectively. Amounts decreased in the year ended December 31, 2007 due to modifications to performance and market based stock options.

The total intrinsic value of options exercised (i.e. the difference between the market price on the exercicse date and the price paid by the employee to exercise the options) during the years ended December 31, 2007, 2006, and 2005 was $38,000, $753,000 and $1,791,253, respectively. The total amount of cash received in 2007 and 2006 by the Company from the exercise of these options was $36,000 and $414,000, respectively. As of December 31, 2007 and 2006, there was no aggregrate intrinisic value of stock options that were fully vested or were expected to vest. The remaining weighted average contractual term for options exercisable is approximately five years. In addition, as of December 31, 2007, unrecognized compensation cost related to non-vested stock options was $1,490,000 which will be fully amortized using the straight-line basis over the vesting period of the options, which is generally three to five years.

Restricted Stock

The Company also grants common stock and restricted common stock units to employees. These awards are recorded at their fair values on the date of grant and compensation cost is recorded using graded vesting over the expected term. The weighted average grant date fair value of common stock and restricted stock units granted during the years ended December 31, 2007, 2006 and 2005 was $2.73 per share (total grant date fair value of $5,795,000), $5.91 per share (total grant date fair value of $2,296,000) and $9.96 per share (total grant date fair value of $3,703,000), respectively. As of December 31, 2007, the aggregrate intrinsic value of restricted stock units that are expected to vest was approximately $988,000. In addition, as of December 31, 2007, unrecognized compensation cost related to non-vested restricted stock units was $3,131,000, net of forfeitures, which is expected to be recognized over a weighted average period of three years. The total fair value of restricted stock units vested during December 31, 2007, 2006 and 2005 was $3,753,000, $2,510,000 and $2,293,000, respectively. The following summary reflects restricted stock unit activity and related information.

F-20

				Weighted-Average
				Grant Date Fair
	Shares / Units			Value
NONVESTED AT DECEMBER, 31, 2006		426,000		$	6.53
Granted		2,123,087		$	2.73
Vested or Exercised		(1,185,837	)	$	3.17
Expired or forfeited		(181,250	)	$	5.70
NONVESTED AT DECEMBER 31, 2007		1,182,000		$	2.96

Stock Incentive Plan.

Employees of the Company may receive a certain number of shares of common stock based on the achievement of certain goals and objectives by the individual employee and by the Company. The Board of Directors establishes the annual objectives on which the Company will be measured and determines the number of shares to be issued or amount of cash to be paid based on a rating system. Individual objectives are measured by management based on a similar rating system. Compensation for 2006 achievement of goals was recorded in the year ended December 31, 2006 Consolidated Statement of Operations and was paid in stock awards in the first quarter of 2007. Compensation for 2007 achievement of certain goals and objectives was paid in cash in the year ended December 31, 2007 in the amount of $799,865.

Refer to the table below for stock awards granted during the year ended December 31, 2007, 2006 and 2005.

	Common Stock Grants for Performance
					Shares
					Cancelled,
	Shares				Retired or		Net Shares
	Granted		Price ($)		Exchanged		Issued		Valuation
2007		331,381	$	3.25		105,288		226,093	$	1,078,099
2006		91,707	$	9.67		29,558		62,149	$	887,000
2005		91,925	$	9.27		18,416		73,509	$	852,000

Long-Term Incentive Compensation Awards

In 2005, the Company entered into stock option award agreements under the stock incentive plan with certain of its officers. The agreements granted the officers options to purchase up to 2,600,000 of its shares of the Company’s common stock at an exercise price of $10.52 and $10.14 per share. Depending on either the sustained stock price, as defined in the agreement, ranging from $0 to in excess of $40 of the Company’s common stock and/or the net present value of future cash flows, as defined in the agreement, of less than $1,375 million to an excess of $2,200 million, a percentage of the options will vest as determined in a performance vesting schedule with respect to the period commencing on the date of grant and ending on December 31, 2010 (the “Performance Period”).

The term of each option is ten years from the date of grant. The Company follows SFAS No. 123 (R), which requires compensation expense to be recognized over the service period when a market measure is used. Certain modifications were made to these market based stock options during the year ended December 31, 2007. These modifications included an extended vesting period and extended term for executives who separated from the Company. Incremental compensation cost was measured as the excess of the fair value of the replacement award over the fair value of the award immediately prior to modifiation. Due to market factors in vesting requirements of the stock option, previously expensed amounts were reversed and the incremental compensation cost was recorded. The total expense of the modified awards have been recorded for the year ended December 31, 2007 resulting in a $1,213,000 reduction in expense.

11. INCOME TAXES

The Company has federal income tax net operating loss (“NOL”) carry-forwards of approximately $320 million at December 31, 2007. The Company’s NOLs generally begin to expire as follows:

Year	Amount
(in thousands)
2008	$	267
2009		320
2010		1,026
2011		1,865
2012		—
Thereafter		316,687

F-21

The Company recognizes the tax benefit of NOL carry-forwards as assets to the extent that management concludes that the realization of the NOL carry-forwards is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate taxable income within the carry-forward period. The Company’s management has concluded that, based on the historical results of the Company, a valuation allowance should be provided for the entire balance of the net deferred tax asset.

The Company has not recorded an income tax provision or benefit for the years ended December 31, 2007, 2006 and 2005. This differs from the amount of income tax benefit that would result from applying the 35 percent statutory federal income tax rate to the pretax loss due to the increase in the valuation allowance in each period. The valuation allowance increased (decreased) by approximately $(2,401,000), $21,452,000 and $19,206,000 for the years ended December 31, 2007, 2006 and 2005, respectively. Deferred taxes arise primarily from NOL carry-forwards and the recognition of revenues and expenses in different periods for financial and tax purposes.

Deferred taxes consist of the following (in thousands):

	December 31,
	2007			2006
Deferred tax assets:
NOL carry-forwards	$	121,674		$	120,785
Capital loss carry-forwards		1,626			1,626
Research and development credit		8,226			8,466
Deferred revenue		6,968			6,695
Investments		410			326
Oil and gas properties		—			4,787
Stranded gas venture		—			112
Stock-based compensation		4,924			4,185
Other		1,983			962
		145,811			147,944
Deferred tax liabilities:
Oil and gas properties		(593	)		—
Other		(617	)		(942	)
Net deferred tax asset before valuation allowance		144,601			147,002
Valuation allowance		(144,601	)		(147,002	)
Net deferred tax assets	$	—		$	—

The Company’s capital loss carry-forwards generally begin to expire in 2008.

12. COMMITMENTS AND CONTINGENCIES:

The Company has entered into various, non-cancelable operating leases for office space, equipment, land and buildings that expire between 2007 and 2023. Rental expense was $695,000 in 2007, $937,000 in 2006, and $836,000 in 2005. Total future minimum lease payments under these agreements as of December 31, 2007 are as follows:

Year	Amount
(in thousands)
2008	$	329
2009		275
2010		269
2011		130
2012		9
Thereafter		83
	$	1,095

In February 2008, the Company was released of its lease obligation of $152,000 related to the lease for the lab sold to Emerging Fuels Technology, LLC. This amount is included in the above table.

The Company has entered into employment agreements, which provide severance benefits to several key employees. Commitments under these agreements totaled approximately $3,084,000 at December 31, 2007. Expense is not recognized until an employee is severed.

F-22

The Company implemented a retention incentive agreement plan on December 8, 2006 where certain employees were granted stock options, restricted shares and/or cash awards. The Company paid $745,000 to employees on June 29, 2007 and $323,000 in the fourth quarter of 2007 pursuant to these retention agreements. If all of the employees remain employed through the date specified under the terms of the agreement, the Company has a commitment to pay $868,000 on July 1, 2008, which amount will be recognized over the requisite service period starting July 2007. The Company has the option to grant shares of restricted stock for the 2008 commitment in lieu of making a cash payment. The Company has no obligation if the employee leaves before the date specified in the agreement.

Our Dynamic facility requires us to provide 50% of the required capital for the plant. Current requirements for capital are $150 million, of which $135 million is for the plant itself, the balance of which is estimated project development costs and working capital of $23.5 million, of which, $8.5 million has been committed and funded by Tyson and Syntroleum. Our capital contribution to the plant is estimated to be approximately $75 million. We have secured a $12 million capital commitment in November 2007 as part of our initial funding efforts. We expect to seek additional available financing through debt financing, project financing, alternative financing and/or financing through the capital markets.

During 2007, the Company entered into retirement and severance agreements with several officers. Pursuant to the terms of the agreements, the Company made one time payments to certain retiring officers on their effective retirement date totaling $400,000 and will made monthly cash payments for a total of approximately $1,740,000 through December 31, 2007. We also entered into consulting agreements for a total of $560,000. All consulting expenditures were completed in July of 2007.

The Company is subject to a contingent obligation under leases and other agreements incurred in connection with real estate activities and other operations conducted by SLH Corporation (“SLH”) prior to its merger with Syntroleum. Through its merger with SLH, the Company acquired Scout Development Corporation (“Scout”). Scout is a successor guarantor on one set of leases; subleases in Hawaii.

The Hawaii obligations arise out of certain land leases and subleases that were entered into by Business Men’s Assurance Company of America (“BMAA”) and Bankers Life of Nebraska (now known as “Ameritas Life”) in connection with the development of the Hyatt Regency Waikiki Hotel (“Hyatt Hotel”). The Hyatt Hotel was subsequently sold and the land was subleased to the purchasing party. During 1990, in connection with the sale of BMAA, Lab Holdings, Inc. (“Lab Holdings”) gave an indemnity to the purchaser against liabilities that may arise from the subject leases. Also during 1990, Lab Holdings transferred its right title and interest to the subject leases to Scout. If the Hyatt Hotel were to default on the leases, Scout could be liable for the lease obligations.

The rent payments for the subject leases were approximately $826,000 per year through December 31, 2006. The current owner of the Hyatt Hotel has negotiated a rent agreement with the landowners for the period from January 1, 2007 through December 31, 2016. A motion has been filed in U.S. Bankruptcy Court for the District of Hawaii to approve the agreement. The proposed minimum rent is $5,000,000 per year. Subsequent renegotiations will occur in 2017, 2027 and 2037. This lease expires in 2047. The total lease payments through 2047, based on estimated increases, are $321,000,000. In the event of default by the property owner, the risk of these lease obligations would be shared with others. In addition to Scout, Ameritas Life shares equally in the lease obligations. LabOne Corporation (formerly known as Home Office Reference Laboratory), as a result of its merger with Lab Holdings, may also be liable for the lease obligations.

The Hyatt Hotel has an estimated market value, based on a 1998 appraisal, of $396,000,000. An appraisal was performed during 2006 by an independent appraiser. However, the results of this appraisal have not been released pending the Bankruptcy Court ruling on the proposed rent agreement. The Hyatt Hotel had gross revenues of $105,739,000 subject to the lease agreement for the year ended May 31, 2006.

In December 2005, management learned through the Steiner Trust and Hawaii counsel that the owner of the Hyatt Hotel, Azabu Buildings Co., Ltd. (“Azabu”) has been petitioned for an involuntary Chapter 11 bankruptcy by Beecher Limited and others, creditors of Azabu in various business ventures. On February 1, 2006, Azabu filed for Chapter 11 bankruptcy. Management believes that based on the performance of this asset, that the bankruptcy court would more than likely require Azabu to continue to make all required rent payments in order for the hotel to continue operations. Based on the appraised value of the Hyatt Hotel and management’s evaluation of this contingency, management considers the risk of default by the Hyatt Hotel on the lease obligations to be remote and accordingly, has not recorded any liability in its consolidated balance sheets at December 31, 2007 or 2006.

Scout was also subject to lease obligations under a land lease for the Reno parking garage. This property was sold in 2000; however, Scout was not released from the land lease by the landowner (see Note 4). In February, 2007, the Company was released of its guarantor obligation on the land lease in Reno, Nevada.

The Company’s license agreements require it to indemnify its licensees, subject to a cap of 50 percent of the related license fees, against specified losses. Specified losses include the use of patent rights and technical information relating to the Syntroleum^® Process, acts or omissions by the Company in connection with the preparation of PDPs for licensee plants and performance guarantees related to plants constructed by licensees. All amounts received for license fees have been recorded as deferred revenue in the consolidated balance sheets.

F-23

The accuracy and appropriateness of costs charged to the U.S. government contracts are subject to regulation, audit and possible disallowance by the Defense Contract Audit Agency or other government agencies. Accordingly, costs billed or billable to U.S. government customers are subject to potential adjustment upon audit by such agencies.

Most of the company’s U.S. government contracts are funded incrementally on a year-to-year basis. Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could materially adversely affect the Company’s financial condition or results of operations. Furthermore, contracts with the U.S. government may be terminated or suspended by the U.S. government at any time, with or without cause. Such contract suspensions or terminations could result in unreimbursable expenses or charges or otherwise adversely affect the Company’s financial condition and/or results of operations. As of December 31, 2007, the Company has not experienced any violations in appropriateness of costs charged and priorities or funding levels have not been changed from original appropriations.

The Company and its subsidiaries are involved in other lawsuits that have arisen in the ordinary course of business. The Company does not believe that ultimate liability, if any; resulting from any such other pending litigation will have a material adverse effect on the Company’s business or consolidated financial position. The Company cannot predict with certainty the outcome or effect of the litigation specifically described above or of any such other pending litigation. There can be no assurance that the Company’s belief or expectations as to the outcome or effect of any lawsuit or other litigation matter will prove correct and the eventual outcome of these matters could materially differ from management’s current estimates.

The Company settled a dispute with a vendor that resulted in the reversal of a $680,000 contingency accrual. This amount is reflected in general, administrative and other expenses in the consolidated statement of operations for the year ended December 31, 2005.

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company’s financial instruments at December 31, 2007 and 2006 are summarized as follows:

	2007				2006
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(in thousands)
Assets:
Cash and cash equivalents	$	18,405	$	18,405	$	33,469	$	33,469
Accounts receivable		420		420		500		500
Restricted cash — current		—		—		166		166
Liabilities:
Convertible debt		—		—		27,641		27,641

The fair value of the cash and cash equivalents, restricted cash and accounts receivable approximates carrying value because of the short-term maturity of these financial instruments. The estimated fair value of the convertible debt was calculated by discounting scheduled cash flows using estimated market discount rates.

14. SIGNIFICANT CUSTOMERS

Substantially all of the Company’s joint development revenue for the three years ended December 31, 2007, was from the Department of Energy, Department of Defense and several major oil companies for joint research and development work and feasibility studies. This work has been conducted in the Company’s various facilities, including the Company’s technology center, Tulsa Pilot Plant, and the Catoosa Demonstration Facility. The Company’s technical services revenue for the year ended December 31, 2007 was from Dynamic for a process design package for the Dynamic plant.

In addition, since 1996, the Company has signed master license agreements with four oil companies and with the Commonwealth of Australia. The Company has also signed volume license agreements with three other oil companies. The license agreements allow the licensees to use the Syntroleum^® Process in their production of synthetic crude oil and fuels primarily outside of North America. Syntroleum received an aggregate of $39.5 million as initial deposits and options fees under existing license agreements and the rights to certain technologies in connection with these license agreements.

Under these license agreements, a licensee obtains the right to use the Syntroleum^® Process and to acquire catalysts from the Company, secures pricing terms for future site licenses and obtains rights to future improvements to the Syntroleum^® Process. Generally, the amount of the license fee for site licenses issued under the Company’s master and volume license agreements is determined pursuant to a formula based on the discounted present value of the product of (1) the annual maximum design capacity of the plant, (2) an assumed life of the plant and (3) the Company’s per barrel royalty rate. Initial cash deposits under the Company’s license agreements are credited against future site license fees (see Note 1).

F-24

15. STRANDED GAS VENTURE

On April 11, 2005, the Company entered into a Participation Agreement with Dorset pursuant to which Dorset committed to provide approximately $40,000,000 to Syntroleum to be used to evaluate investment opportunities, conduct oil and gas project development activities, and acquire interests in oil and gas properties (“Venture”). Mr. Ziad Ghandour, a previous member of the board of directors and a prior consultant to the Company was a participant in the Dorset Group Corporation. Subsequently, Ernest Williams II Q-TIP TUA dated 01/25/02 (“Williams”) and Selim K. Zilkha Trust (“Zilkha”) joined the Participation Agreement as venture participants and agreed to provide an additional capital commitment of $10,000,000 each, making the total commitment amount $60,000,000.

On September 22, 2006, the Company delivered written notice of default to Dorset for breach of the `Participation Agreement due to Dorset’s failure to remit the funds necessary to meet its pro- rata share of each capital call within ten business days of its notice of the capital call. Such breach had a cure period of five business days pursuant to the Participation Agreement during which Dorset failed to cure. On November 22, 2006, the Company and Dorset entered into a Cancellation, Termination and Release Agreement which terminated Dorset’s participation in the venture, released Dorset and the Company from any claims against the other and Dorset relinquished any future interest under the Participation Agreement.

On December 20, 2006, the Company, J. Williams and Zilkha agreed to terminate the remainder of the Participation Agreement. The Company repaid 100 percent of the contributions previously made by J. Williams and Zilkha in amount of $1,193,386 each. Of this amount, $360,000 was paid to each remaining participant on December 20, 2006 and $833,386 was paid on to each remaining participant on April 30, 2007. As of December 31, 2007 the liability associated with this agreement is $0. As of December 31, 2006, the remaining liability is reflected in Current Liabilities of Discontinued Operations as of December 31, 2006.

16. STOCKHOLDER RIGHTS PLAN

On October 24, 2004, the Company entered into the Second Amended and Restated Rights Agreement, whereby each outstanding share of the Company’s common stock carries a stock purchase right issued pursuant to a dividend distribution declared by the Company’s Board of Directors in March 1997. The rights entitle the holder to buy one one-hundredth of a share of Series A Junior Preferred Stock at a price of $20.8333 per one one-hundredth of a share. Generally, the rights become exercisable ten days after a public announcement that a person or group has acquired, or a tender offer is made for, 20 percent, or in the case of Mr. Robert A. Day (who was a board member until September, 2006) and his affiliates 35 percent, or more of the common stock of the Company. If either of these events occurs, each right will entitle the holder to receive the number of shares of the Company’s common stock having a market value equal to two times the exercise price of the right. The rights may be redeemed by the Company for $0.01 per right until ten days following the first date of public announcement of a person becoming an Acquiring Person. The rights expire October 2014.

17. SEGMENT INFORMATION

The Company applies SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. Previously, the Company’s reportable business segments have been identified based on the differences in products or services provided. Segments previously identified were Technology, General, Administrative and Other; Domestic Oil and Gas and International Oil and Gas. As discussed in Note 3, the company classified the Domestic and International Oil and Gas segments and research and development component as discontinued operations for the years ended December 31, 2007, 2006 and 2005. The Company now operates only one operating segment.

18. SUBSEQUENT EVENTS

On March 3, 2008 the Company received $5,766,000 from African Energy Equity Resources Limited (“AEER”) representing full payment of their debt obligation which arose from the Share Sale and Purchase Agreement between Syntroleum International, Syntroleum, AEER, And Energy Equity Resources (Norway) Limited (“EERNL”) dated January 19, 2007 for the sale of Syntroleum International’s Nigerian business. Syntroleum Corporation has agreed to immediately withdraw all winding up proceedings against AEER and EERNL. This amount has been recorded in “Current Assets of Discontinued Operations” at December 31, 2007.

On March 6, 2008, the Company sold the Corporate and Technology Center for approximately $1,250,000 to an unrelated individual.

F-25

19. QUARTERLY DATA (UNAUDITED)

	Quarter Ended
	March 31,		June 30,			September 30,			December 31,
2007	(in thousands, except per share data)
Revenues	$	13,705	$	546		$	1,026		$	1,195
Operating income (loss)		3,872		(8,470	)		(2,891	)		(2,873	)
Net income (loss) from continuing operations		3,904		(8,709	)		(2,460	)		(2,579	)
Net income (loss) from discontinued business		10,904		(932	)		(599	)		4,222
Net income (loss)		14,808		(9,641	)		(3,059	)		1,643
Basic and diluted EPS:
Continuing operations	$	0.07	$	(0.15	)	$	(0.04	)	$	(0.04	)
Discontinued operations	$	0.19	$	(0.02	)	$	(0.01	)	$	0.07
Net income (loss)	$	0.26	$	(0.17	)	$	(0.05	)	$	0.03

	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
2006	(in thousands, except per share data)
Revenues	$	54		$	56		$	2,470		$	120
Operating income (loss)		(7,405	)		(7,681	)		(5,530	)		(7,890	)
Net income (loss) from continuing operations		(6,337	)		(8,514	)		(5,183	)		(8,036	)
Net income (loss) from discontinued operations		(6,567	)		(7,188	)		(7,838	)		(4,962	)
Net income (loss)		(12,904	)		(15,702	)		(13,021	)		(12,998	)
Basic and diluted EPS
Continuing operations	$	(0.11	)	$	(0.15	)	$	(0.09	)	$	(0.14	)
Discontinued operations	$	(0.12	)	$	(0.13	)	$	(0.14	)	$	(0.09	)
Net income (loss)	$	(0.23	)	$	(0.28	)	$	(0.23	)	$	(0.23	)

To date, the nature of the Company’s revenues and costs have been related to certain projects and are wholly dependent upon the nature of the Company’s projects. The various size and timing of these projects, including the DOE Catoosa Project, operations and modifications at the Company’s Catoosa demonstration facility and the Company’s oil and gas upstream activities that were included in discontinued operations in 2007, 2006 and 2005, may affect the comparability of the periods presented.

F-26

Index to Exhibits

10.78	Retirement Agreement dated November 15, 2007 between the Company and Jack B. Holmes, Jr.
10.79	Retirement Agreement dated November 16, 2007 between the Company and Ken Agee.
10.80	Restricted Stock Agreement dated November 16, 2007 between the Company and Ken Agee.
21	Subsidiaries of Syntroleum
23	Consent of Grant Thornton LLP
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Chief Financial Officer
32.1	Section 906 Certification of Chief Executive Officer
32.2	Section 906 Certification of Chief Financial Officer

EX-10.78

Ex. 10.78

RETIREMENT AGREEMENT

THIS RETIREMENT AGREEMENT (the “Agreement”) made and entered into effective November 15, 2007, by and between Syntroleum Corporation (the “Company”) and John B. Holmes, Jr. (the “Executive”).

W I T N E S S E T H:

WHEREAS, the Executive and the Company are parties to that certain Employment Agreement dated as of August 31, 2002 (the “Employment Agreement”), and that certain Indemnification Agreement dated October 1, 2002 (the “Indemnification Agreement”); and

WHEREAS, the parties mutually desire to arrange for Executive’s retirement from the Company under certain terms; and

WHEREAS, in consideration of the mutual promises contained herein, the parties hereto are willing to enter into this Agreement upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the premises, the terms and provisions set forth herein, the mutual benefits to be gained by the performance thereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Retirement and Resignation from Officer Positions. Effective as of the close of business on December 28, 2007 (the “Retirement Date”), the Executive will retire as an employee of the Company. As of November 19, 2007, the Executive agrees to resign any and all director officer, or other positions he holds with the Company or any of its affiliates and/or subsidiaries, and the Executive hereby agrees to sign and deliver the letter included herein Attachment B, evidencing his resignation as an officer. The Executive shall remain as an employee until the Retirement Date and subject to the terms of the Employment Agreement. However, the Company and Executive agree that from the execution of the Agreement until the Retirement Date, the Executive shall be available, at times to be mutually agreed, if called upon by the Company, to provide assistance that the Company may request.

2. Consideration and Waiver and Release. The Executive shall have until 45 calendar days after the date this Agreement was furnished to him to consider whether to sign and return this Agreement to the Company by first class mail or by hand delivery. In consideration for the Executive’s execution of and compliance with this Agreement, including but not limited to the execution of the Waiver and Release attached hereto as Attachment A, the Company shall provide the consideration set forth below in this Section 2. Unless as otherwise provided in the Agreement, this consideration is provided subject to the binding execution by the Executive (without revocation) of the Waiver and Release. The Company’s obligation to make any further payments or provide any benefits otherwise due under Section 2 shall cease only in the event the Executive is in material breach of the terms of this Agreement or the Waiver and Release and fails to cure such breach in a reasonable period of time, and no payment shall be made or other benefit described hereunder provided until the expiration of the seven-day revocation period as provided for in the Waiver and Release (the “Effective Waiver Date”).

A. Retirement Payments. Assuming the Waiver and Release has become binding (without revocation), the Company agrees to pay the Executive a lump sum payment of $576,202.19 (less applicable taxes) on December 28, 2007.

B. Health Plan Coverage Continuation. The Executive and his qualifying dependents will be eligible for continuation coverage for medical and dental+vision benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), subject to the Executive’s payment of the full premiums and the Company’s ability to amend or terminate its benefit plans at any time. From the Retirement Date until the date one (1) year following the Retirement Date, the Company shall bear the payment of that portion of the full premium which is over and above the Executive’s continued payment of the employee portion of the then-applicable premium under the Company’s medical and dental+vision plans, as such portion and premiums are in effect from time to time. If, following the Retirement Date, the Executive becomes eligible for medical or dental+vision benefits from another employer, the Company’s obligation to provide such benefits coverage shall immediately cease only with regard to that coverage provided by the other employer.

C. Stock Options. The Executive shall be treated as having terminated employment due to “retirement” for purposes of any stock options awarded to the Executive under any incentive plan of the Company which remain unexercised as of the Executive’s Retirement Date. All of Executive’s stock options and restricted stock shall be immediately vested upon the Retirement Date, except for those restricted stock grants granted pursuant to the Restricted Stock Agreement dated as of March 16, 2007. In addition, the Nominating and Compensation Committee (the “Committee”) has agreed to extend the exercisability of all options until the end of the original term of the option.

D. Bonuses. The Executive will not be eligible to receive any annual bonus for the 2007 calendar year.

E. D&O Insurance. Subject to the Company’s own decision with regard to amounts and insurance providers, the Company will maintain D&O or other insurance coverage and extend same to the Executive, similar to the Company’s then-current executive group, for a period of three (3) years from the Effective Waiver Date.

3. Other Benefits. The Executive’s benefits under the Syntroleum 401(k) Plan and any other plan or arrangement of the Company shall be determined and paid in accordance with the terms of such plans. Except as expressly provided herein or in the terms of such plans, all benefits provided to the Executive shall cease as of the Retirement Date.

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4. Restrictive Covenants. As a material inducement to the Company to enter into this Agreement, Executive agrees that the restrictive covenants set forth in paragraphs 6, 7, 8, 9, 10, 11 and 12 of the Employment Agreement, originally agreed to by the Executive in entering into the Employment Agreement in exchange for the Company’s provision to the Executive of Trade Secret Information and for other good and valid consideration, remain in full force and effect; provided, however, that, effective the Retirement Date, subject to the Executive upholding his continuing obligations to maintain the Trade Secret Information of the Company as set forth in the Employment Agreement, the Company agrees to waive the restrictions set forth in paragraphs 9(a) and 9(b). Notwithstanding the forgoing, the Company does not waive the restrictions on the Executive as set forth in paragraph 9(c) of the Employment Agreement.

5. Assistance with Legal Proceedings. The Executive agrees that for a period of three years after the Retirement Date, the Executive will furnish such information and proper assistance as may be reasonably necessary in connection with any litigation or other legal proceedings in which the Company or any affiliate or subsidiary is then or may become involved; provided, however, that the parties agree to negotiate a reasonable rate of compensation for any such services.

6. Reference; Nondisparagement. The Executive agrees to refrain from any criticisms or disparaging comments about the Company or any affiliates (including any current or former officer, director or employee of the Company), and the Executive agrees not to take any action, or assist any person in taking any other action, that is adverse to the interests of the Company or any affiliate or inconsistent with fostering the goodwill of the Company and its affiliates. Likewise, the Company agrees to refrain from any criticisms or disparaging comments about the Executive, and the Company agrees not to take any action, or assist any person in taking any other action, that is adverse to the interests of the Executive or inconsistent with fostering the goodwill of the Executive. Notwithstanding the forgoing, this paragraph imposes no limitation on the Executive’s rights as a shareholder of the Company, or on either party’s rights to enforce this Agreement. Nothing in this Agreement shall apply to or restrict in any way the communication of information by either Party to any state or federal law enforcement agency, or require notice to either Party thereof in such event, and neither Party will be in breach of the covenant contained above solely by reason of giving testimony which is compelled by process of law.

7. Non-Alienation. The Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts provided under this Agreement, and no payments or benefits due hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts or by operation of law. So long as the Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. Upon the death of the Executive, his executors, administrators, devisees and heirs, in that order, shall have the right to enforce the provisions hereof.

8. Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

9. Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be an estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.

-3-

10. Notices. All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:

Syntroleum Corporation
4322 South 49th West Avenue
Tulsa, OK 74107-6100
Attention: General Counsel

Fax: (918) 592-7979

To the Executive:

John B. Holmes, Jr.
2153 Inwood Drive
Houston, Texas 77019

Telephone: (713) 630-1045

All such notices shall be conclusively deemed to be received and shall be effective; (i) if sent by hand delivery, upon receipt, (ii) if sent by telecopy or facsimile transmission, upon confirmation of receipt by the sender of such transmission or (iii) if sent by registered or certified mail, on the fifth day after the day on which such notice is mailed.

11. Tax Withholding. The Company shall withhold from any benefits payable under this Agreement the minimum federal, state, city or other taxes that will be required pursuant to any law or governmental regulation or ruling. In instances where a taxable event involves options or stock, the taxes will be handled in accordance with the applicable stock option agreement or restricted stock award agreement.

12. Severability. If any provision of this Agreement is held to be invalid, illegal or unenforceable, in whole or part, such invalidity will not affect any otherwise valid provision, and all other valid provisions will remain in full force and effect.

13. Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, and all of which together will constitute one document.

14. Titles. The titles and headings preceding the text of the sections and subsections of this Agreement have been inserted solely for convenience of reference and do not constitute a part of this Agreement or affect its meaning, interpretation or effect.

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15. Governing Law; Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, UNITED STATES OF AMERICA, WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. Subject to Section 15(a) below, the Company and the Executive expressly and irrevocably consent and submit to the nonexclusive jurisdiction of any state or federal court sitting in Tulsa County, Oklahoma and agree that, to the fullest extent allowed by law, such Oklahoma state or federal courts shall have jurisdiction over any action, suit or proceeding arising out of or relating to this Agreement. The Company and the Executive each irrevocably waive, to the fullest extent allowed by law, any objection either of them may have to the laying of venue of any such suit, action or proceeding brought in any state or federal court sitting in Tulsa County, Oklahoma based upon a claim that such court is inconvenient or otherwise an objectionable forum. Any process in any action, suit or proceeding arising out of or relating to this Agreement may, among other methods, be served upon the Company or the Executive by delivering it or mailing it to their respective addresses set forth herein. Any such delivery or mail service shall be deemed to have the same force and effect as personal service in the State of Oklahoma.

(a) Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be addressed exclusively in the following priority order:

(1) Negotiation. The Employee and the Company shall arrange a meeting, at a mutually convenient time by phone or in person, to discuss the issues of each Party and negotiate for a resolution of the dispute. The period of negotiation shall extend no longer than thirty (30) calendar days from the first meeting of the negotiators.

(2) Mediation. If the Parties have failed to resolve the dispute by negotiation, the Parties shall submit to mediation prior to seeking resolution by binding arbitration. The Parties will cooperate with one another in selecting a mediator from the American Arbitration Association panel of neutrals, which shall be requested to promptly schedule the mediation proceedings. The parties covenant that they will participate in the mediation in good faith, and that they will each bear their own costs. All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys, and by the mediator, are expected to be treated as confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation. If the dispute is not resolved within thirty (30) calendar days from the date of the submission of the dispute to mediation (or such later date as the parties may mutually agree in writing), the administration of the arbitration shall proceed forthwith. The mediation may continue, if the parties so agree, after the appointment of the arbitrators. Unless otherwise agreed by the parties, the mediator shall be disqualified from serving as arbitrator in the case. The pendency of a mediation shall not preclude a party from seeking provisional remedies, such as a temporary or permanent injunction or restraining order to prevent a continuing harm to a Party, in aid of the arbitration from a court of appropriate jurisdiction, and the parties agree not to defend against any application for provisional relief on the ground that a mediation is pending.

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(3) Arbitration. Within five (5) business days of the conclusion of the Parties’ mediation, any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this Agreement to arbitrate, shall be determined by binding arbitration in Tulsa, Oklahoma, before three (3) arbitrators. The arbitration shall be administered by the American Arbitration Association pursuant to its Commercial Rules for Arbitration. The arbitrators’ award may be enforced in Tulsa County District Court, the United States District Court for the Northern District of Oklahoma or in any other court having jurisdiction over the parties. This clause shall not preclude the Parties from seeking provisional remedies in aid of arbitration, such as a temporary or permanent injunction or restraining order to prevent a continuing harm to a Party, from a court of appropriate jurisdiction. The Parties covenant that they will participate in the arbitration in good faith, and that they will each bear their own costs. The provisions of this clause may be enforced by any court of competent jurisdiction, and the Party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorneys’ fees, to be paid by the Party against whom enforcement is ordered.

(4) The Parties agree that the dispute resolution priority set forth herein is a material term of this agreement and that the damages for failure to comply with the dispute resolution priority are and would be difficult to measure. Consequently, the Parties agree that in the event a Party elects to ignore the dispute resolution priority order requirements set forth in this Section 15(a), the Party making the election shall be obligated for all (internal and external) costs, fees and expenses, including attorneys’ fees, of the other Party, regardless of how the dispute is ultimately decided. In other words, any Party electing to forego the dispute resolution priority in Section 15(a) also elects to pay the fees, costs and expenses of the other Party even if the electing Party ultimately prevails. The dispute resolution priority order requirement specified in this Section 15(a) may be amended, modified, or waived only upon the agreement, in writing, of the Parties.

16. Remedies. In the event of any material breach by either party of any of the provisions of this Agreement and in the event such material breach is not cured by the breaching party within forty-five (45) days after notice from the non-breaching party, the non-breaching party, in addition to any other rights, remedies or damages available at law or in equity, shall be entitled (a) to injunctive relief enjoining and restraining any such material breach by the breaching party; and, in addition to any other award of damages to which may be entitled, (b) to recover from the breaching party all costs and expenses, including reasonable attorney’s fees, incurred by the non-breaching party, its successors or assigns as a consequence of any such breach.

17. Entire Agreement. This Agreement, together with Attachments A and B, constitute the entire agreement of the parties with respect to the subject matter hereof, and expressly supersedes the Employment Agreement, except as expressly provided herein.

18. 409A Compliance. The parties acknowledge that all payments and benefits provided under this Agreement and the Consulting Agreement are intended to meet the requirements and restrictions of the nonqualified deferred compensation rules contained in Section 409A of the Internal Revenue Code of 1986, as amended (to the extent applicable thereto).

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IN WITNESS WHEREOF, the parties have executed this Agreement in multiple counterparts, all of which shall constitute one agreement, effective as of the date and year first above written.

SYNTROLEUM CORPORATION
By:	/s/ Edward G. Roth
	Edward G. Roth
	President & Chief Operating Officer
EXECUTIVE
/s/ John B. Holmes, Jr.
John B. Holmes, Jr.

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Attachment A

SYNTROLEUM CORPORATION
Waiver And Release

Syntroleum Corporation has offered to pay me certain benefits (the “Benefits”) under my Retirement Agreement with Syntroleum Corporation, dated as of November 15, 2007 (the “Retirement Agreement”), which include benefits to which I am not otherwise entitled. These Benefits were offered to me in exchange for my agreement, among other things, to waive all of my claims against and release Syntroleum Corporation and its predecessors, successors and assigns (collectively referred to as the “Company”), all of the affiliates (including parents and subsidiaries) of the Company (collectively referred to as the “Affiliates”) and the Company’s and Affiliates’ directors and officers, employees and agents, insurers, employee benefit plans and the fiduciaries and agents of said plans (collectively, with the Company and Affiliates, referred to as the “Corporate Group”) from any and all claims, demands, actions, liabilities and damages arising out of or relating in any way to my employment with or retirement from the Company or the Affiliates; provided, however, that this Waiver and Release shall not apply to any claim or cause of action to enforce or interpret any provision contained in the Retirement Agreement. I have read this Waiver and Release and the Retirement Agreement, including the attachments thereto (all of which I received together and which, together, are referred to herein as the “Retirement Agreement Materials”) and they are incorporated herein by reference. I choose to accept this offer.

I understand that signing this Waiver and Release is an important legal act. I acknowledge that the Company has advised me in writing to consult an attorney before signing this Waiver and Release. I understand that, in order to be eligible for Benefits, I must sign (and return to Stephani Britton, HR Manager) this Waiver and Release before 5 p.m. on December 30, 2007. I acknowledge that I have been given sufficient time to consider whether to sign the Retirement Agreement and whether to execute this Waiver and Release.

In exchange for the payment to me of Benefits, which are in addition to any remuneration or benefits to which I am already entitled, I, among other things, (1) agree not to sue in any local, state and/or federal court regarding or relating in any way to my employment with or retirement from the Company or the Affiliates, and (2) knowingly and voluntarily waive all claims and release the Corporate Group from any and all claims, demands, actions, liabilities, and damages, whether known or unknown, arising out of or relating in any way to my employment with or retirement from the Company or the Affiliates¹.

¹ Nothing in this Waiver and Release or the Separation Agreement should be construed as a waiver of my rights vested under the terms of employee benefit plans sponsored by the Company or the Affiliates or with respect to such rights or claims as may arise after the date this Waiver and Release is executed. Additionally, I am not waiving any rights that I may have under the Family and Medical Leave Act of 1993 or the Fair Labor Standards Act. Furthermore, although I waive all rights to recovery of any compensation or benefits that I might be entitled to as a result of filing charges or claims with the Equal Employment Opportunity Commission, the National Labor Relations Board and the Oklahoma Human Rights Commission, I am not giving up any right that I may have to file charges or claims with these governmental agencies. Finally, I am not waiving any rights that cannot by law be released by private agreement

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This Waiver and Release includes, but is not limited to, claims and causes of action under: Title VII of the Civil Rights Act of 1964, as amended (“Title VII”); the Age Discrimination in Employment Act of 1967, as amended, including the Older Workers Benefit Protection Act of 1990 (“ADEA”); the Civil Rights Act of 1866, as amended; the Civil Rights Act of 1991; the Americans with Disabilities Act of 1990 (“ADA”); the Energy Reorganization Act, as amended, 42 U.S.C. ss 5851; the Workers Adjustment and Retraining Notification Act of 1988; the Pregnancy Discrimination Act of 1978; the Employee Retirement Income Security Act of 1974, as amended; the Occupational Safety and Health Act; claims in connection with workers’ compensation or “whistle blower” statutes; and/or contract, tort, defamation, slander, wrongful termination or any other state or federal regulatory, statutory or common law. Further, I expressly represent that no promise or agreement which is not expressed in the Retirement Agreement Materials has been made to me in executing this Waiver and Release, and that I am relying on my own judgment in executing this Waiver and Release, and that I am not relying on any statement or representation of the Company, any of the Affiliates or any other member of the Corporate Group or any of their agents. I agree that this Waiver and Release is valid, fair, adequate and reasonable, is with my full knowledge and consent, was not procured through fraud, duress or mistake and has not had the effect of misleading, misinforming or failing to inform me.

I acknowledge that payment of Benefits to me by the Company is not an admission by the Company or any other member of the Corporate Group that they engaged in any wrongful or unlawful act or that the Company or any member of the Corporate Group violated any federal or state law or regulation.

Should any of the provisions set forth in this Waiver and Release be determined to be invalid by a court, agency or other tribunal of competent jurisdiction, it is agreed that such determination shall not affect the enforceability of other provisions of this Waiver and Release. I acknowledge that this Waiver and Release and the other Retirement Agreement Materials set forth the entire understanding and agreement between me and the Company or any other member of the Corporate Group concerning the subject matter of this Waiver and Release and supersede any prior or contemporaneous oral and/or written agreements or representations, if any, between me and the Company or any other member of the Corporate Group. I understand that for a period of 7 calendar days following the date that I sign this Waiver and Release, I may revoke my acceptance of the offer, provided that my written statement of revocation is received on or before that seventh day by Stephani Britton, HR Manager, Syntroleum Corporation, 4322 South 49^th West Avenue, Tulsa, Oklahoma 74107, facsimile number:  (918) 592-7979, in which case the Waiver and Release will not become effective. In the event I revoke my acceptance of this offer, the Company shall have no obligation to provide me Benefits. I understand that failure to revoke my acceptance of the offer within 7 calendar days from the date I sign this Waiver and Release will result in this Waiver and Release being permanent and irrevocable.

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I acknowledge that I have read this Waiver and Release, have had an opportunity to ask questions and have it explained to me and that I understand that this Waiver and Release will have the effect of knowingly and voluntarily waiving any action I might pursue, including breach of contract, personal injury, retaliation, discrimination on the basis of race, age, sex, national origin, or disability and any other claims arising prior to the date of this Waiver and Release. By execution of this document, I do not waive or release or otherwise relinquish any legal rights I may have which are attributable to or arise out of acts, omissions, or events of the Company or any other member of the Corporate Group which occur after the date of the execution of this Waiver and Release.

John B. Holmes, Jr.

Executive’s Printed Name

/s/ John B. Holmes, Jr.

Executive’s Signature

11/15/07 

Executive’s Signature Date

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Attachment B

November 15, 2007

Syntroleum Corporation
4322 South 49th West Avenue
Tulsa, Oklahoma 74107

Attn.: Secretary of the Corporation

Re: Confirmation of resignation from all positions and offices held in Syntroleum Corporation, and all of its affiliates and/or subsidiaries

Dear Sir/Madam:

By affixing my signature to this letter, I hereby resign, due to my expected entry into retirement, from any and all positions and/or offices previously held in Syntroleum Corporation, all of its affiliates and/or subsidiaries that are in existence as of the date of this correspondence. My resignation includes, without limitation, any position as a director, officer, agent, or trustee of Syntroleum Corporation and in any of the entities of Syntroleum Corporation (its affiliates and/or subsidiaries). This resignation shall become effective as of November 19, 2007 as stated in the Retirement Agreement, although I will remain an employee of Syntroleum Corporation until December 28, 2007.

Sincerely,

John B. Holmes, Jr.

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EX-10.79

Exhibit 10.79

RETIREMENT AGREEMENT

THIS RETIREMENT AGREEMENT (the “Agreement”) made and entered into effective November 16, 2007, by and between Syntroleum Corporation (the “Company”) and Kenneth L. Agee (the “Executive”).

WITNESSETH:

WHEREAS, the Executive and the Company are parties to that certain Second Amended and Restated Employment Agreement dated as of June 17, 1999 (the “Employment Agreement”), and that certain Amended and Restated Indemnification Agreement dated June 17, 1999 (the “Indemnification Agreement”); and

WHEREAS, the Executive and the Company wish to modify and amend the Employment Agreement provided herein; and

WHEREAS, the parties mutually desire to arrange for Executive’s retirement from the Company under certain terms; and

WHEREAS, in consideration of the mutual promises contained herein, the parties hereto are willing to enter into this Agreement upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the premises, the terms and provisions set forth herein, the mutual benefits to be gained by the performance thereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Retirement and Resignation from Officer Positions. Effective as of 12:01 a.m. on December 2, 2007 (the “Retirement Date”), the Executive will retire as an employee of the Company. As of November 19, 2007, the Executive agrees to resign any and all director, officer, or other positions he holds with the Company or any of its affiliates and/or subsidiaries, and the Executive hereby agrees to sign and deliver the letter included herein Attachment B, evidencing his resignation as an officer. The Executive shall remain as an employee until the Retirement Date and subject to the terms of the Employment Agreement. However, the Company and Executive agree that from the execution of the Agreement until the Retirement Date, the Executive shall be available, at times to be mutually agreed, if called upon by the Company, to provide assistance that the Company may request.

2. Consideration and Waiver and Release. The Executive shall have until 45 calendar days after the date this Agreement was furnished to him to consider whether to sign and return this Agreement to the Company by first class mail or by hand delivery. In consideration for the Executive’s execution of and compliance with this Agreement, including but not limited to the execution of the Waiver and Release attached hereto as Attachment A, the Company shall provide the consideration set forth below in this Sections 2, 3(B), 3(C) & 5 of this Agreement. The value of such consideration is in excess of what Executive is otherwise entitled to.

Kenneth L. Agee
Retirement Agreement

Unless as otherwise provided in the Agreement, this consideration is provided subject to the binding execution by the Executive (without revocation) of the Waiver and Release. The Company’s obligation to make any further payments or provide any benefits otherwise due under Section 2 shall cease only in the event the Executive is in material breach of the terms of this Agreement or the Waiver and Release and fails to cure such breach in a reasonable period of time, and no payment shall be made or other benefit described hereunder provided until the expiration of the seven-day revocation period as provided for in the Waiver and Release (the “Effective Waiver Date”).

A. Retirement Payments. Assuming the Waiver and Release has become binding (without revocation), the Company agrees to pay the Executive a lump sum payment of $499,374.87 (less applicable taxes) on November 30, 2007. This provision hereby modifies and supersedes Section 13 (d) of the Employment Agreement.

B. Health Plan Coverage Continuation. The Executive and his qualifying dependents will be eligible for continuation coverage for medical and dental+vision benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), subject to the Executive’s payment of the full premiums and the Company’s ability to amend or terminate its benefit plans at any time. From the Retirement Date until the date one (1) year following the Retirement Date, the Company shall bear the payment of that portion of the full premium which is over and above the Executive’s continued payment of the employee portion of the then-applicable premium under the Company’s medical and dental+vision plans, as such portion and premiums are in effect from time to time. If, following the Retirement Date, the Executive becomes eligible for medical or dental+vision benefits from another employer, the Company’s obligation to provide such benefits coverage shall immediately cease only with regard to that coverage provided by the other employer.

C. Unused Leave. Payable on November 30, 2007 and any limitations set forth in the Company’s personnel policies, the Company will make a lump sum cash payment to Executive in an amount equal to the hours of unused vacation leave earned up to the Retirement Date.

D. Restricted Stock Grant. The Company and Executive acknowledge that they will execute a Restricted Stock Award Agreement contemporaneous with this Retirement Agreement covering the award to Executive of 150,000 shares of the Company’s common stock subject to performance vesting requirements. Such Restricted Stock Award Agreement shall remain in effect and binding on the parties notwithstanding the separation of the Executive from the Company.

E. Stock Options. The Executive and the Company agree that for those stock option which are unexercised on the Retirement Date, the Executive will have those time periods set forth for the each particular Stock Option Agreement as set forth on Attachment C to exercise the stock options granted and vested under the particular listed Stock Option Agreement.

F. Bonuses. The Executive will not be eligible to receive any annual bonus for the 2007 calendar year.

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Kenneth L. Agee
Retirement Agreement

G. D&O Insurance. Subject to the Company’s own decision with regard to amounts and insurance providers, the Company will maintain D&O or other insurance coverage and extend same to the Executive, similar to the Company’s then-current executive group, for a period of three (3) years from the Effective Waiver Date when commercially possible.

3. Property of the Company.

A. All documents, encoded media, and other tangible items provided to Executive by the Company or prepared, generated or created by Executive or others in connection with any business activity of the Company are the property of the Company, and Executive will promptly deliver to the Company all such documents, media and other items in Executive’s possession, including all complete or partial copies, recordings, abstracts, notes or reproductions of any kind made from or about such documents, media, items or information contained therein by the Separation Date. Executive will neither have nor claim any right, title or interest in any trademark, service mark or trade name owned or used by the Company.

B. Subject to the necessary and proper procedures of the Company’s Information Technology department for the termination or retirement of any Company employee and the requirement that Company will not be required to purchase any licenses to comply with this paragraph, the Company agrees to transfer ownership of certain listed items to the Executive within 30 days of the Retirement Date, or within a reasonable period thereof as required to coordinate with the third party vendors of the Company. The items to be transferred are: (i) mobile phone and associated cell number, and (ii) one laptop computer & peripherals (including basic operating system and business productivity software licenses, keyboard, mouse monitor and docking station) for each. All items are to be provided to the Executive in working order on an “AS IS, WHERE IS” basis.

C. The Company shall transfer to Executive title to a 2006 Volkswagen Jetta, VIN# 3VWST71K26M682133 (“the Vehicle”) effective the Retirement Date. As regards the Vehicle, the transfer shall be on a “AS IS, WHERE IS” basis. THE COMPANY EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE RELATING TO THE VEHICLE. Any and all transfer taxes, fees or costs resulting from the transfer of the Vehicle shall be paid by the Executive.

4. Other Benefits. The Executive’s benefits under the Syntroleum 401(k) Plan and any other plan or arrangement of the Company shall be determined and paid in accordance with the terms of such plans. Except as expressly provided herein or in the terms of such plans, all benefits provided to the Executive shall cease as of the Retirement Date.

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Kenneth L. Agee
Retirement Agreement

5. Restrictive Covenants. As a material inducement to the Company to enter into this Agreement, Executive agrees that the restrictive covenants set forth in paragraphs 6, 7, 8, 9, 10, 11 and 12 of the Employment Agreement, originally agreed to by the Executive in entering into the Employment Agreement in exchange for the Company’s provision to the Executive of Trade Secret Information and for other good and valid consideration, remain in full force and effect; provided, however, that, effective the Retirement Date, subject to the Executive upholding his continuing obligations to maintain the Trade Secret Information of the Company as set forth in the Employment Agreement, the Company agrees to waive the restrictions set forth in paragraphs 9(a) and 9(b). Notwithstanding the forgoing, the Company agrees to waive the provisions of paragraph 9(c) as it relates to James Engman, Bryan Hicks and Ronnie Young, but otherwise, the Company does not waive the restrictions on the Executive as set forth in paragraph 9(c) of the Employment Agreement.

A. The Company agrees to modify the Employment Agreement by striking the language of paragraph 8(c) in its entirety, and inserting the language in bold, italic typeface below:

“The provisions of this Paragraph 8 do not apply to an invention (i) developed during your employment with the Company, for which no equipment, supplies, facility or Trade Secret Information of the Company was used and which was developed entirely on Employee’s own time, or (ii) for an invention developed within two years of termination of employment, which does not include any Trade Secret Information disclosed to Employee by the Company or Trade Secret Information developed by Employee in the course of his employment with the Company.  A reasonable determination of the applicability of Paragraph 8(a) to an Employee’s invention shall be made by Syntroleum after the Employee submits notification in writing of the invention.  Said notice shall include adequate detail for Syntroleum to evaluate the invention and the circumstances under which the Employee believes this exclusion should apply.  Such notice to Company shall be made whenever a reasonable person would consider that the invention may include any Trade Secret Information disclosed to Employee by the Company or Trade Secret Information developed by Employee in the course of his employment with the Company.  The Company shall have the right to review the invention and contest the applicability of this Paragraph 8 even in such circumstances that Employee does not give notice.”

6. Assistance with Company Activities. The Executive agrees that for a period of three years after the Retirement Date, the Executive will furnish such information and proper assistance as may be reasonably necessary in connection with the Company’s activities, including but not limited to, any litigation or other legal proceedings in which the Company or any affiliate or subsidiary is then or may become involved. The Executive and the Company agree that in the event the requests for assistance present an unreasonable and undue burden upon the Executive, the Executive and the Company will negotiate a reasonable rate of compensation for his time; such agreed compensation will not include time responding to casual requests for information or clarifications.

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Kenneth L. Agee
Retirement Agreement

7. Reference; Nondisparagement. The Executive agrees to refrain from any criticisms or disparaging comments about the Company or any affiliates (including any current or former officer, director or employee of the Company), and the Executive agrees not to take any action, or assist any person in taking any other action, that is adverse to the interests of the Company or any affiliate or inconsistent with fostering the goodwill of the Company and its affiliates. Likewise, the Company agrees to refrain from any criticisms or disparaging comments about the Executive, and the Company agrees not to take any action, or assist any person in taking any other action, that is adverse to the interests of the Executive or inconsistent with fostering the goodwill of the Executive. Notwithstanding the forgoing, this paragraph imposes no limitation on the Executive’s rights as a shareholder of the Company, or on either party’s rights to enforce this Agreement. Nothing in this Agreement shall apply to or restrict in any way the communication of information by either Party to any state or federal law enforcement agency, or require notice to either Party thereof in such event, and neither Party will be in breach of the covenant contained above solely by reason of giving testimony which is compelled by process of law.

8. Non-Alienation. The Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts provided under this Agreement, and no payments or benefits due hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts or by operation of law. So long as the Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. Upon the death of the Executive, his executors, administrators, devisees and heirs, in that order, shall have the right to enforce the provisions hereof.

9. Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

10. Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be an estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. The Executive does waive any requirement for notice for termination of employment as set forth in the Employment Agreement.

11. Notices. All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:

Syntroleum Corporation
4322 South 49th West Avenue
Tulsa, OK 74107-6100
Attention: President

Fax: (918) 592-7979

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Kenneth L. Agee
Retirement Agreement

To the Executive:

Kenneth L. Agee
13137 South Yorktown Avenue
Bixby, OK 74008

Telephone: (918) 298-7811

All such notices shall be conclusively deemed to be received and shall be effective; (i) if sent by hand delivery, upon receipt, (ii) if sent by telecopy or facsimile transmission, upon confirmation of receipt by the sender of such transmission or (iii) if sent by registered or certified mail, on the fifth day after the day on which such notice is mailed.

12. Tax Withholding. The Company shall withhold from any benefits payable under this Agreement the minimum federal, state, city or other taxes that will be required pursuant to any law or governmental regulation or ruling. In instances where a taxable event involves options or stock, the taxes will be handled in accordance with the applicable stock option agreement or restricted stock award agreement.

13. Severability. If any provision of this Agreement is held to be invalid, illegal or unenforceable, in whole or part, such invalidity will not affect any otherwise valid provision, and all other valid provisions will remain in full force and effect.

14. Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, and all of which together will constitute one document.

15. Titles. The titles and headings preceding the text of the sections and subsections of this Agreement have been inserted solely for convenience of reference and do not constitute a part of this Agreement or affect its meaning, interpretation or effect.

16. Governing Law; Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, UNITED STATES OF AMERICA, WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. Subject to Section 16(a) below, the Company and the Executive expressly and irrevocably consent and submit to the nonexclusive jurisdiction of any state or federal court sitting in Oklahoma County, Oklahoma and agree that, to the fullest extent allowed by law, such Oklahoma state or federal courts shall have jurisdiction over any action, suit or proceeding arising out of or relating to this Agreement. The Company and the Executive each irrevocably waive, to the fullest extent allowed by law, any objection either of them may have to the laying of venue of any such suit, action or proceeding brought in any state or federal court sitting in Oklahoma County, Oklahoma based upon a claim that such court is inconvenient or otherwise an objectionable forum. Any process in any action, suit or proceeding arising out of or relating to this Agreement may, among other methods, be served upon the Company or the Executive by delivering it or mailing it to their respective addresses set forth herein. Any such delivery or mail service shall be deemed to have the same force and effect as personal service in the State of Oklahoma.

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Kenneth L. Agee
Retirement Agreement

(a) Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be addressed exclusively in the following priority order:

(1) Negotiation. The Employee and the Company shall arrange a meeting, at a mutually convenient time by phone or in person, to discuss the issues of each Party and negotiate for a resolution of the dispute. The period of negotiation shall extend no longer than thirty (30) calendar days from the first meeting of the negotiators.

(2) Mediation. If the Parties have failed to resolve the dispute by negotiation, the Parties shall submit to mediation prior to seeking resolution by binding arbitration. The Parties will cooperate with one another in selecting a mediator from the American Arbitration Association panel of neutrals, which shall be requested to promptly schedule the mediation proceedings. The parties covenant that they will participate in the mediation in good faith, and that they will each bear their own costs. All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys, and by the mediator, are expected to be treated as confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation. If the dispute is not resolved within thirty (30) calendar days from the date of the submission of the dispute to mediation (or such later date as the parties may mutually agree in writing), the administration of the arbitration shall proceed forthwith. The mediation may continue, if the parties so agree, after the appointment of the arbitrators. Unless otherwise agreed by the parties, the mediator shall be disqualified from serving as arbitrator in the case. The pendency of a mediation shall not preclude a party from seeking provisional remedies, such as a temporary or permanent injunction or restraining order to prevent a continuing harm to a Party, in aid of the arbitration from a court of appropriate jurisdiction, and the parties agree not to defend against any application for provisional relief on the ground that a mediation is pending.

(3) Arbitration. Within five (5) business days of the conclusion of the Parties’ mediation, any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this Agreement to arbitrate, shall be determined by binding arbitration in Oklahoma City, Oklahoma, before three (3) arbitrators. The arbitration shall be administered by the American Arbitration Association pursuant to its Commercial Rules for Arbitration. The arbitrators’ award may be enforced in State District Courts in Tulsa or Oklahoma Counties, the United States District Courts for the Northern or Western Districts of Oklahoma or in any other court having jurisdiction over the parties. This clause shall not preclude the Parties from seeking provisional remedies in aid of arbitration, such as a temporary or permanent injunction or restraining order to prevent a continuing harm to a Party, from a court of appropriate jurisdiction. The Parties covenant that they will participate in the arbitration in good faith, and that they will each bear their own costs. The provisions of this clause may be enforced by any court of competent jurisdiction, and the Party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorneys’ fees, to be paid by the Party against whom enforcement is ordered.

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Kenneth L. Agee
Retirement Agreement

(4) The Parties agree that the dispute resolution priority set forth herein is a material term of this agreement and that the damages for failure to comply with the dispute resolution priority are and would be difficult to measure. Consequently, the Parties agree that in the event a Party elects to ignore the dispute resolution priority order requirements set forth in this Section 16(a), the Party making the election shall be obligated for all (internal and external) costs, fees and expenses, including attorneys’ fees, of the other Party, regardless of how the dispute is ultimately decided. In other words, any Party electing to forego the dispute resolution priority in Section 16(a) also elects to pay the fees, costs and expenses of the other Party even if the electing Party ultimately prevails. The dispute resolution priority order requirement specified in this Section 16(a) may be amended, modified, or waived only upon the agreement, in writing, of the Parties.

17. Remedies. In the event of any material breach by either party of any of the provisions of this Agreement and in the event such material breach is not cured by the breaching party within forty-five (45) days after notice from the non-breaching party, the non-breaching party, in addition to any other rights, remedies or damages available at law or in equity, shall be entitled (a) to injunctive relief enjoining and restraining any such material breach by the breaching party; and, in addition to any other award of damages to which may be entitled, (b) to recover from the breaching party all costs and expenses, including reasonable attorney’s fees, incurred by the non-breaching party, its successors or assigns as a consequence of any such breach.

18. Entire Agreement. This Agreement, together with Attachments A and B, constitute the entire agreement of the parties with respect to the subject matter hereof, and expressly supersedes the Employment Agreement, except as expressly provided herein.

19. 409A Compliance. The parties acknowledge that all payments and benefits provided under this Agreement and the Consulting Agreement are intended to meet the requirements and restrictions of the nonqualified deferred compensation rules contained in Section 409A of the Internal Revenue Code of 1986, as amended (to the extent applicable thereto).

(signature page follows)

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Kenneth L. Agee
Retirement Agreement

IN WITNESS WHEREOF, the parties have executed this Agreement in multiple counterparts, all of which shall constitute one agreement, effective as of the date and year first above written.

SYNTROLEUM CORPORATION
By:	/s/ Edward G. Roth
	Edward G. Roth
	President & Chief Operating Officer
EXECUTIVE   /s/ Kenneth L. Agee
Kenneth L. Agee

-9-

Attachment A

SYNTROLEUM CORPORATION
Waiver And Release

Syntroleum Corporation has offered to pay me certain benefits (the “Benefits”) under my Retirement Agreement with Syntroleum Corporation, dated as of November  _____  , 2007 (the “Retirement Agreement”), which include benefits to which I am not otherwise entitled. These Benefits were offered to me in exchange for my agreement, among other things, to waive all of my claims against and release Syntroleum Corporation and its predecessors, successors and assigns (collectively referred to as the “Company”), all of the affiliates (including parents and subsidiaries) of the Company (collectively referred to as the “Affiliates”) and the Company’s and Affiliates’ directors and officers, employees and agents, insurers, employee benefit plans and the fiduciaries and agents of said plans (collectively, with the Company and Affiliates, referred to as the “Corporate Group”) from any and all claims, demands, actions, liabilities and damages arising out of or relating in any way to my employment with or retirement from the Company or the Affiliates; provided, however, that this Waiver and Release shall not apply to any claim or cause of action to enforce or interpret any provision contained in the Retirement Agreement. I have read this Waiver and Release and the Retirement Agreement, including the attachments thereto (all of which I received together and which, together, are referred to herein as the “Retirement Agreement Materials”) and they are incorporated herein by reference. I choose to accept this offer.

I understand that signing this Waiver and Release is an important legal act. I acknowledge that the Company has advised me in writing to consult an attorney before signing this Waiver and Release. I understand that, in order to be eligible for Benefits, I must sign (and return to Stephani Britton, HR Manager) this Waiver and Release before 5 p.m. on December 31, 2007. I acknowledge that I have been given sufficient time to consider whether to sign the Retirement Agreement and whether to execute this Waiver and Release.

In exchange for the payment to me of Benefits, which are in addition to any remuneration or benefits to which I am already entitled, I, among other things, (1) agree not to sue in any local, state and/or federal court regarding or relating in any way to my employment with or retirement from the Company or the Affiliates, and (2) knowingly and voluntarily waive all claims and release the Corporate Group from any and all claims, demands, actions, liabilities, and damages, whether known or unknown, arising out of or relating in any way to my employment with or retirement from the Company or the Affiliates¹.

¹ Nothing in this Waiver and Release or the Separation Agreement should be construed as a waiver of my rights vested under the terms of employee benefit plans sponsored by the Company or the Affiliates or with respect to such rights or claims as may arise after the date this Waiver and Release is executed. Additionally, I am not waiving any rights that I may have under the Family and Medical Leave Act of 1993 or the Fair Labor Standards Act. Furthermore, although I waive all rights to recovery of any compensation or benefits that I might be entitled to as a result of filing charges or claims with the Equal Employment Opportunity Commission, the National Labor Relations Board and the Oklahoma Human Rights Commission, I am not giving up any right that I may have to file charges or claims with these governmental agencies. Finally, I am not waiving any rights that cannot by law be released by private agreement.

-10-

This Waiver and Release includes, but is not limited to, claims and causes of action under: Title VII of the Civil Rights Act of 1964, as amended (“Title VII”); the Age Discrimination in Employment Act of 1967, as amended, including the Older Workers Benefit Protection Act of 1990 (“ADEA”); the Civil Rights Act of 1866, as amended; the Civil Rights Act of 1991; the Americans with Disabilities Act of 1990 (“ADA”); the Energy Reorganization Act, as amended, 42 U.S.C. ss 5851; the Workers Adjustment and Retraining Notification Act of 1988; the Pregnancy Discrimination Act of 1978; the Employee Retirement Income Security Act of 1974, as amended; the Occupational Safety and Health Act; claims in connection with workers’ compensation or “whistle blower” statutes; and/or contract, tort, defamation, slander, wrongful termination or any other state or federal regulatory, statutory or common law. Further, I expressly represent that no promise or agreement which is not expressed in the Retirement Agreement Materials has been made to me in executing this Waiver and Release, and that I am relying on my own judgment in executing this Waiver and Release, and that I am not relying on any statement or representation of the Company, any of the Affiliates or any other member of the Corporate Group or any of their agents. I agree that this Waiver and Release is valid, fair, adequate and reasonable, is with my full knowledge and consent, was not procured through fraud, duress or mistake and has not had the effect of misleading, misinforming or failing to inform me.

I acknowledge that payment of Benefits to me by the Company is not an admission by the Company or any other member of the Corporate Group that they engaged in any wrongful or unlawful act or that the Company or any member of the Corporate Group violated any federal or state law or regulation.

Should any of the provisions set forth in this Waiver and Release be determined to be invalid by a court, agency or other tribunal of competent jurisdiction, it is agreed that such determination shall not affect the enforceability of other provisions of this Waiver and Release. I acknowledge that this Waiver and Release and the other Retirement Agreement Materials set forth the entire understanding and agreement between me and the Company or any other member of the Corporate Group concerning the subject matter of this Waiver and Release and supersede any prior or contemporaneous oral and/or written agreements or representations, if any, between me and the Company or any other member of the Corporate Group. I understand that for a period of 7 calendar days following the date that I sign this Waiver and Release, I may revoke my acceptance of the offer, provided that my written statement of revocation is received on or before that seventh day by Stephani Britton, HR Manager, Syntroleum Corporation, 4322 South 49^th West Avenue, Tulsa, Oklahoma 74107, facsimile number:  (918) 592-7979, in which case the Waiver and Release will not become effective. In the event I revoke my acceptance of this offer, the Company shall have no obligation to provide me Benefits. I understand that failure to revoke my acceptance of the offer within 7 calendar days from the date I sign this Waiver and Release will result in this Waiver and Release being permanent and irrevocable.

-11-

I acknowledge that I have read this Waiver and Release, have had an opportunity to ask questions and have it explained to me and that I understand that this Waiver and Release will have the effect of knowingly and voluntarily waiving any action I might pursue, including breach of contract, personal injury, retaliation, discrimination on the basis of race, age, sex, national origin, or disability and any other claims arising prior to the date of this Waiver and Release. By execution of this document, I do not waive or release or otherwise relinquish any legal rights I may have which are attributable to or arise out of acts, omissions, or events of the Company or any other member of the Corporate Group which occur after the date of the execution of this Waiver and Release.

Kenneth L. Agee Executive’s Printed Name

/s/ Kenneth L. Agee

Executive’s Signature

11/16/07 

Executive’s Signature Date

-12-

Attachment B

November 16, 2007

Syntroleum Corporation
4322 South 49th West Avenue
Tulsa, Oklahoma 74107

Attn.: Secretary of the Corporation

Re:    Confirmation of resignation from all positions and offices held in Syntroleum Corporation, and all of its affiliates and/or subsidiaries

Dear Sir/Madam:

By affixing my signature to this letter, I hereby resign, due to my expected entry into retirement, from any and all positions and/or offices previously held in Syntroleum Corporation, all of its affiliates and/or subsidiaries that are in existence as of the date of this correspondence. My resignation includes, without limitation, any position as a director, officer, agent, or trustee of Syntroleum Corporation and in any of the entities of Syntroleum Corporation (its affiliates and/or subsidiaries). This resignation shall become effective as of November 19, 2007 as stated in the Retirement Agreement, although I will remain an employee of Syntroleum Corporation until December 2, 2007.

Sincerely,

Kenneth L. Agee

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Attachment “C”

SYNTROLEUM CORPORATION

Stock Option Detail

The stock option detail below shows the exercisable options available to the Executive. If the Executive elects to sell any or all of his vested options, The Executive will need to do so by the expiration date noted in the chart below.

Stock Option Detail

Option Date	Option Price	Expiration Date	Shares Exercisable/Vested
12/20/07	$1.54	12/20/07	300,000
1/23/06	$9.67	1/2/08	14,000

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EX-10.80

Exhibit 10.80

SYNTROLEUM CORPORATION
2005 STOCK INCENTIVE PLAN
EMPLOYEE RESTRICTED STOCK AWARD AGREEMENT

THIS AGREEMENT (“Agreement”), made as of the 16 day of November 2007 (the “Grant Date”), evidences an award by Syntroleum Corporation, a Delaware corporation (the “Company”) to Kenneth L. Agee (the “Grantee”) for service to the Company pursuant to the 2005 Stock Incentive Plan (the ”Plan”). Capitalized terms used and not otherwise defined herein shall have the meaning ascribed thereto in the Plan.

1. Grant of Restricted Stock Award. Effective as of the Grant Date, pursuant to Section 8 of the Plan, the Company has awarded to the Grantee a Restricted Stock Award with respect to one hundred fifty thousand (150,000) shares of Common Stock, subject to the conditions and restrictions set forth below and in the Plan (the “Restricted Stock”).

2. Restrictions. The Restricted Stock granted hereunder to the Grantee may not be sold, assigned, transferred, pledged or otherwise encumbered from the Grant Date until the date that the Grantee obtains a vested right to the shares (and the restrictions thereon terminate) in accordance with the provisions of this Section 2. The Restricted Stock grant described in Section 1, above, shall vest upon the acceptable completion of the Fischer-Tropsch technology documentation set forth in Exhibit A to this Agreement, as determined by the Nominating and Compensation Committee of the Company’s Board of Directors (the “Committee”) in its sole discretion and after consultation and acceptance by the Company’s management evidenced by a certificate for completeness from the Company’s management, but in no event before December 21, 2007. To the extent any of the shares of Restricted Stock have not vested as of March 31, 2008 such unvested shares shall be forfeited.

The period of time between the Grant Date and the date that the Grantee obtains a vested right to the Restricted Stock shall be referred to herein as the “Restricted Period” as to those shares. In the event that any day on which the Grantee would otherwise obtain a vested right to the Restricted Stock is a Saturday, Sunday or holiday, the Grantee shall instead obtain that vested right on the first business day immediately following such date.

3. Share Issuance. The Company will issue to Grantee a stock certificate evidencing the shares of Restricted Stock, which certificate will be registered in the name of Grantee and will bear an appropriate legend referring to the terms, conditions, and restrictions applicable to the Restricted Stock, substantially in the following form:

The transferability of this certificate and the shares of Common Stock represented hereby are subject to the terms, conditions and restrictions (including forfeiture) contained in the Employee Restricted Stock Award Agreement, effective as of November 16, 2007, between Syntroleum Corporation and the registered owner hereof. Copies of such Agreement are on file in the offices of Syntroleum Corporation, 4322 South 49th West Avenue, Tulsa, Oklahoma, 74107.

The certificate evidencing the shares of Restricted Stock shall be held in custody by the Company until the restrictions on such shares shall have lapsed, and, as a condition of this award of Restricted Stock, the Grantee shall deliver a stock power, duly endorsed in blank, relating to the shares of Restricted Stock. Upon the vesting and expiration of the restrictions as to the Restricted Stock, the Company will cause a new certificate evidencing such number of shares of Common Stock to be delivered to the Grantee free of the legend regarding transferability.

3. Nonalienation of Benefits. No right or benefit under this Agreement shall be subject to transfer, anticipation, alienation, sale, assignment, pledge, encumbrance or charge, whether voluntary, involuntary or by operation of law, and any attempt to transfer, anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to such benefits.

4. Prerequisites to Benefits. Neither the Grantee, nor any person claiming through the Grantee, shall have any right or interest in Restricted Stock awarded hereunder, unless and until all the terms, conditions and provisions of this Agreement and the Plan which affect the Grantee or such other person shall have been complied with as specified herein. No partial vesting of shares shall take be allowed under the terms of this Agreement.

5. Issuance and Delivery of Shares. The Company shall not be obligated to issue or deliver any shares of Common Stock if counsel to the Company determines that such issuance or delivery would violate any applicable law or any rule or regulation of any United States governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association upon which the Common Stock is listed or quoted. If necessary to comply with any such law, rule, regulation or agreement, the Company shall in no event be obligated to take any affirmative action in order to cause the issuance or delivery of shares of Common Stock.

6. Rights as a Stockholder. During the period in which the restrictions provided herein are applicable to the Restricted Stock, the Grantee shall have the right to vote the shares of Restricted Stock and to receive any cash dividends paid with respect thereto unless and until forfeiture thereof. Any dividend or distribution payable with respect to shares of Restricted Stock that shall be paid or distributed in shares of Common Stock shall be subject to the same restrictions provided for herein, and the shares so paid or distributed shall be deemed Restricted Stock subject to all terms and conditions herein. Any dividend or distribution (other than cash or Common Stock) payable or distributable on shares of Restricted Stock, unless otherwise determined by the Committee, shall be subject to the terms and conditions of this Agreement to the same extent and in the same manner as the Restricted Stock is subject; provided that the Committee may make such modifications and additions to the terms and conditions (including restrictions on transfer and the conditions to the timing and degree of lapse of such restrictions) that shall become applicable to such dividend or distribution as the Committee may provide in its absolute discretion.

2

7. Taxes. Grantee shall be responsible for payment of taxes or other amounts required by law to satisfy all obligations for withholding of taxes prior to delivery of the certificate evidencing the Restricted Stock to Grantee. With the mutual agreement of the Company and Grantee, the Company shall have the right to withhold an appropriate number of shares of Common Stock, and have those shares sold by an independent broker, for payment of taxes or other amounts required by law or to take such action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of taxes.

8. Notice. Unless the Company notifies the Grantee in writing of a different procedure, any notice or other communication to the Company with respect to this Agreement shall be in writing and shall be delivered personally or by first class mail, postage prepaid to the following address:

Syntroleum Corporation
c/o Corporate Secretary
4322 South 49th West Avenue
Tulsa, Oklahoma 74107

Any notice or other communication to the Grantee with respect to this Agreement shall be in writing and shall be delivered personally, or shall be sent by first class mail, postage prepaid, to Grantee’s address as listed in the records of the Company on the Grant Date, unless the Company has received written notification from the Grantee of a change of address.

9. Grantee Employment. Nothing contained in this Agreement, and no action of the Company or the Committee with respect hereto, shall confer or be construed to confer on the Grantee any right to continue as an employee of the Company.

10. Governing Law. Governing Law; Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, UNITED STATES OF AMERICA, WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. Subject to Section 10(a) below, the Company and the Executive expressly and irrevocably consent and submit to the nonexclusive jurisdiction of any state or federal court sitting in Oklahoma County, Oklahoma and agree that, to the fullest extent allowed by law, such Oklahoma state or federal courts shall have jurisdiction over any action, suit or proceeding arising out of or relating to this Agreement. The Company and the Executive each irrevocably waive, to the fullest extent allowed by law, any objection either of them may have to the laying of venue of any such suit, action or proceeding brought in any state or federal court sitting in Oklahoma County, Oklahoma based upon a claim that such court is inconvenient or otherwise an objectionable forum. Any process in any action, suit or proceeding arising out of or relating to this Agreement may, among other methods, be served upon the Company or the Executive by delivering it or mailing it to their respective addresses set forth herein. Any such delivery or mail service shall be deemed to have the same force and effect as personal service in the State of Oklahoma.

3

(a) Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be addressed exclusively in the following priority order:

(1) Negotiation. The Employee and the Company shall arrange a meeting, at a mutually convenient time by phone or in person, to discuss the issues of each Party and negotiate for a resolution of the dispute. The period of negotiation shall extend no longer than thirty (30) calendar days from the first meeting of the negotiators.

(2) Mediation. If the Parties have failed to resolve the dispute by negotiation, the Parties shall submit to mediation prior to seeking resolution by binding arbitration. The Parties will cooperate with one another in selecting a mediator from the American Arbitration Association panel of neutrals, which shall be requested to promptly schedule the mediation proceedings. The parties covenant that they will participate in the mediation in good faith, and that they will each bear their own costs. All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys, and by the mediator, are expected to be treated as confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation. If the dispute is not resolved within thirty (30) calendar days from the date of the submission of the dispute to mediation (or such later date as the parties may mutually agree in writing), the administration of the arbitration shall proceed forthwith. The mediation may continue, if the parties so agree, after the appointment of the arbitrators. Unless otherwise agreed by the parties, the mediator shall be disqualified from serving as arbitrator in the case. The pendency of a mediation shall not preclude a party from seeking provisional remedies, such as a temporary or permanent injunction or restraining order to prevent a continuing harm to a Party, in aid of the arbitration from a court of appropriate jurisdiction, and the parties agree not to defend against any application for provisional relief on the ground that a mediation is pending.

(3) Arbitration. Within five (5) business days of the conclusion of the Parties’ mediation, any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this Agreement to arbitrate, shall be determined by binding arbitration in Oklahoma City, Oklahoma, before three (3) arbitrators. The arbitration shall be administered by the American Arbitration Association pursuant to its Commercial Rules for Arbitration. The arbitrators’ award may be enforced in State District Courts in Tulsa or Oklahoma Counties, the United States District Courts for the Northern or Western Districts of Oklahoma or in any other court having jurisdiction over the parties. This clause shall not preclude the Parties from seeking provisional remedies in aid of arbitration, such as a temporary or permanent injunction or restraining order to prevent a continuing harm to a Party, from a court of appropriate jurisdiction. The Parties covenant that they will participate in the arbitration in good faith, and that they will each bear their own costs. The provisions of this clause may be enforced by any court of competent jurisdiction, and the Party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorneys’ fees, to be paid by the Party against whom enforcement is ordered.

(4) The Parties agree that the dispute resolution priority set forth herein is a material term of this agreement and that the damages for failure to comply with the dispute resolution priority are and would be difficult to measure. Consequently, the Parties agree that in the event a Party elects to ignore the dispute resolution priority order requirements set forth in this Section 10(a), the Party making the election shall be obligated for all (internal and external) costs, fees and expenses, including attorneys’ fees, of the other Party, regardless of how the dispute is ultimately decided. In other words, any Party electing to forego the dispute resolution priority in Section 10(a) also elects to pay the fees, costs and expenses of the other Party even if the electing Party ultimately prevails. The dispute resolution priority order requirement specified in this Section 10(a) may be amended, modified, or waived only upon the agreement, in writing, of the Parties.

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11. Construction. References in this Agreement to “this Agreement” and the words “herein,” “hereof,” “hereunder” and similar terms include the Plan. The headings of the Sections of this Agreement have been included for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

12. Relationship to the Plan. In addition to the terms and conditions described in this Agreement, grants of Restricted Stock are subject to all other applicable provisions of the Plan. The decisions of the Committee with respect to questions arising as to the interpretation of the Plan, or this Agreement and as to finding of fact, shall be final, conclusive and binding.

SYNTROLEUM CORPORATION
By:	/s/ Edward G. Roth
	Name:	Edward G. Roth
	Title:	President & Chief Operating Officer
GRANTEE   /s/ Kenneth L. Agee
Kenneth L. Agee

5

Exhibit A

Summary of FT Documentation

Basic Definitions
Material Balance/Yield/Product and water composition
ARU Tracer Data
CDF Heat Transfer
Gas Distribution
CDF Filtration
ARU Filtration
Attrition
Slurry Sampling
Revised Holdup
Syngas Cleanup Expenses under TP0409
CDF Sedimentation Dispersion
Run Histories
CREL Reactor Model
Regen (TPP and CDF) Expenses under TP0410
Kinetics and Selectivity
Deactivation
Catalyst Management Model Version 5.0
Eastman CSTR
Catalyst Manual
Miscellaneous Analytical Laboratory Procedures
Miscellaneous Catalyst Laboratory Procedures

6

EX-21

Ex. 21

Syntroleum International Corporation (a Delaware corporation)
Syntroleum International Holdings Company (a Cayman Islands exempted company)
  Syntroleum Australia Credit Corporation (a Delaware corporation)
Syntroleum Sweetwater Holdings Corp. (a Delaware corporation)
Syntroleum Nigeria, Ltd. (a Nigeria company)
Syntroleum Bolivia Holdings L.L.C. (a Delaware limited liability company)
Scout Development Corporation (a Missouri Corporation)
Dynamic Fuels, LLC (a Delaware limited liability company)

EX-23

Ex 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated March 17, 2008, accompanying the consolidated financial statements and management’s assessment of the effectiveness of internal control over financial reporting included in the Annual Report of Syntroleum Corporation on Form 10-K for the year ended December 31, 2007.  We hereby consent to the incorporation by reference of said reports in the Registration Statements of Syntroleum Corporation on Forms S-3 (File No. 333-138487, 333-126459, 333-111716 and 333-62290) and on Forms S-8 (File Nos. 333-134386, 333-126427, 333-126425, 333-104360, 333-62862, 333-53714 and 333-64231).

/s/ Grant Thornton, LLP

Tulsa, Oklahoma
March 17, 2008

EX-31.1

Ex. 31.1

CERTIFICATIONS

I, Edward G. Roth., certify that:

1.	I have reviewed this annual report on Form 10-K of Syntroleum Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2008

/s/ Edward G. Roth

Edward G. Roth

Chief Executive Officer

EX-31.2

Ex. 31.2

CERTIFICATIONS

I, Karen L. Gallagher, certify that:

1.	I have reviewed this annual report on Form 10-K of Syntroleum Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2008

/s/ Karen L. Gallagher

Karen L. Gallagher

Senior Vice President of

Finance Principal Financial Officer

EX-32.1

Ex. 32.1

Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) (the “Act”), I, Edward G. Roth, Chief Executive Officer of Syntroleum Corporation (the “Company”), hereby certify, to the best of my knowledge:

(1) The Company’s Annual Report on Form 10-K for the year ended December 31, 2007 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 17, 2008	/s/ Edward G. Roth
	Edward G. Roth
	Chief Executive Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Act and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

Ex. 32.2

Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) (the “Act”), I, Karen L. Gallagher, Senior Vice President of Finance and Principal Financial Officer of Syntroleum Corporation (the “Company”), hereby certify, to the best of my knowledge:

(1) The Company’s Annual Report on Form 10-K for the year ended December 31, 2007 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 17, 2008	/s/ Karen L. Gallagher
	Karen L. Gallagher
	Senior Vice President of
	Finance and Principal Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Act and is not being filed as part of the Report or as a separate disclosure document.