UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

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

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

Commission File Number: 001-35213

 

KiOR, INC.

(Exact name of registrant as specified in its charter)

Delaware		51-0652233
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
13001 Bay Park Road
Pasadena, Texas		77507
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:
(281) 694-8700

Former name, former address and former fiscal year, if changed since last report: Not applicable

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 o No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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 “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

The number of shares outstanding of the registrant’s classes of common stock, as of the close of business on August 10, 2011, is set forth below:

Class		Amount Outstanding
Class A Common Stock, par value $0.0001 per share		40,099,369
Class B Common Stock, par value $0.0001 per share		61,848,696

 

 

KiOR, INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

INDEX

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets — June 30, 2011 and December 31, 2010			4
Condensed Consolidated Statements of Operations — Three Months Ended June 30, 2011 and 2010 and Six Months Ended June 30, 2011 and 2010			5
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)			6
Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 2011 and 2010			7
Notes to Condensed Consolidated Financial Statements			9
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			35
ITEM 4. Controls and Procedures			36
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			37
ITEM 1A. Risk Factors			37
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			50
ITEM 5. Other Information			51
ITEM 6. Exhibits			51
EX-10.2
EX-31.1
EX-31.2
EX-32.1

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements. All statements other than statements of historical fact contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs.

In particular, forward-looking statements in this Quarterly Report include statements about:

	•		the size of the potential markets for our gasoline and diesel blendstocks;
	•		the expected production costs and cost-competitiveness of our gasoline and diesel blendstocks;
	•		the anticipated performance attributes of our renewable crude oil and gasoline and diesel blendstocks;
	•		the accuracy of our estimates regarding expenses, construction costs, future revenue and capital requirements;
	•		the timing of the construction and commencement of operations at our planned commercial production facilities;
	•		achievement of advances in our technology platform and process design, including improvements to our yield;
	•		our ability to produce renewable crude oil and blendstocks at commercial scale;
	•		our ability economically to obtain feedstock;
	•		our ability to locate production facilities near low-cost, abundant and sustainable feedstock;
	•		the future price and volatility of petroleum-based products and of our current and future feedstocks;
	•		government regulatory certification, including certification of our gasoline and diesel blendstocks as cellulosic biofuels and registration of our blendstocks with the U.S. Environmental Protection Agency as fuels, and industry acceptance of our gasoline and diesel blendstocks, as well as certification, registration and acceptance of our blendstocks for use in jet fuel;
	•		government policymaking and incentives relating to renewable fuels;
	•		our ability to obtain and retain potential customers for our gasoline and diesel blendstocks;
	•		our ability to hire and retain skilled employees;
	•		our ability to obtain and maintain intellectual property protection for our products and processes; and
	•		the ability of our competitors, many of whom have greater resources than we do, to offer alternatives to our gasoline and diesel blendstocks.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” Item 1A of Part II of this Quarterly Report. Moreover, we operate in a competitive and rapidly changing environment in which new risks emerge from time to time. It is not possible for our management to predict all risks. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee that the events and circumstances reflected in the forward-looking statements will occur or be achieved. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report, except to the extent required by law.

KIOR, Inc.
(A development stage enterprise)

Condensed Consolidated Balance Sheets

		June 30,				December 31,
		2011				2010
Assets
Current assets:
Cash and cash equivalents		$	207,577			$	51,350
Restricted cash			100				100
Prepaid expenses and other current assets			970				85
Total current assets			208,647				51,535
Property, plant and equipment, net			80,072				34,880
Intangible assets, net			2,330				2,426
Other assets			300				—
Total assets		$	291,349			$	88,841
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Current portion of long-term debt, net of discount		$	1,629			$	4,480
Accounts payable			13,472				3,207
Accrued liabilities			2,376				671
Convertible preferred stock warrants liability			—				3,185
Total current liabilities			17,477				11,543
Long-term debt, less current portion, net of discount			29,707				5,037
Total liabilities			47,184				16,580
Commitments and contingencies (Note 8)
Convertible preferred stock:
Series A convertible preferred stock, $0.0001 par value, 0 and 24,000,000 shares authorized at June 30, 2011 and December 31, 2010, respectively; 0 and 24,000,000 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			—				4,360
Series A-1 convertible preferred stock, $0.0001 par value, 0 and 25,600,000 shares authorized at June 30, 2011 and December 31, 2010, respectively; 0 and 20,571,576 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			—				10,024
Series B convertible preferred stock, $0.0001 par value, 0 and 25,000,000 shares authorized at June 30, 2011 and December 31, 2010, respectively; 0 and 24,479,802 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			—				120,000
Stockholders’ equity (deficit):
Preferred stock — $0.0001 par value, 2,000,000 shares authorized, none issued and outstanding			—				—
Class A common stock, $0.0001 par value; 250,000,000 and 112,100,000 shares authorized at June 30, 2011 and December 31, 2010, respectively; 39,299,369 and 60,000 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			4				—
Class B common stock (formerly common stock) $0.0001 par value; 70,800,000 and 72,000,000 shares authorized at June 30, 2011 and December 31, 2010, respectively; 61,848,696 and 15,820,000 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively			6				2
Additional paid-in capital			344,822				4,199
Deficit accumulated during the development stage			(100,667	)			(66,324	)
Total stockholders’ equity (deficit)			244,165				(62,123	)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)		$	291,349			$	88,841

See accompanying notes to condensed consolidated financial statements

KIOR, Inc.
(A development stage enterprise)

Condensed Consolidated Statement of Operations

																		Period from
																		July 23,
																		2007 (Date
																		of
																		Inception)
		Three Months Ended								Six Months Ended								through
		June 30,								June 30,								June 30,
		2011				2010				2011				2010				2011
Operating expenses:
Research and development expenses		$	(7,723	)		$	(4,240	)		$	(14,994	)		$	(8,621	)		$	(50,836	)
General and administrative expenses			(7,161	)			(2,122	)			(11,350	)			(3,348	)			(24,564	)
Depreciation and amortization expenses			(563	)			(406	)			(1,085	)			(685	)			(3,623	)
Loss from operations			(15,447	)			(6,768	)			(27,429	)			(12,654	)			(79,023	)
Other income (expense), net:
Interest income			—				2				—				2				170
Beneficial conversion feature expense related to convertible promissory note			—				(10,000	)			—				(10,000	)			(10,000	)
Interest expense, net of amounts capitalized			—				(356	)			—				(722	)			(2,054	)
Foreign currency gain (loss)			—				16				—				24				(435	)
Loss from change in fair value of warrant liability			(5,504	)			(2,290	)			(6,914	)			(2,290	)			(9,278	)
Other expense, net			(5,504	)			(12,628	)			(6,914	)			(12,986	)			(21,597	)
Loss before income taxes			(20,951	)			(19,396	)			(34,343	)			(25,640	)			(100,620	)
Income tax expenses — current			—				—				—				—				(47	)
Net loss		$	(20,951	)		$	(19,396	)		$	(34,343	)		$	(25,640	)		$	(100,667	)
Deemed dividend related to the beneficial conversion feature of Series C convertible preferred stock			(19,669	)			—				(19,669	)			—				(19,669	)
Net loss attributable to stockholders		$	(40,620	)		$	(19,396	)		$	(54,012	)		$	(25,640	)		$	(120,336	)
Net loss per share of Class A and B common stock, basic and diluted		$	(.43	)		$	(.27	)		$	(.60	)		$	(.39	)
Weighted-average Class A and B common shares outstanding, basic and diluted			19,208				15,580				17,820				15,180

See accompanying notes to condensed consolidated financial statements

KIOR, Inc.
(A development stage enterprise)

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

																		Class B
																		Common Stock,												Deficit				Total
		Convertible								Class A								formerly Common								Addt’l				Accum				Stockholders’
		Preferred Stock								Common Stock								Stock								Paid-in-				During the				Equity
		Shrs				$				Shrs				$				Shrs				$				Capital				Dev. Stage				(Deficit)
Balance at December 31, 2010			69,052			$	134,384				60			$	—				15,820			$	2			$	4,199			$	(66,324	)		$	(62,123	)
Issuance of Class A Common Stock — Public Offering			—				—				10,000				1				—				—				137,522				—				137,523
Common Stock Issued — Restricted			—				—				44				—				—				—				—				—				—
Stock Based Compensation — Options			—				—				—				—				—				—				2,454				—				2,454
Stock Based Compensation — Restricted			—				—				—				—				—				—				746				—				746
Stock Options/Warrants Exercised			—				—				132				—				1,457				—				125				—				125
Issuance of Series C Convertible Preferred Stock			11,220				55,000				—				—				—				—				—				—				—
Conversion of Series A Convertible Preferred Stock			(24,000	)			(4,360	)			—				—				24,000				2				4,358				—				4,360
Conversion of Series A-1 Convertible Preferred Stock			(20,572	)			(10,024	)			—				—				20,572				2				10,022				—				10,024
Conversion of Series B Convertible Preferred Stock			(24,480	)			(120,000	)			24,480				2				—				—				119,998				—				120,000
Conversion of Series C Convertible Preferred Stock			(11,220	)			(55,000	)			4,583				1				—				—				54,999				—				55,000
Conversion of Convertible Preferred Stock Warrants Liability			—				—				—				—				—				—				10,399				—				10,399
Beneficial Conversion Feature on Issuance of Series C Convertible Preferred Stock and Stock Warrants			—				—				—				—				—				—				19,669				—				19,669
Deemed Dividend Related to the Beneficial Conversion Feature on Series C Convertible Preferred Stock and Stock Warrants			—				—				—				—				—				—				(19,669	)			—				(19,669	)
Net loss			—				—				—				—				—				—				—				(34,343	)			(34,343	)
Balance at June 30, 2011			—			$	—				39,299			$	4				61,849			$	6			$	344,822			$	(100,667	)		$	244,165

See accompanying notes to condensed consolidated financial statements

KIOR, Inc.
(A development stage enterprise)

Condensed Consolidated Statement of Cash Flows

										Period from July
										23, 2007 (Date of
										Inception)
		Six Months Ended June 30,								through June 30,
		2011				2010				2011
Cash flows from operating activities
Net loss		$	(34,343	)		$	(25,640	)		$	(100,667	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization			1,085				685				3,622
Stock-based compensation			3,200				156				4,461
Non cash compensation from warrants issued on common stock			—				—				298
Beneficial conversion feature expense related to convertible promissory note			—				10,000				10,000
Derivative fair value adjustments			6,914				2,290				9,279
Accrued Interest			—				—				534
Amortization of debt discount and fees			—				119				300
Changes in other operating assets and liabilities
Prepaid expenses and other current assets			(1,185	)			33				(1,089	)
Accounts payable			(453	)			(781	)			425
Accrued liabilities			205				147				805
Net cash used in operating activities			(24,577	)			(12,991	)			(72,032	)
Cash flows from investing activities
Purchases of property, plant and equipment			(50,738	)			(8,021	)			(85,253	)
Purchases of intangible assets			—				—				(427	)
Restricted cash			—				—				(100	)
Net cash used in investing activities			(50,738	)			(8,021	)			(85,780	)
Cash flows from financing activities
Proceeds from issuance of convertible promissory note to stockholder			—				—				15,000
Proceeds from equipment loans			—				1,000				6,000
Payments on equipment loans			(308	)			(789	)			(2,886	)
Proceeds from business loans			—				7,000				7,000
Payments on business loans			(189	)			—				(1,108	)
Proceeds from stock option/warrant exercises			125				21				168
Proceeds from issuance of Series A convertible preferred stock			—				—				4,360
Proceeds from issuance of Series A-1 convertible preferred stock			—				—				10,024
Proceeds from issuance of Series B convertible preferred stock			—				50,000				95,000
Proceeds from issuance of Series C convertible preferred stock			55,000				—				55,000
Proceeds from issuance of common stock in initial public offering, net of expenses			137,523				—				137,523
Borrowings under the Mississippi Development Authority loan			39,391				—				39,391
Net cash provided by financing activities			231,542				57,232				365,472
Effect of exchange rate on cash and cash equivalents			—				(57	)			(83	)
Net increase in cash and cash equivalents			156,227				36,163				207,577
Cash and cash equivalents
Beginning of period			51,350				5,176				—
End of period		$	207,577			$	41,339			$	207,577

See accompanying notes to condensed consolidated financial statements

KIOR, Inc.
(A development stage enterprise)

Condensed Consolidated Statement of Cash Flows (continued)

		Six Months Ended June 30,
		2011				2010
Supplemental disclosure of noncash investing and financing activities:
Accrued purchase of property, plant and equipment		$	12,225			$	1,010
Convertible preferred stock warrants issued in connection with loan amendments		$	300			$	665
Conversion of convertible promissory note to stockholder into Series B convertible preferred stock		$	—			$	15,000
Conversion of Series A, A-1, B, and C convertible preferred stock into Class A and Class B common stock		$	134,384			$	—
Conversion of convertible preferred stock warrants into Class A and Class B common stock warrants		$	10,399			$	—

See accompanying notes to condensed consolidated financial statements

KIOR, Inc.
(A development stage enterprise)

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. General

Organization

KiOR, Inc., a Delaware corporation (the “Company”), is a next-generation renewable fuels company based in Houston, Texas. The Company was incorporated and commenced operations in July 2007 as a joint venture between Khosla Ventures, an investment partnership, and BIOeCON B.V.

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, KiOR B.V. (in liquidation) and KiOR Columbus LLC. KiOR B.V., a Netherlands company, was formed on March 4, 2008 and commenced the process of liquidation in March 2010. As of December 31, 2010, all of the operations of KiOR B.V. were combined into the operations of KiOR, Inc. KiOR Columbus, LLC, a wholly owned subsidiary of the Company (“KiOR Columbus”), was formed on October 6, 2010.

Nature of Business

The Company has developed a proprietary technology platform to convert abundant and sustainable non-food biomass into hydrocarbon-based crude oil. The Company processes its renewable crude oil using standard refinery equipment into gasoline and diesel blendstocks that can be transported using the existing fuels distribution system for use in vehicles on the road today.

Since inception, the Company has performed extensive research and development efforts to develop, enhance, refine and commercialize its biomass-to-fuel technology platform. The Company is now entering its commercialization phase and, in the first quarter of 2011, commenced construction of its first initial-scale commercial production facility in Columbus, Mississippi.

Development Stage Enterprise

The Company is a development stage enterprise, and has incurred losses since inception. Until recently, the Company has focused its efforts on the research and development of its biomass-to-renewable fuel technology platform, and it has yet to generate revenue from its process. As a result, it has generated operating losses of $79.0 million and accumulated deficit of $100.7 million since inception. The Company expects to continue to incur operating losses through at least 2013 as it continues into the commercialization stage of its business. The Company’s ultimate success is dependent upon the successful transition of the Company from primarily a research and development company to an operating company. There can be no assurance that the Company’s proprietary technologies will be successful on a commercial scale, that it will be successful in funding its long-term expansion plans or that it will be able to generate sufficient revenue in the future to sustain operations.

The Company closed its initial public offering of 10,000,000 shares of Class A common stock at a price to the public of $15.00 per share on June 29, 2011. Upon the closing of the sale of shares of the Company’s Class A common stock to the public, all outstanding shares of the Series A and Series A-1 convertible preferred stock converted into 44.6 million shares of common stock on a 1-to-1 basis (which was redesignated “Class B common stock” upon the completion of the Company’s initial public offering), (2) all outstanding shares of Series B convertible preferred stock were converted automatically into 24.5 million shares of Class A common stock on a 1-to-1 basis, and all outstanding shares of Series C convertible preferred stock were converted automatically into 4.6 million shares of Class A common stock using a conversion price of 80% of the issuance price to the public in the initial public offering (the IPO price).

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to these rules and regulations. In the opinion of the Company, these financial statements contain all adjustments necessary to present fairly its financial position as of June 30, 2011 and December 31, 2010 and the results of its operations and changes in its cash flows for the six months ended June 30, 2011 and 2010. All such adjustments represent normal recurring items, except as noted herein. These condensed consolidated financial statements should be read in conjunction with the financial statements as of and for the year ended December 31, 2010 and the notes thereto included in the Company’s prospectus filed with the SEC on June 24, 2011.

Use of Estimates

The preparation of the condensed consolidated financial statements 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 condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, the three and six months ended June 30, 2011, are not necessarily indicative of the results to be expected for the year ending December 31, 2011 or for any other interim period or for any future year.

Comprehensive Income/Loss

The Company did not have any items of other comprehensive income/loss during the six months ended June 30, 2011. During the six months ended June 30, 2010, the Company recognized a cumulative translation loss of $57,000.

Stock Split

On June 9, 2011, the Company authorized a 2-for-1 split of all common stock and convertible preferred stock authorized, issued and outstanding at that time. On April 16, 2010, the Company authorized a 4-for-1 split on all common stock and convertible preferred stock authorized, issued and outstanding at that time. All share and per share amounts in the condensed consolidated financial statements and related notes have been restated to reflect the 2-for-1 and 4-for-1 splits.

Net Loss per Share of Common Stock

Basic net loss per share of common stock is computed by dividing the Company’s net loss attributable to its stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed by giving effect to all potentially dilutive securities, including stock options, warrants and convertible preferred stock. Basic and diluted net loss per share of common stock attributable to the Company’s stockholders was the same for all periods presented on the Condensed Consolidated Statements of Operations, as the inclusion of all potentially dilutive securities outstanding would have been antidilutive. As such, the numerator and the denominator used in computing both basic and diluted net loss per share are the same for each period presented.

In April 2011, the Company issued Series C convertible preferred stock with a beneficial conversion feature (See Note 9 — Convertible Preferred Stock) and recorded deemed dividends relating to the beneficial conversion feature of $19.7 million for the three and six month periods ended June 30, 2011. While it was outstanding, all of the Company’s preferred stock participated in earnings or losses of the Company. Consequently, net losses were adjusted for the deemed distributions relating to the beneficial conversion feature and losses attributable to preferred stockholders to calculate the net loss attributable to common stockholders.

The following table presents the calculation of historical basic and diluted net loss per share of common stock attributable to the Company’s common stockholders:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
		(Amounts in thousands, except per share data)
Net loss per share:
Numerator:
Net loss		$	(20,951	)		$	(19,396	)		$	(34,343	)		$	(25,640	)
Deemed dividend related to the beneficial conversion feature of Series C convertible preferred stock			(19,669	)			—				(19,669	)			—
Net loss attributable to stockholders			(40,620	)			(19,396	)			(54,012	)			(25,640	)
Net loss attributable to preferred stockholders			32,428				15,197				43,364				19,716
Net loss attributable to Class A common stockholders and Class B common stockholders — basic and diluted		$	(8,192	)		$	(4,199	)		$	(10,648	)		$	(5,924	)
Net loss attributable to Class A common stockholders — basic and diluted		$	(406	)			—			$	(305	)			—
Net loss attributable to Class B common stockholders — basic and diluted			(7,786	)			(4,199	)			(10,343	)			(5,924	)
Net loss attributable to Class A common stockholders and Class B common stock holders — basic and diluted		$	(8,192	)		$	(4,199	)		$	(10,648	)		$	(5,924	)
Denominator:
Weighted-average Class A common shares used in computing net loss per share of Class A common stock — basic and diluted			951				—				510				—
Weighted-average Class B common shares used in computing net loss per share of Class B common stock — basic and diluted			18,257				15,580				17,310				15,180
Weighted-average Class A common stock and Class B common stock — basic and diluted			19,208				15,580				17,820				15,180
Net loss per share of Class A common stock — basic and diluted		$	(.43	)		$	—			$	(.60	)		$	—
Net loss per share of Class B common stock — basic and diluted		$	(.43	)		$	(.27	)		$	(.60	)		$	(.39	)

The following outstanding shares on a weighted average basis of potentially dilutive securities were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
		(Amounts in thousands)
Convertible preferred stock (as converted basis)			76,041				56,397				72,566				50,516
Convertible preferred stock warrants (as converted basis)			720				715				721				655
Common stock warrants (as converted basis)			129				—				143				—
Stock options			14,732				10,080				14,492				10,133
Total			91,662				67,192				87,922				61,304

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued a new accounting standard update, which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011. We will adopt this standard in the first quarter of 2012 and are currently evaluating its impact on our financial statements and disclosures.

In June 2011, the FASB issued a new accounting standard, which eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity. Instead, an entity will be required to present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. The standard is effective for fiscal years beginning after December 15, 2011. We will adopt this standard in the first quarter of 2012.

3. Fair Value of Financial Instruments

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. As of June 30, 2011 and December 31, 2010, the Company considered the cash and cash equivalents, restricted cash and accounts payable to be representative of their fair values because of their short-term maturities. Further, the Company’s long-term debt approximates fair value as it has been negotiated on an arm’s length basis with reputable third-party lenders.

Assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:

	•		Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
	•		Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
	•		Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (amounts in tables in thousands). The Company had no financial liabilities at June 30, 2011.

		June 30, 2011
		Level 1				Level 2				Level 3				Total
Financial assets
Money market funds		$	206,283			$	—			$	—			$	206,283
Total financial assets		$	206,283			$	—			$	—			$	206,283

		December 31, 2010
		Level 1				Level 2				Level 3				Total
Financial assets
Money market funds		$	45,033			$	—			$	—			$	45,033
Total financial assets		$	45,033			$	—			$	—			$	45,033
Financial liabilities
Convertible preferred stock warrant liability		$	—			$	—			$	3,185			$	3,185
Total financial liabilities		$	—			$	—			$	3,185			$	3,185

Money market funds increased $161.3 million from December 31, 2010 to June 30, 2011 primarily due to cash proceeds of $137.5 million, net of expenses, from the Company’s initial public offering that closed June 29, 2011. The increase was also due to a transfer into the money market account of $75.0 million funded by cash receipts of $55.0 million from the issuance of Series C convertible preferred stock and $39.4 million borrowed under the Mississippi Development Authority loan. This increase was offset by $20.0 million transferred to a KiOR Columbus operating cash account to fund construction of the Company’s initial-scale commercial production facility in Columbus, Mississippi and $31.2 million transferred to other operating cash accounts to fund operating expenses.

The change in the fair value of the convertible preferred stock warrant liability is summarized below (amounts in thousands):

Fair value as of December 31, 2010		$	3,185
Fair value of warrants liability for loan amendment			300
Change in fair value of warrant liability			6,914
Transfers out of Level 3 (see Note 10 — Convertible Preferred Stock Warrants)			(10,399	)
Fair value as of June 30, 2011		$	—

The Company’s assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets and intangible assets. These items are recognized at fair value when they are considered to be impaired. At June 30, 2011 and December 31, 2010, there were no required fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis.

4. Property, Plant and Equipment

		June 30,				December 31,
		2011				2010
		(Amounts in thousands)
Property, plant and equipment:
Construction in progress (1)		$	58,238			$	14,604
Lab and testing equipment			3,811				3,250
Leasehold improvement			2,741				2,194
Manufacturing, machinery and equipment			17,633				16,305
Computer equipment and software			437				347
Furniture and fixtures			165				143
Total property, plant and equipment			83,025				36,843
Less: accumulated depreciation			(2,953	)			(1,963	)
Net property, plant and equipment		$	80,072			$	34,880

Depreciation expense was $515,000 and $358,000 for the three months ended June 30, 2011 and 2010, respectively, and was $989,000 and $589,000 for the six months ended June 30, 2011 and 2010, respectively. Construction in progress as of June 30, 2011 and December 31, 2010 includes capitalized interest of $1.0 million and $118,000, respectively. The Company capitalized interest of $586,000 and $0, respectively, for the three-month periods ended June 30, 2011 and 2010, and $911,000 and $0, respectively, for the six-month periods ended June 30, 2011 and 2010.

5. Intangible Assets

Intangible assets consist of the following:

		June 30,				December 31,
		2011				2010
		(Amounts in thousands)
Intangible assets:
Purchased biomass conversion technology		$	2,599			$	2,599
Accumulated amortization			(621	)			(535	)
Purchased biomass conversion technology, net			1,978				2,064
Technology licenses			400				400
Accumulated amortization			(48	)			(38	)
Technology licenses, net			352				362
Intangible assets, net		$	2,330			$	2,426

Intangible asset amortization expense was $48,000 for the three months ended June 30, 2011 and 2010 and $96,000 for the six months ended June 30, 2011 and 2010, respectively.

6. Long-Term Debt

Long-term debt consists of the following:

		June 30,				December 31,
		2011				2010
		(Amounts in thousands)
Long-term debt:
Equipment loans		$	3,438			$	3,710
Business loan			6,252				6,327
Mississippi Development Authority Loan			39,391				—
Less: unamortized debt discounts			(17,745	)			(520	)
Total debt, net of discount			31,336				9,517
Less: current portion			(1,629	)			(4,480	)
Long-term debt, net of discount		$	29,707			$	5,037

Mississippi Development Authority Loan

In March 2011, KiOR Columbus entered into a loan agreement with the Mississippi Development Authority, or MDA, pursuant to which the MDA has agreed to make disbursements to KiOR Columbus from time to time, in a principal amount not to exceed $75 million, to reimburse costs incurred by KiOR Columbus to purchase land, construct buildings and to purchase and install equipment for use in the manufacturing of the Company’s renewable crude oil and transportation fuels from Mississippi-grown biomass. Principal payments on the loan are due semiannually on June 30 and December 31 of each year, commencing on the earlier of (a) December 31, 2012 and (b) the next scheduled payment date that is at least six months after the Company commences commercial production of renewable crude oil from Mississippi-grown biomass at its initial-scale commercial production facility for sale to customers in the ordinary course of business. On each such payment date, the Company is required to pay an amount equal to the lesser of an amount sufficient to repay the total loan within (a) a period of time determined by the weighted-average life of the equipment being purchased with the proceeds thereof or (b) 20 years. Under the loan agreement, the Company committed to employing at least 30 employees, with aggregate salaries of at least $1.0 million, once the Company’s initial-scale commercial production facility is fully operational. In addition, the Company is required to pay the entire outstanding principal amount of the loan, together with all other applicable costs, charges and expenses no later than the date 20 years from the date of its first payment on the loan. The loan is non-interest bearing.

The loan agreement contains no financial covenants, and events of default include a failure by KiOR Columbus to make specified investments within Mississippi by December 31, 2015, including an aggregate $500.0 million investment in property, plant and equipment located in Mississippi and expenditures for wages and direct local purchases totaling $85.0 million. If an event of default occurs and is continuing, the MDA may accelerate amounts due under the loan agreement. The loan is secured by certain equipment, land and buildings of KiOR Columbus.

As of June 30, 2011, the Company received $39.4 million of the Mississippi Development Authority Loan to reimburse the Company for expenses incurred on the construction of the initial-scale commercial production facility located in Columbus, Mississippi.

The non-interest bearing component of the Mississippi Development Authority Loan was intended to incentivize the Company to design, construct and operate its initial-scale commercial production facility in Columbus, Mississippi. The Company imputed interest on the Mississippi Development Authority Loan and determined the loan discount to be the difference between the face value of the loan and the discounted present value of the loan using an estimated market rate of 5.5%, with such rate based on interest bearing loans of a similar nature and terms. Of the $39.4 million in loan proceeds received through June 30, 2011, the Company estimated approximately $17.2 million was attributable to the non-interesting bearing component of the loan. Consequently, the Company recorded a discount on the Mississippi Development Authority Loan of $17.2 million and a reduction of the capitalized cost of the related assets for which the Company was reimbursed in the same amount. The loan discount will be recognized as interest expense, subject to interest capitalization during the construction phase, using the effective interest method.

Equipment Loans

Equipment Loan #1 — On December 30, 2008, the Company entered into its first equipment loan agreement with Lighthouse Capital Partners VI, L.P. The loan agreement provides for advances at $100,000 minimum increments up to $5.0 million in the aggregate for purchases of equipment. All advances must have been funded no later than September 30, 2009. Each advance represents a separate loan tranche that is payable monthly over a three-year period from the date of issuance of the advance at an annual interest rate of 7.5%. In addition, at loan maturity, the Company is required to make a payment equal to 7.5% of the total principal on the loan, which is amortized over the life of the loan and included in interest expense on the Condensed Consolidated Statements of Operations. The loans mature at dates from March 2012 to October 2012.

During 2009, the Company borrowed all $5.0 million available under the loan. The loan tranches are collateralized by certain of the Company’s production pilot unit, lab equipment and office equipment valued at approximately $5.0 million.

Equipment Loan #2 — On March 17, 2010, the Company entered into a second equipment loan agreement with Silicon Valley Bank with total availability of $1.0 million, limited to two advances of at least $500,000 each. The full amount of the availability under the loan agreement was drawn down in a single advance of $1 million. The loan is payable monthly over a three-year period at an annual interest rate of 10%. The loan is collateralized by the equipment purchased with the advances at a cost of approximately $1.3 million.

Business Loan

On January 27, 2010, the Company entered into its first business loan agreement with Lighthouse Capital Partners VI, L.P. and Leader Lending, LLC for an amount of up to $7.0 million. Advances are payable monthly over a three-year period at an annual interest rate of 12% commencing on the date of the advance. In addition, at loan maturity, the Company is required to make a payment equal to 7.5% of the total amount drawn on the loan, which is amortized over the life of the loan and included in interest expense, net of amounts capitalized, on the Consolidated Statements of Operations.

During 2010, the Company borrowed the full $7.0 million under the loan agreement. The loan is collateralized by the Company’s assets not previously pledged as collateral on the equipment loans described above.

Amendments of Equipment and Business Loan

In February 2011 and April 2011, the Company amended Equipment Loan #1 and its Business Loan to waive certain covenant restrictions to allow the Company to enter into the Mississippi Development Authority Loan described above. In addition, the amendments provided for a deferral of principal payment for one year, included prepayment penalties and extended the maturities of the loans to January 2014. All other terms were unchanged. Interest during the principal deferral period is paid at 1% to 2.5% over the original stated interest rate and reverts to the original interest rate upon expiration of the deferral period. In connection with the amendments, the Company paid aggregate fees of $60,000 upon execution of the amendments and agreed to pay $240,000 upon maturity. In addition, the Company agreed to issue warrants to purchase $300,000 of securities issued in a next-round equity financing, if such equity financing of at least $35 million was completed prior to May 15, 2011. If such financing was not completed prior to May 15, 2011, the Company agreed to issue warrants to purchase 61,200 shares of Series B Preferred Stock at an exercise price of $4.902 per share. The Series C convertible preferred stock issued in April 2011 in the aggregate amount of $55.0 million met the next-round equity financing requirement and, as a result, warrants to purchase 61,200 shares of Series C convertible preferred stock at an exercise price of $4.902 per share were issued in connection with the equipment and business loan amendments. The Company recorded a liability of $300,000 in connection with the warrants that were required to be issued. The warrants to purchase shares of Series C convertible preferred stock automatically converted into warrants to purchase 25,000 shares of Class A common stock upon the close of the initial public offering on June 29, 2011 using a conversion price of 80% of the IPO price (see Note 10 — Convertible Preferred Stock Warrants) and the warrant liability was reclassified to additional paid-in capital.

Convertible Promissory Note to Stockholder

On August 5, 2009, the Company entered into a non-interest bearing convertible promissory note agreement for $15.0 million (the “Note”), which included a beneficial conversion feature, with one of its stockholders, Khosla Ventures. The Note was a general unsecured obligation of the Company and was payable in full on August 4, 2011. Principal payments were not required prior to the maturity date. The Note was convertible into shares of the Company’s convertible preferred stock upon the occurrence of certain events. On April 16, 2010, the Note was converted into 5.2 million shares of Series B convertible preferred stock.

One of the triggering events enabling conversion of the Note into shares of the Company’s convertible preferred stock was met in April 2010. The triggering event was: if on or before the maturity date of the Note, the Company consummates a sale, or series of related sales, of its convertible preferred stock, pursuant to which the Company receives gross proceeds of at least $10.0 million, excluding any amounts as a result of conversion of the Note (a “Qualified Financing”), then simultaneously with the Qualified Financing, the principal balance then outstanding under the Note shall convert into the same class and series of convertible preferred stock sold in the Qualified Financing at a conversion price per share equal to 60% of the price per share paid by the investors in the Qualified Financing. The Company’s Series B convertible preferred stock issuance in April 2010 (see Note 9 — Convertible Preferred Stock) triggered this conversion option and the note holder subsequently exercised the right to convert.

In accordance with FASB ASC 470-20, Debt with Conversion and Other Options, the Company recorded a $10.0 million expense to beneficial conversion feature expense on the Consolidated Statement of Operations connected with the conversion of the Note into Series B convertible preferred stock. The $10.0 million reflects the value assigned to the beneficial conversion feature. The value of the beneficial conversion feature was not readily determinable upon issuance of the Note because the conversion feature was contingent upon the occurrence of a Qualified Financing transaction. Neither the timing nor value of such transaction could be estimated at the time the Note was issued. Therefore, the Company recorded the entire amount of the beneficial conversion feature to the condensed Consolidated Statements of Operations at the time the conversion occurred and value for the beneficial conversion feature could be determined.

7. Income Taxes

The effective tax rate for the six months ended June 30, 2011 and 2010 was 0%.

At June 30, 2011 and December 31, 2010, the Company had a federal net operating loss carryforward balance of $24.8 million and $18.1 million, respectively. If unused, the net operating loss carryforwards begin expiring in 2028. The Company has a full valuation allowance of $29.1 million for its net deferred tax assets because the Company has incurred losses since inception. In addition, certain changes in the ownership of the Company could result in limitations on the Company’s ability to utilize the federal net operating loss carryforwards.

The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2007 to present remain open for federal examination.

8. Commitments and Contingencies

Litigation

From time to time, the Company may be subject to legal proceedings and claims that arise in the ordinary course of business. The Company is not a party to any material litigation or proceedings and is not aware of any material litigation or proceedings, pending or threatened against it.

New Equipment Purchases

The Company has several contracts in place for the purchase of various manufacturing equipment related to the construction of its initial-scale commercial production facility in Columbus, Mississippi. These contracts are non-cancelable and payments are due at various intervals based on the progress of the assembly of the equipment. As of June 30, 2011, payments aggregating to $63.2 million are due at various times with the final payments due at time of completion, which is estimated to be in early 2012.

Commitments under the Mississippi Development Authority Loan

Under the Mississippi Development Authority Loan agreement, the Company committed to make specified investments within Mississippi by December 31, 2015, including an aggregate $500.0 million investment in property, plant and equipment located in Mississippi and expenditures for wages and direct local purchases totaling $85.0 million. The Company is a parent guarantor for the payment of the outstanding balance under the loan. As of June 30, 2011, the Company had $39.4 million in outstanding borrowings under the loan which are guaranteed by the Company.

9. Convertible Preferred Stock

Issuance of Series C Convertible Preferred Stock

In April 2011, the Company issued 11,219,908 shares of Series C convertible preferred stock for total consideration of $55.0 million. Each share of Series C convertible preferred stock had the same voting rights as Series B convertible preferred stock. The holders of the Series C convertible preferred stock were entitled to a dividend, if declared, on each such outstanding share in an amount at least equal to $.3921. Each share of Series C convertible preferred stock was convertible at the option of the holder at any time without payment of additional consideration into such number of fully paid and non-assessable shares of Class A common stock as would be determined by dividing the original issue price of the Series C convertible preferred stock, by the Series C convertible preferred stock conversion price, which was initially equal to the original issue price of $4.902. Pursuant to the terms of the Series C convertible preferred stock, the conversion price was adjusted to 80% of the IPO price.

At the date of issuance, the proceeds received for the Series C convertible preferred stock were less than the fair value of the Class A common stock that was issuable upon conversion at the effective conversion price of $4.902 per share, with such fair value as determined by management and the Board of Directors. As a result, the Series C convertible preferred stock contained a beneficial conversion feature which was required to be recognized as a reduction in net income attributable to common stockholders ratable over the conversion period. The conversion period was the period from the date of issuance until the earlier of the conversion of the Series C convertible preferred shares into Class A common shares or October 31, 2011. Upon completion of the Company’s initial public offering, the Series C convertible preferred stock was automatically converted to Class A common stock at 80% of the IPO price, or $12. During the period from April 21, 2011 to June 29, 2011, the Company recognized a deemed dividend related to the beneficial conversion feature of Series C convertible preferred stock of $19.7 million. Since the adjusted conversion price of 80% of the IPO price resulted in the Series C convertible preferred stock being converted into Class A common stock with a fair value that was less than the proceeds received for the Series C convertible preferred stock, no additional deemed dividends related to the beneficial conversion feature of Series C convertible preferred stock was required.

Issuance of Series A, Series A-1 and Series B Convertible Preferred Stock

During 2007 and 2008, the Company authorized 45.6 million shares of convertible preferred stock, of which 24.0 million shares were designated as Series A convertible preferred stock and 21.6 million shares were designated as Series A-1 convertible preferred stock. At incorporation in 2007, 14.4 million shares of Series A convertible preferred stock were issued under an agreement with Khosla Ventures for total consideration of $2.6 million, of which $1.4 million was paid at issuance and $1.2 million was paid on June 17, 2008. On June 17, 2008, the Company issued 9.6 million shares of Series A convertible preferred stock and 20.6 million shares of Series A-1 convertible preferred stock to Khosla Ventures for $1.8 million and $10.0 million, respectively. An additional 4.0 million shares of Series A-1 convertible preferred stock were authorized on December 31, 2009.

During 2010, the Company authorized 24.6 million shares of Series B convertible preferred stock. On April 16, 2010, 5.2 million of these shares were issued for total consideration of $25.0 million. An additional 5.2 million shares were issued to Khosla Ventures upon the conversion of the $15.0 million convertible promissory note. While no additional consideration was received from Khosla Ventures, the Company was required to record a $10.0 million charge to beneficial conversion feature expense on the Consolidated Statements of Operations, with regards to the Note, with an offset to additional paid in capital, to properly reflect the $25.0 million in total value of Series B convertible preferred stock issued to Khosla Ventures (See Note 6 — Long-Term Debt).

On May 3, 2010, an additional 5.0 million shares of the Series B convertible preferred shares were issued for total consideration of $25.0 million. On July 19, 2010, 9.2 million additional shares of Series B convertible preferred stock were issued for total consideration of $45.0 million.

At the date of the Company’s initial public offering, all convertible preferred shares were converted into common stock; accordingly, at June 30, 2011 there was not any preferred stock issued or outstanding. A summary of convertible preferred stock issued and outstanding at December 31, 2010 is as follows (amounts in thousands, except per share data):

		December 31, 2010
						Shares				Liquidation
		Shares				Issued and				Preference per				Liquidation				Carrying
		Authorized				Outstanding				Share				Amount				Value
Series A			24,000				24,000			$	0.183			$	4,380			$	4,360
Series A-1			25,600				20,572			$	0.487				10,008				10,024
Series B			24,500				24,480			$	4.902				120,001				120,000
Total			74,100				69,052							$	134,389			$	134,384

The convertible preferred stock was recorded at fair value on the dates of issuance, net of issuance costs. The convertible preferred stock was classified outside of stockholders’ equity because the shares contained liquidation features that were not solely within the control of the Company.

Rights, preferences and privileges of the convertible preferred stock

Voting — Each holder of Series A, Series A-1, Series B and Series C convertible preferred stock was entitled to cast 10 votes for every share of common stock into which the shares were convertible and to cast one vote for every share of Class A common stock into which the shares were convertible, as applicable, as of the record date for determining stockholders entitled to vote on such matters. Prior to conversion of the convertible preferred stock upon the completion of our initial public offering, holders of convertible preferred stock voted together with the holders of common stock and Class A common stock as a single class, except as required by law.

Dividends — The holders of shares of the convertible preferred stock were entitled to receive dividends prior and in preference to any declaration or payment of any dividend on the common stock or Class A common stock of the Company. The holders of the convertible preferred stock were to first receive a dividend on each such outstanding share of convertible preferred stock in an amount at least equal to the following (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the convertible preferred stock):

		Dividend
		Amount
		per share
Series A		$	0.01465
Series A-1		$	0.03890
Series B		$	0.39210
Series C		$	0.39210

Dividends on the convertible preferred stock were not cumulative and were to be paid when and if declared by the Board of Directors of the Company. No additional dividend was to be declared or paid with respect to any share of common stock or Class A common stock unless such dividend were also declared or paid on a pro rata basis with respect to all shares of convertible preferred stock.

Liquidation Preferences — In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the convertible preferred stock were entitled to be paid out of the assets of the Company available for distribution before any payment was made to the holders of Class A common stock or common stock, an amount per share equal to one times the convertible preferred stock original issue price (as defined in the table below) for each share of convertible preferred stock, plus any dividends declared but unpaid. Class A common stock and common stock had the same liquidation preference.

If, upon a liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders were insufficient to pay the holders of the convertible preferred stock the full amount to which they are entitled, the holders of the convertible preferred stock were to share ratably in any distribution of the assets available for distribution in proportion to the respective amounts, which would otherwise be payable of the shares held.

		Original
		Issue Price(1)
Series A		$	0.183
Series A-1		$	0.487
Series B		$	4.902
Series C		$	4.902

Conversion — Each share of Series A and Series A-1 convertible preferred stock was convertible at any time without payment of additional consideration into such number of fully paid and non-assessable shares of common stock or, if all shares of common stock were converted into Class A common stock, Class A common stock as is determined by dividing the original issue price of the Series A or Series A-1 convertible preferred stock, as applicable, by the associated conversion price, which was initially equal to the original issue price. The conversion price was subject to adjustment upon issuance of additional shares of Class A common stock or common stock by the Company.

Each share of Series B convertible preferred stock was convertible at the option of the holder at any time without payment of additional consideration into such number of fully paid and non-assessable shares of Class A common stock as was determined by dividing the original issue price of the Series B convertible preferred stock, by the Series B convertible preferred stock conversion price, which was initially equal to the original issue price. The conversion price was subject to adjustment upon issuance of additional shares of Class A common stock or common stock by the Company.

Each share of Series C convertible preferred stock was convertible at the option of the holder at any time without payment of additional consideration into such number of fully paid and non-assessable shares of Class A common stock as was determined by dividing the original issue price of the Series C convertible preferred stock, by the Series C convertible preferred stock conversion price, which was initially equal to the original issue price. The conversion price was adjustable to 80% of the issuance price of the Company’s Class A common stock, if the Company completed an initial public offering of Class A common stock with aggregate proceeds greater than $50.0 million and at a price in excess of $4.902 per Class A common share by October 31, 2011.

In the event of liquidation, dissolution or winding up of the Company or a deemed liquidation event, the conversion rights would have terminated at the close of business on the last full day preceding the date fixed for the payment of any amounts distributable on such event to the holders of the convertible preferred stock.

The Company closed its initial public offering of 10,000,000 shares of Class A common stock at a price to the public of $15.00 per share on June 29, 2011. Upon the closing of the sale of shares of the Company’s Class A common stock to the public, all outstanding shares of the Series A and Series A-1 convertible preferred stock converted into 44.6 million shares of common stock on a 1-to-1 basis (which was renamed “Class B common stock” upon the completion of the Company’s initial public offering), (2) all outstanding shares of Series B convertible preferred stock were converted automatically into 24.5 million shares of Class A common stock on a 1-to-1 basis, and (3) all outstanding shares of Series C convertible preferred stock were converted automatically into 4.6 million shares of Class A common stock using a conversion price of 80% of the issuance price to the public of $15 per share.

Redemption — Any shares of convertible preferred stock that would have been redeemed or otherwise acquired by the Company or any of its subsidiaries would have automatically and immediately cancelled and retired and could not be reissued, sold or transferred. Neither the Company nor any of its subsidiaries could have exercised any voting or other rights granted to the holders of the convertible preferred stock following redemption.

10. Convertible Preferred Stock Warrants

Warrants Issued in Connection with Equipment Loans

In connection with Equipment Loan #1 dated December 30, 2008, the Company issued warrants to purchase 411,312 shares of the Company’s Series A-1 convertible preferred stock at an exercise price of $.487 per share. The agreement also required the Company to issue another set of warrants as part of the next round of equity financing to occur. With the issuance of Series B convertible preferred stock on April 16, 2010, the lenders of Equipment Loan #1 received warrants to purchase an additional 30,600 shares of the Company’s Series B convertible preferred stock at an exercise price of $4.902. Each set of warrants is exercisable upon issuance and expires eight years from the issuance date. The issuance date fair value of these warrants was estimated to be $155,000 and has been recorded as a reduction, or discount, to the carrying value of the loan. The discount is being amortized to interest expense over the term of the loan. The warrants were valued on the issuance date using the following assumptions: a risk-free interest rate of 1.14%, expected volatility of 72%, no expected dividend yield and a term of eight years.

In connection with Equipment Loan #2 dated March 25, 2010, the Company issued warrants to purchase 16,998 shares of the Company’s Series B convertible preferred stock at an exercise price of $2.941 per share. The warrants are exercisable upon issuance and expire ten years from the issuance date. The issuance date fair value of these warrants was estimated to be $42,000 and has been recorded as a reduction, or discount, to the carrying value of the loan. The discount is being amortized to interest expense over the term of the loan. The warrants were valued on the issuance date using the following assumptions: a risk-free interest rate of 0.50%, expected volatility of 98.8%, no expected dividend yield and a term of 10 years.

Warrants Issued in Connection with the Business Loan

In connection with the Business Loan dated January 27, 2010, the Company issued warrants to purchase 261,460 shares of the Company’s Series B convertible preferred stock at an exercise price of $2.941 per share. The warrants are exercisable upon issuance and expire seven years from the issuance date. The issuance date fair value of these warrants was estimated to be $623,000 and has been recorded as a reduction, or discount, to the carrying value of the loan. The discount is being amortized to interest expense over the term of the loan. The warrants were valued on the issuance date using the following assumptions: a risk-free interest rate of 0.50%, expected volatility of 98.8%, no expected dividend yield and a term of seven years.

Warrants Issued in Connection with Amendments of Equipment and Business Loan

In connection with the amendment to Equipment Loan #1 and the Company’s Business Loan, the Company agreed to issue warrants to purchase $300,000 of securities issued in a next-round equity financing, if such equity financing of at least $35 million was completed prior to May 15, 2011. If such financing was not completed prior to May 15, 2011, the Company agreed to issue warrants to purchase 61,200 shares of Series B convertible Preferred Stock at an exercise price of $4.902 per share. The Series C convertible preferred stock issued in April 2011 in the aggregate amount of $55.0 million met the next-round equity financing requirement and, as a result, warrants to purchase 61,200 shares of Series C convertible preferred stock at an exercise price of $4.902 per share were issued in connection with the equipment and business loan amendments. Upon execution of the loan amendments, but prior to issuance of the stock warrants, the Company recorded a liability of $300,000 and has been recorded as a reduction, or discount, to the carrying value of the loan. The discount is being amortized to interest expense over the term of the loan.

Convertible Preferred Stock Warrant Liability

Outstanding warrants to purchase shares of the Company’s convertible preferred stock were freestanding warrants that were subject to redemption and were therefore classified as liabilities on the Condensed Consolidated Balance Sheets at fair value. The initial liability recorded was adjusted for changes in fair value at each reporting date with an offsetting entry recorded as a component of other income (expense) in the Condensed Consolidated Statements of Operations. Upon conversion of the underlying convertible preferred stock, the warrants automatically converted into warrants to purchase the number of shares of Class A or Class B common stock into which the underlying preferred stock was convertible using the same exercise provisions, exercise prices and expiration dates as the warrants to purchase convertible preferred stock. Also, upon conversion, the warrants ceased to be subject to redemption and were reclassified to additional paid-in capital in stockholders’ deficit on the Condensed Consolidated Balance Sheets. The Company estimates the fair value of its convertible preferred stock warrants using the Black-Scholes option-pricing model.

Upon the close of the initial public offering on June 29, 2011, (1) warrants to purchase 411,312 shares of Series A-1 convertible preferred stock automatically converted into warrants to purchase an equivalent number of Class B common shares, (2) warrants to purchase 309,398 shares of Series B convertible preferred stock automatically converted into warrants to purchase an equivalent number of Class A common shares, and (3) warrants to purchase 61,200 shares of Series C convertible preferred stock automatically converted into warrants to purchase 25,000 shares of Class A common shares using a conversion price of 80% of the IPO price. The Company performed its final mark-to-market adjustment on the convertible preferred stock warrant liability on June 29, 2011, the date the initial public offering closed and the warrant liabilities became equity instruments. The related convertible preferred stock warrant liability of $10.4 million, of which $9.7 million related to warrants issued in connection with equipment and business loans and $0.7 million related to warrants issued in connection with amendments to equipment and business loans, at June 29, 2011 was reclassified to additional paid-in capital.

Convertible preferred stock warrant liability consisted of the following (see Note 11 — Stockholders Equity) (amounts in thousands, except per share data):

		Exercise				Shares as of								Fair Value as of
		Price per				June 30,				December 31,				June 30,				December 31,
Underlying Stock/Description		Share				2011				2010				2011				2010
Series A-1 convertible preferred stock		$	0.487				—				411			$	—			$	1,975
Series B convertible preferred stock		$	4.902				—				31				—				109
Series B convertible preferred stock		$	2.941				—				279				—				1,101
Warrant liability							—				—				—				—
Total							—				721			$	—			$	3,185

11. Stockholders’ Equity

Classes of Common Stock

Common stock was renamed “Class B common stock” upon the completion of the Company’s initial public offering. Each share of Series A and Series A-1 convertible preferred stock was converted into Class B common stock and each share of Series B and C convertible preferred stock was converted into Class A common stock.

The holders of Class A common stock are entitled to one vote for each share of Class A common stock held. Class A common stockholders shall be entitled to receive dividends on an equal basis with the holders of Class B common stockholders. In no event shall the Company authorize or issue dividends or other distributions on shares of Class B common stock payable in shares of Class B common stock without authorizing and issuing a corresponding and proportionate dividend or other distribution on shares of Class A common stock payable in shares of Class A common stock. Each holder of shares of Class B common stock shall be entitled to the number of votes equal to the whole number of shares of Class A Common Stock into which such shares of Class B common stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter times ten. Each share of Class B common stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into one fully paid and nonassessable share of Class A common stock. Each share of Class B common stock shall automatically, without any further action, convert into one (1) fully paid and nonassessable share of Class A common stock upon a transfer of such share, subject to certain exceptions.

Common Stock Warrants

As of December 31, 2010, the Company had warrants outstanding to purchase 157,424 shares of its Class A common stock at an exercise price of $.09 per share. During the six-month period ended June 30, 2011, warrants to purchase 130,000 shares were exercised at $.09 per share for net proceeds received by the Company of $11,700, leaving warrants to purchase 27,424 shares outstanding at June 30, 2011.

Upon the close of the initial public offering on June 29, 2011, (1) warrants to purchase 411,312 shares of Series A-1 convertible preferred stock automatically converted into warrants to purchase an equivalent number of Class B common shares, (2) warrants to purchase 309,058 shares of Series B convertible preferred stock automatically converted into warrants to purchase an equivalent number of Class A common shares, and (3) warrants to purchase 61,200 shares of Series C convertible preferred stock automatically converted into warrants to purchase 25,000 shares of Class A common shares using a conversion price of 80% of the IPO price. We performed our final mark-to-market adjustment on the convertible preferred stock warrant liability on June 29, 2011, the date the initial public offering closed and the warrant liabilities became warrants to purchase equity instruments. The related convertible preferred stock warrant liability of $10.4 million, of which $9.7 million related to warrants issued in connection with equipment and business loans and $.7 million related to warrants issued in connection with amendments to equipment and business loans, at June 29, 2011 was reclassified to additional paid-in capital. See Note 10 — Convertible Preferred Stock Warrants.

12. Employee Benefit Plan

The Company has a 401(k) plan covering all of its U.S. employees. Effective May 1, 2010, the Company began matching 100% of the first 3% of individual employee contributions and 50% of the next 2% of individual employee contributions. New employees can immediately join the plan and participants immediately vest in employer matching contributions. Employer matching contributions under the plan totaled $107,300 and $31,300 for the three months ended June 30, 2011 and 2010 and $194,700 and $31,300 for the six months ended June 30, 2011 and 2010, respectively.

13. Stock-Based Compensation

Amended and Restated 2007 Stock Option/Stock Issuance Plan

The Company established the 2007 Stock Option/Stock issuance Plan (the “2007 Plan”) as a method to grant stock options, common stock and Class A common stock as an incentive to employees and nonemployees. The 2007 Plan, as originally approved, provided for a maximum of 10.2 million common shares to be granted to eligible employees, consultants and directors. On April 16, 2010, the 2007 Plan was amended such that the maximum number of common shares to be granted to eligible employees, consultants and directors is now 22.0 million. Options granted under the 2007 Plan are granted at an exercise price that approximates the fair market value of the stock at the time the option is granted. The stock options expire on the tenth anniversary of the date of grant. A portion of the stock options became exercisable upon issuance and the remaining stock options vested ratably over a five-year period. Shares of common stock or Class A common stock issued under the 2007 Plan granted at the discretion of the 2007 Plan administrator and were either granted through the immediate purchase of such shares or as a bonus for services rendered to the Company. Options to purchase approximately 9.2 million shares of Class A common stock and options to purchase approximately 7.0 million shares of Class B common stock were outstanding as of June 30, 2011 under the 2007 Plan. Options to purchase approximately 9.8 million shares of common stock and options to purchase approximately 5.6 million shares of Class A common stock were outstanding as of December 31, 2010. The company issued restricted stock for the first time in June 2011. Approximately 1.6 million unvested restricted shares were outstanding at June 30, 2011. The shares are issuable to employees, directors and consultants upon having satisfied the necessary service conditions to earn the rights to the shares. The restricted shares have graded vesting in the range of four to five years.

In March 2011, the Company amended the 2007 Plan to allow the 2007 Plan Administrator to set the exercise price of any stock option grants under the 2007 Plan, even if such exercise price did not correspond with the fair value of the underlying common stock, provided that such grants at the grant date contained conditions of vesting and exercise for termination of services in compliance with Section 409A of the Internal Revenue Code. Concurrent with the 2007 Plan amendment, the Company issued options to purchase an aggregate of 2,428,262 shares of Class A common stock at $1.98 per share to three senior executives. The options vest 100% at the end of five years of service and expire on December 31, 2016. The options were valued at $6.02 on the grant date using the following assumptions: a risk-free interest rate of 2.13%, expected volatility of 84%, no expected dividend yield and a term of five and one half years. The total value of the options as of the grant date was determined to be $14.6 million, which will be amortized over the vesting period of the options of five years.

Stock-Based Compensation Expense

Stock-based compensation expense related to options and restricted stock granted was allocated to research and development expense and sales, general and administrative expense as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Research and development		$	152			$	25			$	220			$	50
Sales, general and administrative			2,444				91				2,980				106
Total stock-based compensation expense		$	2,596			$	116			$	3,200			$	156

No income tax benefit has been recognized relating to stock-based compensation expense and no tax benefits have been realized from exercised stock options.

Stock option activity for the Company during the first six months of 2011 was as follows:

						Weighted
						Average
		Shares				Exercise Price
		(In thousands)
Outstanding at December 31, 2010			15,408			$	0.74
Options Granted			3,200				5.12
Exercised			(1,459	)			0.07
Forfeited			(1,718	)			0.11
Outstanding at June 30, 2011			15,431			$	1.79

There is a remaining $24.7 million in unrecognized stock-based compensation cost that is expected to be recognized over a weighted-average period of 4.6 years.

The weighted-average grant date fair market value of options granted during the three-month period ended June 30, 2011 was $10.63. There were no grants during the three-month period ended June 30, 2010. The weighted-average grant date fair market value of options granted during the six month period ended June 30, 2011 and 2010 was $7.13, and $0.06, respectively.

Assumptions used to value stock option grants for the quarter ended June 30, 2011 are as follows:

		Three Months
		Ended
		June 30, 2011
		(In thousands)
Expected Volatility			80.5	%
Risk-free interest rate			2.1	%
Dividend Yield			0	%
Expected Life			6.3

There were no grants in the three months ended June 30, 2010. The Company has never paid dividends and does not expect to pay dividends. The risk-free interest rate was based on the market yield currently available on United States Treasury securities with maturities approximately equal to the option’s expected term. Expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The simplified method was used to calculate the expected term. Historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term as the Company is a development stage company and fair market value of shares granted changed from our historical grants as a result of its initial public offering in June 2011. The expected volatility was based on the historical stock volatilities of several comparable publicly-traded companies over a period equal to the expected terms of the options, as the Company does not have a long trading history to use to estimate the volatility of its own common stock.

Restricted stock activity for the Company during the first six months of 2011 was as follows:

		June 30, 2011
		(In thousands)
Total unvested shares at beginning of the period: January 1			—
Shares Granted			1,623
Shares Vested			—
Shares Forfeited			—
Total unvested shares at end of period: June 30			1,623

Common Stock Subject to Repurchase — In accordance with the stock option agreements between the Company and the holders of options to purchase shares of its common stock, option holders may exercise their options prior to vesting. The Company has the right to repurchase, at the lower of the original purchase price or the then current fair market value; any unvested (but issued) common shares upon termination of service of the option holder. The consideration received for an exercise of an unvested option is considered to be a deposit of the exercise price and the related dollar amount is recorded as a liability. The shares and liability are reclassified into equity on a ratable basis as the award vests. As of June 30, 2011 and December 31, 2010, there were no shares outstanding subject to repurchase by the Company.

Stock Grants — In March 2010, the Board of Directors of the Company authorized the issuance of 896,000 shares of common stock to the Company’s chief executive officer in lieu of a cash bonus. The shares were valued at $81,000 and were fully vested at the time of issuance and recorded as stock-based compensation expense.

Following the effectiveness of our 2011 Long-Term Incentive Plan described below, no further awards will be made under the 2007 Plan.

2011 Long-Term Incentive Plan

In May 2011, our Board of Directors adopted, and our stockholders subsequently approved, our 2011 Long-Term Incentive Plan (the “2011 Plan”), which became effective upon the completion of our initial public offering. The 2011 Plan provides for a maximum of approximately 10.2 million Class A common shares to be granted to eligible employees, consultants, and directors. Under the 2011 Plan, the compensation committee of our Board of Directors may grant awards in the form of stock options, stock appreciation rights, restricted or unrestricted shares of Class A common stock, units denominated in Class A common stock, cash and performance units representing the right to receive Class A common stock upon the attainment of certain performance goals. Any of the above awards may be subject to the attainment of one or more performance goals. As of June 30, 2011, no awards had been granted under the 2011 Plan.

14. Subsequent Events

In connection with our initial public offering that closed on June 29, 2011, the Company granted the underwriters a 30-day option to purchase up to 1.5 million additional shares of Class A common stock at the initial public offering price to cover over-allotments, if any. Subsequent to June 30, 2011, the underwriters exercised their option in part and purchased 800,000 additional shares, which resulted in additional proceeds to the Company of approximately $11.2 million, net of underwriting discounts and commissions.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a next-generation renewable fuels company. We have developed a proprietary technology platform to convert low-cost, abundant and sustainable non-food biomass into hydrocarbon-based oil. We process our renewable crude oil using standard refinery equipment into gasoline and diesel blendstocks that can be transported using the existing fuels distribution system for use in vehicles on the road today. Our gasoline and diesel blendstocks are projected to reduce direct lifecycle greenhouse gas emissions by over 80% compared to the petroleum-based fuels they displace.

We were incorporated and commenced operations in July 2007. Since our inception, we have operated as a development stage company, performing extensive research and development to develop, enhance, refine and commercialize our biomass-to-renewable fuel technology platform. During this time, we have demonstrated the efficacy and scalability of our biomass fluid catalytic cracking, or BFCC, process, attaining progressive technology milestones through laboratory, pilot unit and demonstration unit environments.

We have entered our commercialization phase and commenced construction of our initial-scale commercial production facility in Columbus, Mississippi in the first quarter of 2011. Going forward, we intend to construct our larger standard commercial production facilities, beginning in the second half of 2012 with our first planned facility in Newton, Mississippi.

Until recently, we have focused our efforts on research and development, and we have yet to generate revenue. As a result, we had generated $79.0 million of operating losses and an accumulated deficit of $100.7 million from our inception through June 30, 2011. We expect to continue to incur operating losses through at least 2013 as we continue into the commercialization stage of our business.

Fundamentals of Our Business

Our biomass-to-renewable fuel technology platform converts biomass into hydrocarbon-based oil by combining our proprietary catalyst systems with well-established fluid catalytic cracking, or FCC, processes. Expanding on FCC processes routinely employed in the petroleum refining industry, our biomass fluid catalytic cracking, or BFCC, process allows us to introduce solid biomass into a modified FCC system where it contacts our proprietary catalyst. The result is a hydrocarbon-based oil that can be upgraded through standard hydrotreating equipment into transportation fuels, including gasoline and diesel blendstocks, that are fungible with petroleum blendstocks.

Although we have not generated any revenue to date, we expect to generate revenue from sales of our gasoline and diesel blendstocks from our planned commercial production facilities. We may also generate revenue from the sale of renewable identification numbers, or RINs, that we will retain if we sell our fuel blendstocks to customers who are not obligated parties under the Renewable Fuel Standard program, or RFS2. We expect that our gasoline and diesel blendstocks will have an equivalence value of between 1.5 to 1.7. Equivalence value equates to the number of RIN credits per gallon.

We expect that our cost of goods sold will consist of the following:

	•		Feedstock. The largest component of our cost of goods sold will be the cost of procuring and preparing the biomass we feed into our BFCC process. Our BFCC process can convert a variety of biomass feedstock, including woody biomass, such as whole tree chips, logging residues, branches and bark, agricultural residues, such as sugarcane bagasse, and energy crops, such as switchgrass and miscanthus. Our feedstock prices are a function of feedstock acquisition, harvesting, transportation and processing costs.
	•		Facility-related fixed costs. As an industrial process, our facilities will require a baseline level of staffing consisting of process engineering, monitoring staff, testing personnel, health safety and environmental personnel and maintenance personnel. Other fixed costs include maintenance materials and casualty and liability insurance, as well as ad valorem and property taxes.
	•		Other variable costs. We expect to use natural gas and nitrogen in our BFCC process. We also expect to incur other variable costs for our catalysts for our biomass conversion and hydrotreating processes.

Our largest expenditures are the capital costs associated with the construction of our initial commercial production facilities and planned facility turnarounds. These costs are comprised of land acquisition, site preparation, utilities, permitting, facility construction, start-up and contingency costs and related financing costs. We expect that the depreciation of these facilities costs will be included in cost of goods sold.

Our operating expenses currently consist primarily of research and development expenses and general and administrative expenses.

Financial Operations Overview

Revenue and Cost of Goods Sold. To date, we have not generated any revenue or incurred any cost of goods sold, and we do not expect to do so until at least the second half of 2012.

Research and Development Expenses. Research and development expenses consist primarily of expenses for personnel focused on increasing the scale of our operations and the yield of our blendstocks. These expenses also consist of facilities costs and other related overhead and lab materials. We expense all of our research and development costs as they are incurred. In the near term, we expect to hire additional employees, as well as incur contract-related expenses, as we continue to invest in the development of our proprietary biomass-to-renewable fuel technology platform.

General and Administrative Expenses. General and administrative expenses consist primarily of personnel-related expenses related to our executive, legal, finance, human resource and information technology functions, as well as fees for professional services and allocated facility overhead expenses. These expenses also include costs related to our sales function, including marketing programs and other allocated costs. Professional services consist principally of external legal, accounting, tax, audit and other consulting services. We expect general and administrative expenses to increase as we incur additional costs related to operating as a public company, including increased legal and accounting fees, costs of compliance with securities, corporate governance and other regulations, investor relations expenses and higher insurance premiums, particularly those related to director and officer insurance. In addition, we expect to incur additional costs as we hire personnel and enhance our infrastructure to support the anticipated growth of our business.

Depreciation and Amortization Expense. Depreciation and amortization expense consists of depreciation of our property, plant and equipment over their estimated useful lives and amortization of our intangible assets, consisting primarily of purchased biomass conversion technology and technology licenses, which are amortized using the straight-line method over their estimated useful lives.

Interest Income. Interest income consists primarily of interest income earned on investments and cash balances. We expect our interest income to fluctuate in the future with changes in average investment balances and market interest rates.

Beneficial Conversion Feature Expense Related to Convertible Promissory Note. In August 2009, we entered into a $15.0 million non-interest bearing convertible promissory note, or the Note, which included a beneficial conversion feature, with our principal stockholder, Khosla Ventures. The value of the beneficial conversion feature was not readily determinable upon issuance of the Note because the conversion feature was contingent upon the occurrence of an undetermined future financing transaction and neither the timing nor value of such transaction could be estimated at the time the Note was issued. In April 2010, we executed a financing transaction that required the Note to be converted into 2.6 million shares of our Series B convertible preferred stock. We recorded a $10.0 million expense at the time of that conversion to reflect the beneficial conversion feature associated with the conversion of the Note to convertible preferred stock.

Interest Expense, Net of Amounts Capitalized. We incur interest expense in connection with our outstanding equipment and business loans. We capitalize interest on long-term construction projects relating to operating assets with a total expected expenditure generally in excess of $10.0 million. We capitalized interest relating to the construction of our initial-scale commercial production facility in Columbus, Mississippi of approximately $1.0 million as of June 30, 2011. For the three-month period ended June 30, 2011 and 2010 we capitalized interest of $586,000 and $0, respectively, and for the six-month period ended June 30, 2011 and 2010, $911,000 and $0, respectively. To the extent our planned commercial production facilities are funded with debt, we anticipate capitalizing most of the interest costs that we incur.

Foreign Currency Loss. All of our foreign currency gains and losses were incurred in relation to our subsidiary KiOR B.V. (in liquidation). The functional currency of KiOR B.V. (in liquidation) is the euro. As of December 31, 2010, all of the operations of KiOR B.V. were combined with the operations of KiOR, Inc., and KiOR B.V. is in the process of liquidation. At this time, we have no other foreign operations.

Loss from Change in Fair Value of Warrant Liability. Our outstanding warrants to purchase shares of our convertible preferred stock are required to be classified as current liabilities and to be adjusted to their fair value at the end of each reporting period. Any changes in the fair value of these warrant liabilities are required to be recorded as income or expense, as applicable, in the period that the change in value occurs. We performed our final mark-to-market adjustment on the warrant liabilities on June 29, 2011, the date our initial public offering closed and the warrant liabilities became warrants to purchase equity instruments; we reclassified the fair value to additional paid-in capital.

Income Tax Expense. Since inception, we have incurred net losses and have not recorded any U.S. federal and state income tax provisions. We have a full valuation allowance for our net deferred tax assets because we have incurred losses since inception. Our income tax provision relates to current taxes payable in the Netherlands with respect to KiOR B.V. (in liquidation).

Deemed Dividend Related to the Beneficial Conversion Feature of Series C Convertible Preferred Stock. At the date of issuance, the proceeds received for the Series C convertible preferred stock was less than the fair value of the Class A common stock that was issuable upon conversion at the effective conversion price of $4.902 per share, with such fair value as determined by management and the Board of Directors. As a result, the Series C convertible preferred stock contained a beneficial conversion feature which was required to be recognized as a reduction in net income attributable to common stockholders ratable over the conversion period. The conversion period was the period from the date of issuance until the earlier of the conversion of the Series C convertible preferred shares into Class A common shares, or October 31, 2011. Upon completion of our initial public offering, the Series C convertible preferred stock was automatically converted to Class A common stock at 80% of the IPO price, or $12. During the period from April 21, 2011 to June 29, 2011, we recognized a deemed dividend related to the beneficial conversion feature of Series C convertible preferred stock of $19.7 million. Since the adjusted conversion price of 80% of the IPO price resulted in the Series C convertible preferred stock being converted into common stock with a fair value that was less than the proceeds received for the Series C convertible preferred stock, no additional deemed dividends related to the beneficial conversion feature of Series C convertible preferred stock was required.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies involve significant areas of management’s judgments and estimates in the preparation of our financial statements.

Impairment of Long-Lived Assets and Intangible Assets

We assess impairment of long-lived assets, including intangible assets, on at least an annual basis and test long-lived assets for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to, significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; a forecast of continuing losses associated with the use of the asset; or expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.

Recoverability is assessed by using undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets. If the undiscounted future net cash flows are less than the carrying amount of the asset, the asset is deemed impaired. The amount of the impairment is measured as the difference between carrying value and the fair value of the asset.

The majority of our long-lived assets, other than intangible assets, consist of our pilot unit and demonstration unit. Both of these units are variations of common refinery equipment used in technology development and scale-up of processes that have been scaled and modified for our research and development purposes. Our intangible assets consist of purchased biomass conversion technology and technology licenses. Given our history of operating losses, we evaluated the recoverability of the book value of our property, plant and intangible assets by performing an undiscounted forecasted cash flow analysis. Based on our analysis, the sum of the undiscounted cash flows is in excess of the book value of the property, plant and equipment and intangible assets. Accordingly, no impairment charges have been recorded during the period from July 23, 2007 (date of inception) through June 30, 2011.

Our undiscounted cash flow analysis involves significant estimates and judgments. Although our cash flow forecasts are based on assumptions that are consistent with our plans, there is significant exercise of judgment involved in determining the cash flow attributable to a long-lived asset over its estimated remaining useful life. Our estimates of anticipated cash flows could be reduced significantly in the future. As a result, the carrying amounts of our long-lived assets could be reduced through impairment charges in the future. Changes in estimated future cash flows could also result in a shortening of the estimated useful life of long-lived assets, including intangibles, for depreciation and amortization purposes.

Stock Based Compensation

Compensation cost for grants of all share-based payments is based on the estimated grant date fair value. We attribute the value of share-based compensation to expense using the straight-line method. We estimate the fair value of our share-based payment awards using the Black-Scholes option-pricing model (the “Black-Scholes model”). The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Black-Scholes model requires the input of certain assumptions, including assumptions relating to risk-free interest rate, the expected term and expected volatility which materially affect the fair value estimates. The risk-free interest rate was based on the market yield currently available on United States Treasury securities with maturities approximately equal to the option’s expected term. Expected term represents the period that our stock-based awards are expected to be outstanding. The simplified method was used to calculate the expected term. Historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term as we are a development stage company and fair market value of shares granted changed from our historical grants as a result of our initial public offering in June 2011. The expected volatility was based on the historical stock volatilities of several comparable publicly-traded companies over a period equal to the expected terms of the options, as we do not have a long trading history to use to estimate the volatility of our own common stock.

Results of Operations

The following table sets forth our consolidated results of operations for the periods shown:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Operating expenses:
Research and development expenses		$	(7,723	)		$	(4,240	)		$	(14,994	)		$	(8,621	)
General and administrative expenses			(7,161	)			(2,122	)			(11,350	)			(3,348	)
Depreciation and amortization expenses			(563	)			(406	)			(1,085	)			(685	)
Loss from operations			(15,447	)			(6,768	)			(27,429	)			(12,654	)
Other income (expense), net:
Interest income			—				2				—				2
Beneficial conversion feature expense			—				(10,000	)			—				(10,000	)
Interest expense, net of amounts capitalized			—				(356	)			—				(722	)
Foreign currency gain (loss)			—				16				—				24
Loss from change in fair value of warrant liability			(5,504	)			(2,290	)			(6,914	)			(2,290	)
Other expense, net			(5,504	)			(12,628	)			(6,914	)			(12,986	)
Net loss			(20,951	)			(19,396	)			(34,343	)			(25,640	)