KFX INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark one)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________

Commission File Number: 0-23634

KFX INC.
(Exact name of registrant as specified in its charter)

Delaware		84-1079971
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

55 Madison Street, Suite 745 Denver, Colorado		80206
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (303) 293-2992

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, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No ¨

On November 4, 2004, 2004 there were 60,445,903 shares of the registrant’s common stock, $.001 par value, outstanding.

KFX INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

		Page No.
ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Balance Sheets – September 30, 2004 (Unaudited) and December 31, 2003	3

	Consolidated Statements of Operations - Three Months Ended September 30, 2004 and 2003 (Unaudited)	4

	Consolidated Statements of Operations – Nine Months Ended September 30, 2004 and 2003 (Unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity – Year Ended December 31, 2003 and Nine Months Ended September 30, 2004 (Unaudited)	6

	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2004 and 2003 (Unaudited)	7

	Notes to Consolidated Financial Statements (Unaudited)	9

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28

ITEM 4.	CONTROLS AND PROCEDURES	29

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	30

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	30

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	30

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	30

ITEM 5.	OTHER INFORMATION	30

ITEM 6.	EXHIBITS	31

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KFX INC.
CONSOLIDATED BALANCE SHEETS


		September 30, 2004 (Unaudited)			December 31, 2003

		(Dollars and shares in thousands)
ASSETS
Current assets:
	Cash and cash equivalents	$	32,770		$	23,701
	Prepaid expenses		258			104
	Other current assets		26			238
	Current portion of note receivable (Note 3)		316			1,006

	Total current assets		33,370			25,049
Restricted cash			2,729			-
Plant construction in progress (Note 5)			12,707			6,315
Property and equipment, net of accumulated depreciation (Note 5)			3,485			334
Patents, net of accumulated amortization (Note 6)			1,237			1,266
Note receivable (Note 3)			1,926			1,486
Prepaid royalty			513			517
Other assets			34			37

TOTAL ASSETS		$	56,001		$	35,004


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	810		$	3,084
	Accrued expenses		1,053			568
	Interest payable		18			9
	Deferred revenue		19			19
	Current maturity of long-term debt and note payable		180			170

	Total current liabilities		2,080			3,850
Long-term liabilities:
	Long-term portion of note payable		35			-
	Asset retirement obligation		2,729			-
	Long-term portion of deferred revenue		42			56

	Total liabilities		4,886			3,906
Commitments and contingencies (Note 9)
Stockholders’ equity:
	Preferred stock, $.001 par value, 20,000 shares authorized, none issued
	Common stock, $.001 par value, 120,000 shares authorized; 60,415 and 52,952 shares issued and outstanding, respectively		60			53
	Additional paid-in capital		173,323			149,047
	Accumulated deficit		(122,268	)		(118,002	)

	Total stockholders’ equity		51,115		$	31,098

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	56,001		$	35,004

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

KFX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

	UNAUDITED THREE MONTHS ENDED SEPTEMBER 30,
	2004			2003
	(Dollars and shares in thousands, except per share amounts)
OPERATING REVENUES
Contract and license revenue	$	5			$	30

OPERATING COSTS & EXPENSES

Marketing, general & administrative	$	1,760			$	1,611
Engineering and technical services		108				326
Depreciation and amortization		115				104

Total operating costs and expenses		1,983				2,041

OPERATING LOSS	$	(1,978	)		$	(2,011	)

Other income		50				-
Interest income (expense), net		107				(666	)

Loss from continuing operations	$	(1,821	)		$	(2,677	)

Loss from discontinued operations (Note 2)		-				(428	)


NET LOSS	$	(1,821	)		$	(3,105	)


BASIC AND DILUTED NET LOSS PER COMMON SHARE
Loss from continuing operations	$	(0.03	)		$	(0.06	)
Loss from discontinued operations		-				(0.01	)


Basic and diluted loss per share	$	(0.03	)		$	(0.07	)


Weighted-average common shares outstanding, basic and diluted		59,513				47,160

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

KFX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

	UNAUDITED NINE MONTHS ENDED SEPTEMBER 30,
	2004			2003
	(Dollars and shares in thousands, except per share amounts)
OPERATING REVENUES
Contract and license revenue	$	22			$	62

OPERATING COSTS & EXPENSES

Marketing, general & administrative	$	4,273			$	5,056
Engineering and technical services		233				1,146
Depreciation and amortization		296				232
Asset impairment		45				-

Total operating costs and expenses		4,847				6,434

OPERATING LOSS	$	(4,825	)		$	(6,372	)

Other income		218				(1	)
Interest income (expense), net		341				(842	)

Loss from continuing operations	$	(4,266	)		$	(7,215	)

Loss from discontinued operations (Note 2)		-				(1,204	)


NET LOSS	$	(4,266	)		$	(8,419	)


BASIC AND DILUTED NET LOSS PER COMMON SHARE
Loss from continuing operations	$	(0.08	)		$	(0.16	)
Loss from discontinued operations		-				(0.03	)


Basic and diluted loss per share	$	(0.08	)		$	(0.19	)


Weighted-average common shares outstanding, basic and diluted		56,278				44,917

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

KFX INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and Shares in Thousands)

	Common Stock
	Shares	Amount		Additional Paid-in Capital		Note and Stock Subscription Receivable		Retained Earnings		Total Stockholders’ Equity


Balance at December 31, 2002	38,968	$	39	$	111,510	$	(95)	$	(109,719)	$	1,735
Common stock and warrants issued for services	338		-		2,398		-		-		2,398
Common stock and warrants issued in a private placement	7,745		8		18,276		-		-		18,284
Common stock issued on exercise of options and warrants	5,480		5		14,467		-		-		14,472
Stock returned and cancelled	(450)		-		-		-		-		-
Stock appreciation rights	-		-		2		-		-		2
Issuance of common stock for note receivable	871		1		2,394		-		-		2,395
Payment of note receivable for services	-		-		-		95		-		95
Net loss	-		-		-		-		(8,283)		(8,283)


Balance at December 31, 2003	52,952	$	53	$	149,047	$	-	$	(118,002)	$	31,098
Common stock issued on exercise of options and warrants	7,207		7		21,160		-		-		21,167
Sale of common stock	245		-		1,995		-		-		1,995
Common stock and warrants issued for services	11		-		1,121		-		-		1,121
Net loss	-		-		-		-