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 March 31, 2005

¨      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)

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 April 25, 2005, there were 65,702,708 shares of the registrant’s common stock, $.001 par value, outstanding.

KFX INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
		Page No.
ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets – March 31, 2005 (Unaudited) and December 31, 2004	3
	Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2005 and 2004 (Unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity – Year Ended December 31, 2004 and Three Months Ended March 31, 2005 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2005 and 2004 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements – Three Months ended March 31, 2005 (Unaudited)	7
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	21
ITEM 4.	CONTROLS AND PROCEDURES	22
PART II.  OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	22
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	22
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	22
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	22
ITEM 5.	OTHER INFORMATION	23
ITEM 6.	EXHIBITS	24

2

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

KFX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS)

The accompanying notes are an integral part of these condensed consolidated financial statements.
3

KFX INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDIED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

The accompanying notes are an integral part of these condensed consolidated financial statements.
5

KFX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these condensed consolidated financial statements.
6

KFX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED)

Unless the context requires otherwise, the terms “KFx,” “we,” “our,” and “us” refer to KFx Inc. and its subsidiaries.  All references to K-Fuel, K-Fuel^™and K-Fuel Plus^™refer to our patented process and technology, which are owned by our wholly owned subsidiary, K-Fuel LLC.

NOTE 1.  BASIS OF PRESENTATION

                These condensed consolidated interim financial statements are unaudited and are prepared in accordance with the instructions for Form 10-Q.  In compliance with those instructions, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

                We made certain reclassifications to prior balances to conform to the current presentation.  In the opinion of management, these statements include all the adjustments necessary to fairly present our condensed consolidated results of operations, financial position, and cash flows as of March 31, 2005 and for all periods presented.  These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2004.  The condensed consolidated results of operations for the three month period ended March 31, 2005 and the condensed consolidated statement of cash flows for the three month period ended March 31, 2005 are not necessarily indicative of the results or cash flows expected for the full year.

                Our operations have required and will continue to require investment for research and development of our K-Fuel product and related products, construction of our 750,000-tons per year K-Fuel plant near Gillette, Wyoming, which we refer to as the 750,000-ton plant, construction of other large-scale commercial plants and costs to transfer technology to licensees.  We may continue to incur losses for the next several years as we begin operating our 750,000-ton plant and undertake the design, construction, and operation of other large-scale commercial plants.  Further, we do not expect to derive a significant amount of cash from plant operations until the plants are fully operational.  In addition, we may license our technology to more third parties, which may result in additional sources of cash.  However, we can provide no assurance that we will be able to execute additional licensing agreements.  Historically, we have satisfied our cash requirements primarily through the sale of equity securities. 

                Asset retirement cost and obligation.   The fair value of our retirement obligation is to be recorded as a liability with an equivalent amount added to the asset cost and depreciated over an appropriate period.  The liability is then accreted over time by applying an interest method of allocation to the liability.  We began accreting our liability in 2005.  As a result, amounts reflected in Restricted Cash in our Condensed Consolidated Balance Sheets, which serves as collateral pledged toward our reclamation liability assessed by the Wyoming Department of Environmental Quality, or DEQ, will no longer equal the amount reflected in the liability.  Periodically, the DEQ may require us to pledge additional cash collateral or we may be allowed to un-restrict this cash as the case may be.  As the DEQ adjusts their amount of required collateral, we will adjust our reclamation obligation accordingly, which may result in additional expense or the reversal of previously recorded expense.

                Revenue.  We recognize revenue when there is persuasive evidence of an arrangement, generally when an agreement has been signed, all significant obligations have been satisfied, the fee is fixed or determinable, and collection is reasonably assured.  Any up-front fees received related to licenses granted are deferred and recognized as we provide certain deliverables defined in the agreement.  As our history related to customer relationships is limited, we may be required to change the estimated period over which we amortize our revenue as more information becomes available.  Arrangements that include multiple deliverables are evaluated to determine whether each deliverable is separable based on objective evidence.  If it is deemed separable, total consideration