4. Investment in and Loans to Dynamic Fuels, LLC

Dynamic Fuels began commercial operations in November of 2010. Dynamic Fuels is organized and operated pursuant to the provisions of its Limited Liability Company Agreement between the Company and Tyson (the "LLC Agreement"). The LLC Agreement provides for management and control of Dynamic Fuels to be exercised jointly by representatives of the Company and Tyson equally with no LLC member exercising control. We account for Dynamic Fuels under the equity method of accounting with our share of the Dynamic Fuels net income or loss reflected in the Consolidated Statements of Operations. Under the equity method, losses from our investment in Dynamic Fuels are limited to the carrying value of our investment in and loans to Dynamic Fuels plus any outstanding receivables which were $41,798,000 and $85,000, respectively at March 31, 2013. The carrying value of our investment in Dynamic Fuels exceeds the amount of underlying equity in net assets of Dynamic Fuels by approximately $8,000,000, related to warrants issued to Tyson. The Warrants are being amortized over the remaining life of the bonds which expire in 2033. Dynamic Fuels has a different fiscal year than us. The Dynamic Fuels fiscal year ends on September 30 and we report our share of Dynamic Fuels results of operations on a three month lag in accordance with ASC 323-10-35.

On January 3, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (the "Act"), which reinstated tax credits of $1.00 per gallon for the production of renewable diesel and $.50 per gallon for the production of qualified alternative fuels. The Act applies to 2013 production, but also retroactively reinstates the credits for 2012. During the quarter ended March 31, 2013, Dynamic recognized approximately $25.2 million in revenue for 2012 production of diesel and renewable naphtha. Due to the materiality of these amounts, we have recorded in the accompanying financial statements our portion of the current quarter revenue of $12.6 million related to the 2012 retroactively reinstated credits. Additionally, because of specific provisions in the Act, we filed for approximately $9.0 million of our portion of the credits directly with the Internal Revenue Service. This amount was received on April 12, 2013 and was recorded as a repayment of working capital loans in the accompanying financial statements. These amounts are included in our carrying value in Dynamic Fuels and are reflected in "Investment in and Loans to Dynamic Fuels, LLC" in our Consolidated Balance Sheets.

The plant has sold 66.8 million gallons of renewable products such as diesel, naphtha, and LPG from December 2010 to December 2012. Full rate capacity for the plant is 75.0 million gallons per year. Since the start of commercial operations, the plant has experienced adulterants in the feedstock, hydrogen disruptions and rotating equipment issues which have contributed to plant downtime and higher than expected operating costs. Upgrades to the feedstock pre-treatment area were completed during 2012.

Planned turnaround operations commenced on October 25, 2012 and were completed on December 10, 2012 at which time the plant was placed in standby mode as Dynamic Fuels monitored economic conditions to determine the appropriate time to resume operations. The plant continues to be in standby mode. While the economic conditions have improved in 2013, Syntroleum and Tyson continue to monitor the long term economic conditions conducive for plant restart. During the first quarter Syntroleum and Tyson each made an additional $4 million working capital loan and invested an additional $1.7 million in the form of an equity contribution. Working capital requirements for restart of the facility are estimated to be approximately $20 million.

Primarily as a result of the extended period the Plant has been in standby, Dynamic Fuels determined that the carrying amount of the Plant may not be recoverable. As such, recoverability was assessed using a probability weighted undiscounted cash flow model based on historical results and current projections. Based on this assessment, it was determined that the carrying value was recoverable and no impairment was recognized. However, if the Plant is not restarted, the Plant upgrades fail to improve operational performance, or should industry economics make the plant uneconomical to operate, Dynamic Fuels may be required to reassess recoverability and recognize an impairment loss on the Plant.

In addition, accounting standards for equity method investments requires Syntroleum to consider all factors that may indicate that the value of our investment in Dynamic Fuels is less than the amount reported in our balance sheet. If such a value deficiency has occurred and is other than temporary, it must be recognized currently. Our management has considered Dynamic Fuel's financial condition, current status and outlook and has concluded that a current valuation deficiency does not exist.

Dynamic Fuels, LLC Quarter Ended December 31, 2012 Unaudited Financials (in thousands):


Balance Sheet	December 31,		September 30,
	2012		2012
Cash and Current Assets	$	5,378	$	9,337
Inventory		1,597		17,509
Property, Plant and Equipment
and Other Assets		150,220		150,258
Total Assets	$	157,195	$	177,104

Accounts Payable	$	2,975	$	10,241
Notes and Accounts Payable to
Related Parties		29,123		29,976
Long-Term Liabilities		100,053		100,051
Total Liabilities		132,151		140,268
Total Members' Equity		25,044		36,836
Total Liabilities and Members'
Equity	$	157,195	$	177,104


	For the			For the Quarter
	Quarter Ended			Ended
	December 31,			December 31,
	2012			2011
Revenue	$	19,826		$	53,623
Cost of Goods Sold, Operating
Expenses and General and
administrative		31,230			55,302
Loss from Operations		(11,404	)		(1,679	)
Other Income (Expense)		(388	)		(450	)
Net Loss		(11,792	)		(2,129	)

During the quarters ended March 31, 2013 and 2012, we recognized technical service revenue with Dynamic Fuels in the amount of $417,000 and $379,000, respectively and royalties from plant production of zero and $240,000, respectively. This revenue is reported in "Technical services from Dynamic Fuels, LLC" and "Royalties from Dynamic Fuels, LLC Plant Production" in the Consolidated Statements of Operations.