<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
Commission file number 0-23634
KFX INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1079971
(State or other jurisdiction of (I.R.S. EMPLOYER
incorporation or organization) IDENTIFICATION NUMBER)
1999 BROADWAY, SUITE 3200, DENVER, COLORADO USA 80202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(303) 293-2992
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
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 proceeding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [_]
On May 13, 1998 there were 23,926,040 shares of the Registrant's common stock
outstanding.
<PAGE>
KFX INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
Part I. Financial Information
Item 1. Consolidated Financial Statements
<S> <C>
Consolidated Balance Sheets - March 31, 1998 (Unaudited) and December 31, 1997............ 3
Consolidated Statements of Operations - Three Months Ended
March 31, 1998 and 1997 (Unaudited).................................................... 4
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1998 and 1997 (Unaudited).................................................... 5
Notes to Consolidated Financial Statements (Unaudited).................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................. 10
Part II. Other Information................................................................. 13
Signatures.................................................................................. 14
</TABLE>
2
<PAGE>
KFX INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------------------------------------
ASSETS
------
<S> <C> <C>
Current:
Cash and cash equivalents............................................ $ 10,797,030 $ 14,078,773
Accounts receivable.................................................. 505,938 220,729
Accrued interest..................................................... 42,387 52,000
Prepaid expenses..................................................... 72,070 109,696
Supplies inventory................................................... 148,995 -
------------ ------------
Total current assets.............................................. 11,566,420 14,461,198
------------ ------------
Property, plant and equipment, net of accumulated depreciation......... 4,261,224 4,458,305
Patents, net of accumulated amortization............................... 3,029,266 3,087,853
Investment in and advances to KFX Fuel Partners, L.P................... 3,913,191 3,787,138
Investment in K-Fuel, LLC.............................................. 216,088 224,016
Investment in Charco Redondo, LLC...................................... 404,727 -
Intangible assets, primarily goodwill.................................. 2,400,398 -
Debt issue costs, net of accumulated amortization...................... 2,107,565 2,230,565
Prepaid royalty........................................................ 500,000 500,000
Other assets........................................................... 263,063 308,631
------------ ------------
$ 28,661,942 $ 29,057,706
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current:
Accounts payable..................................................... $ 310,132 $ 363,881
Accrued expenses..................................................... 253,951 190,001
Deferred Revenue..................................................... 215,000 -
Due to related parties............................................... 538,434 557,522
Interest payable..................................................... 184,195 504,421
Current maturities of long-term debt................................. 935,000 280,000
------------ ------------
Total current liabilities......................................... 2,436,712 1,895,825
------------ ------------
Long-term debt, less current maturities................................ 610,000 500,000
Convertible debentures................................................. 17,000,000 17,000,000
Mine reclamation liability............................................. 1,166,000 1,166,000
------------ ------------
Total liabilities................................................. 21,212,712 20,561,825
------------ ------------
Commitments and contingencies (Note 2)
Stockholders' equity:
Preferred stock, $.001 par value, 20,000,000 shares authorized;
None issued....................................................... - -
Common stock, $.001 par value, 80,000,000 shares authorized;
23,926,040 and 23,926,040 shares issued and outstanding........... 23,926 23,926
Additional paid-in capital........................................... 48,208,593 47,758,843
Accumulated deficit.................................................. (40,783,289) (39,286,888)
------------ ------------
Total stockholders' equity........................................ 7,449,230 8,495,881
------------ ------------
$ 28,661,942 $ 29,057,706
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
KFX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED MARCH 31,
1998 1997
------------------------------------
<S> <C> <C>
Contract revenue....................................................... $ 244,695 $ 217,894
Interest and other income.............................................. 154,771 60,740
----------- -----------
Total revenue and other income....................................... 399,466 278,634
----------- -----------
Marketing, general and administrative expenses......................... 817,811 684,697
Research and development............................................... 49,138 127,012
Demonstration plant and laboratory operations.......................... 152,359 176,645
Equity in loss of unconsolidated affiliates............................ 17,618 54,853
Depreciation and amortization.......................................... 574,883 443,739
Interest expense....................................................... 284,058 33,660
----------- -----------
Total expenses....................................................... 1,895,867 1,520,606
----------- -----------
Net loss............................................................... $(1,496,401) $(1,241,972)
----------- -----------
Basic and diluted net loss per common share............................ $ (.06) $ (.05)
=========== ===========
Weighted average shares outstanding.................................... 23,926,000 23,509,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
KFX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED MARCH 31,
1998 1997
------------------------------------
Operating Activities:
<S> <C> <C>
Net loss.......................................................... $(1,496,401) $(1,241,972)
Adjustments to reconcile net loss to cash
Used in operating activities:
Depreciation and amortization................................ 574,883 443,739
Warrants issued for services................................. 196,000 -
Equity in loss of unconsolidated affiliates................ 17,618 54,853
Changes in operating assets and liabilities, net of assets and
liabilities acquired:
Accounts receivable.......................................... 3,313 (33,651)
Interest receivable.......................................... 9,613 -
Supplies inventory........................................... (148,995) -
Accounts payable............................................. 47,964 (231,974)
Accrued expenses............................................. 60,450 (58,638)
Related parties.............................................. 20,222 (107,114)
Interest payable............................................. (320,226) (66,561)
Prepaids & other............................................. (7,003) -
----------- -----------
Cash used in operating activities...................................... (1,042,562) (1,241,318)
----------- -----------
Investing Activities:
Purchases of equipment............................................ (7,000) (4,530)
Pending patent applications....................................... (100,112) (10,356)
Investments in KFX Fuel Partners, L.P............................. (126,053) (24,101)
Investments in K-Fuel, LLC........................................ (9,690) -
Investments in Charco Redondo, LLC................................ (375,771) -
Purchase of controlling assets of Pegasus Technologies, LLC, net -
of cash acquired................................................. (1,615,555) -
Other.............................................................. - (9,080)
----------- -----------
Cash used in investing activities...................................... (2,234,181) (48,067)
----------- -----------
Financing Activities:
Proceeds from sale of common stock................................ - 2,500,000
Payments on notes payable......................................... (5,000) (105,000)
----------- -----------
Cash used in financing activities...................................... (5,000) 2,395,000
----------- -----------
Increase (decrease) in cash and cash equivalents....................... (3,281,743) 1,105,615
Cash and cash equivalents, beginning of period......................... 14,078,773 1,403,625
----------- -----------
Cash and cash equivalents, end of period............................... $10,797,030 $ 2,509,240
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest............................................ $ 604,284 $ 100,196
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
KFX INC.
CONSOLIDATED STATEMENT OF CASH FLOWS - (CONTINUED)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Three Months Ended March 31, 1998
- ---------------------------------
In January 1998, the Company reclassed $28,956 of other assets at December
31, 1997 relating to the Charco Redondo, LLC investment to Investment in Charco
Redondo, LLC . See Note 4.
In January 1998, the Company converted $170,000 of current accounts payable
at December 31, 1997 related to general corporate legal services into a
promissory note. See Note 6.
On March 23, 1998, the Company issued $600,000 in promissory notes and
granted purchase options for 75,000 shares of the Company's common stock under
the Company's 1996 Stock Option and Incentive Plan in connection with the
Company's acquisition of a 60 percent interest of Pegasus Technologies, LLC.
Using the Black-Scholes option-pricing model, the stock options were valued at
$144,750; this amount is included in goodwill and acquisition costs related to
the acquisition of Pegasus Technologies, LLC. See Note 5.
Also in connection with the Pegasus Technologies, LLC acquisition, the
Company granted purchase options for 100,000 shares of the Company's common
stock under the Company's 1996 Stock Option and Incentive Plan to a consultant
relating to certain acquisition activities. Using the Black-Scholes option-
pricing model, the stock options were valued at $109,000; this amount is
included in goodwill and acquisition costs related to the acquisition of Pegasus
Technologies, LLC. See Note 5.
Three months Ended March 31, 1997
- ---------------------------------
None.
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
KFX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of KFX Inc. ("KFX" or the "Company") and its wholly-owned
subsidiary, KFX Wyoming Inc. ("KFXW"), and its majority-owned subsidiaries, KFX
Technology Inc. ("KFXT", formerly Energy Brothers Technology, Inc.), Atlantic
Partners Ltd. ("APL"), Heartland Fuels Corporation ("HFC") and Pegasus
Technologies, LLC ("Pegasus"). The Company's 67 percent interest in KSA
Partnership ("KSA"), its 51 percent interest in K-Fuel, L.L.C. ("K-Fuel, LLC"),
its 12.6% interest in Charco Redondo, LLC ("Charco") and its 5 percent interest
in KFX Fuel Partners, L.P. ("KFP") are accounted for as equity investments as
the Company does not have the authority or ability to independently control or
manage these entities. All significant intercompany transactions have been
eliminated in consolidation.
The consolidated financial statements at March 31, 1998, and for the
three months ended March 31, 1998 and 1997 are unaudited. In the opinion of the
Company's management, all adjustments, consisting of only normal recurring
adjustments necessary for a fair statement of the results for the interim
periods, have been made. Certain reclassifications have been made to the 1997
financial statements to conform to the current year presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with the audited financial statements and notes to financial
statements for the year ended December 31, 1997 included in the Company's Form
10-K. The accounting policies used in the preparation of these unaudited
quarterly financial statements are the same as those policies used in the
preparation of the audited annual financial statements except as modified for
appropriate interim accounting policies. The results of operations for the
three months ended March 31, 1998 are not necessarily indicative of the results
of operations expected for the year ended December 31, 1998.
Net loss per common share for the three months ended March 31, 1998
and 1997 are based on the weighted average number of shares of common stock
outstanding during the period, and excludes common equivalent shares (common
stock options and warrants) as the effect would be anti-dilutive.
NOTE 2. COMMITMENTS AND CONTINGENT LIABILITIES
In November 1995, the Company filed a lawsuit against Fru-Con
Construction Corporation and Fru-Con Engineering, Inc. (collectively, "Fru-Con")
in the Wyoming State Court, 6th Judicial District. The action has been removed
to the United States District Court for the District of Wyoming. The Company's
lawsuit requests that the court enter a judgment that Fru-Con has no interest or
claim in or against the Company or any of the Company's property or interests,
or that Fru-Con is barred from such claims. Fru-Con had asserted claims for
approximately $1.8 million for engineering services and an interest in K-Fuel
plants built in North America by virtue of contractual arrangements with a
limited partnership sponsored by corporations in which a predecessor entity to
the Company had a partnership interest. Because the work done by Fru-Con was
for a limited partnership in which the Company's predecessor entity was not a
partner, and because payment for the work performed by Fru-Con was contingent
upon successful project financing which never materialized, as well as for other
legal and factual reasons, the Company believes that Fru-Con has no valid rights
or claims against the Company. On May 20, 1997, the Court granted the Company's
Motion for Summary Judgment on all claims. Fru-Con has appealed to the 10th
Circuit Court of Appeals. The Company believes that the ultimate resolution of
this action will not have a material impact on the Company's financial position
or results of operations.
7
<PAGE>
KFX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
(CONTINUED)
On March 9, 1998, Fidelity and Deposit of Maryland, as subrogee of
Walsh Construction Company, a division of Guy F. Atkinson Company, filed a
construction lien against KFP (as defined below) with respect to the
construction of the KFP Facility (as defined below) in the amount of
approximately $5.9 million. It is not possible at this time to evaluate the
merits of the claim or the range of potential loss. However, the Company
believes that the ultimate resolution of this action will not have a material
impact on the Company's financial position for results of operation.
NOTE 3. KFX FUEL PARTNERS, L.P.
In August 1995, the Company and Thermo Ecotek Corporation ("TCK"),
acting through wholly-owned subsidiaries KFX Wyoming, Inc. ("KFX Wyoming", 100
percent owned by the Company) and Eco Fuels, Inc. (100 percent owned by TCK),
formed KFX Fuel Partners, L.P. ("KFP"), a Delaware limited partnership, and
began construction of a 500,000 TPY K-Fuel coal production facility (the "KFP
Facility") near Gillette, Wyoming using the Company's Series "C" K-Fuel
Technology. The Company has a 5 percent interest in KFP, with the remaining 95
percent held by TCK. TCK is the managing general partner for KFP and makes all
day-to-day operating decisions. The KFP Facility must be "placed in service" by
June 30, 1998, to qualify for certain federal tax credits on its output.
The KFP Facility was substantially completed in December 1996. TCK has
continued to refine and optimize operations at the KFP Facility, conducting
extensive testing and producing commercially salable K-Fuel product. Although
the KFP Facility has operated and produced commercially salable product, certain
difficulties have been encountered in attempting to achieve optimal and
sustained operations. Certain problems previously encountered, including a
December 1996 industrial fire at the facility and certain construction problems,
including issues relating to the flow of materials within the KFP Facility and
the design and operation of certain pressure-release equipment, have been
resolved. Currently, certain operational problems relating to tar residue
build-up within the system during production are being experienced. TCK is
actively exploring solutions to this problem. Because the technology being
developed at the KFP Facility is new and untested, no assurance can be given
that other difficulties will not arise or that these problems can be corrected
and optimal and sustained performance can be achieved. The Company does not
believe its share of such additional costs to bring the KFP Facility to optimal
operating performance, if incurred, will be material.
NOTE 4. CHARCO REDONDO, LLC
In December 1997, the Company purchased a 12.6 percent interest in
Charco Redondo, LLC, a Texas limited liability company ("Charco") in
consideration for its commitment to contribute $540,000 to Charco as working
capital. Funding under this commitment began in January 1998 and at May 13,
1998, the Company has contributed $510,000 to Charco of which $28,956 was in
other assets at December 31, 1997.
NOTE 5. PEGASUS TECHNOLOGIES, LLC
On March 23, 1998, the Company acquired a 60 percent interest in
Pegasus Technologies, LLC ("Pegasus"), an Ohio limited liability company that
sells a computer software product that enhances combustion optimization in coal-
fired electric utility power plants. The acquisition consisted of a cash payment
of $1,600,000, $600,000 in four-year promissory notes, and the issuance of
75,000 non-qualified stock options under the Company's 1996 Stock Option and
Incentive Plan. The terms of the promissory notes include annual principal
payments of $150,000 each anniversary date of the notes until fully paid in
8
<PAGE>
KFX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
(CONTINUED)
March 2002, and interest at 5.0 percent per annum. The stock options were
granted at an exercise price of $3.75 per share, vesting 20 percent each one-
year anniversary from the date of grant, and expiring in March, 2005. Using the
Black-Scholes option-pricing model, the stock options were valued at $144,750;
this amount is included in goodwill and acquisition costs related to the
acquisition of Pegasus. In addition, the Company agreed to provide Pegasus
$1,400,000 in working capital guarantees secured through lines of credit or
other financing sources mutually acceptable to the Company and Pegasus.
In connection with the acquisition of Pegasus, the Company issued
100,000 fully vested non-qualified stock options under the Company's 1996 Stock
Option and Incentive Plan to a consultant relating to certain acquisition
activities. The stock options were granted at an exercise price of $3.75 per
share, expiring in May, 2001. Using the Black-Scholes option-pricing model, the
options were valued at $109,000; this amount is included in goodwill and
acquisition costs related to the acquisition of Pegasus.
The financial condition of Pegasus at March 31, 1998 and its results
of operations for the period March 23, 1998 to March 31, 1998 are included in
the consolidated financial statements of the Company but are not material.
NOTE 6. PROMISSORY NOTE
In January 1998, the Company converted $170,000 of current accounts
payables at December 31, 1997 related to general corporate legal services into a
promissory note. Interest accrues at six percent per annum with quarterly
interest payments beginning on March 31, 1998 and quarterly principal payments
beginning on March 31, 1999. Any unpaid principal and interest is due on
December 31, 2001.
9
<PAGE>
KFX INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion to follow is based on forward-looking statements that
include risks and uncertainties, and should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" at Item 7 of the Company's Form 10-K for the year ended December 31,
1997. Actual results may differ materially from those anticipated in the
forward-looking information.
Excluding a joint venture fee of $1 million in 1996, to date the
Company has not generated any other material revenues from the licensing of the
K-Fuel Technology to third party licensees or the direct manufacturing of K-
Fuel. All revenues other than the joint venture fee in 1996 have been derived
from ancillary sources not directly related to the Company's efforts to
commercialize the K-Fuel Technology. The KFP Facility is the only commercial-
scale K-Fuel production facility constructed to date. Until the Company
successfully negotiates additional third-party licensing and royalty agreements,
independently constructs and operates additional commercial-scale K-Fuel
production facilities, or successfully enters into other lines of environmental
and/or energy technology businesses, net operating losses will continue. The
royalties and profit interests to be derived from the Company's 5 percent
ownership interest in the KFP Facility will not be sufficient to meet all of the
operating and debt service needs of the Company based on current and future
anticipated operating plans and budgets. Until such time as the Company has in
place sufficient additional commercial-scale K-Fuel production facilities
(either owned independently or through joint venture entities similar to the KFP
Facility) or has successfully entered into other lines of environmental and/or
energy technology businesses to generate positive cash flow from operations, the
Company will be dependent on additional debt and/or equity financing. The
Company has recently made investments in environmental and energy technologies
not directly related to the K-Fuel Technology that may provide a more rapid
economic return than the K-Fuel Technology. There are no assurances that any of
these investments will produce an acceptable economic return, if at all.
The Company expects that most or all of its financing needs in 1998
with respect to day-to-day operations and debt service requirements will be
satisfied by the net proceeds raised in the $17.0 million unsecured convertible
debenture offering (the "Debenture Offering") completed in July 1997.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED
MARCH 31, 1997
Contract revenues increased in the 1998 period primarily as a result of
continued technical subcontract work the Company is performing for KFP in
relation to the start-up activities of the KFP Facility. The Company will
perform additional subcontract work for KFP through the second quarter of 1998.
Interest income increased in the 1998 period as a result of overall
higher cash balances resulting from the proceeds of the Debenture Offering.
The increase in marketing, general and administrative expenses in the
1998 period is primarily attributable to professional fees related to the
Company's due diligence in other environmental and energy technologies with
particular emphasis on the activated carbon program, and the Company's
acquisition of Pegasus in March 1998. This increase was partially offset by the
costs savings from the Company implementing a personnel reduction program in
which the total number of employees were reduced from 17 in 1997 to 12 for the
same period in 1998 (reduction of 3 executive positions and 2 administrative
positions).
10
<PAGE>
KFX INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Research and development expenses decreased in the 1998 period
primarily as a result of the consulting fees that were paid in 1997 only to the
late Edward Koppelman, the inventor of the K-Fuel process, who passed away in
October 1997.
Demonstration plant and laboratory expenses decreased in the 1998
period primarily as a result of temporary cost sharing arrangements made with
the KFP Facility which were not in place until the fourth quarter of 1997.
Equity in loss of unconsolidated affiliates decreased in the 1998
period primarily as a result of development costs for a proposed Indonesian K-
Fuel facility incurred only in 1997 by K-Fuel, LLC.
Depreciation and amortization expense increased in the 1998 period due
to the amortization of debenture offering costs which did not begin until August
1997.
Interest expense increased in the 1998 period primarily as a result of
the Debenture Offering completed in July, 1997 which has resulted in monthly
interest of $85,000 beginning in August 1997.
LIQUIDITY AND CAPITAL RESOURCES
The current near-term (to year-end 1998) funding sources available to
the Company are (1) cash on hand, which as of May 13, 1998 was approximately
$9.96 million; (2) certain technical subcontract revenues to be performed for
KFP; (3) cost reimbursements from K-Fuel, LLC, relating to a collective research
and development program conducted by the Company in conjunction with Kennecott
Alternative Fuels, Inc., the Company's joint venture partner in K-Fuel, LLC; and
(4) operating cash flows from the operations of Pegasus (although material cash
flows attributable to Pegasus are not expected to materialize before the third
or fourth quarter of 1998).
The Company expects no additional stock purchases by TCK in 1998 or
1999. Under the terms of the Stock Purchase Agreement, the next possible
investment by TCK is not until a period of time beginning in January 2000 and
expiring in July 2001. There are no assurances that TCK will make any
investments in the Company at that time. Additionally, the Stock Purchase
Agreement prohibits the Company from issuing shares of Common Stock to other
investors unless at least 90 percent of the proceeds from such stock issuances
are used to invest in K-Fuel production facilities. Furthermore, in the event
of any stock issuances by the Company, TCK's Warrant "A" may be subject to
certain adjustments that increase the number of shares available to TCK under
Warrant "A".
The Company may be required to seek additional debt and / or equity
financing as early as the second or third quarter of 1999 for general operating
purposes or for capital investments. Factors that may reduce or eliminate the
need for additional financing in 1999 are as follows: (1) license fees from
proposed K-Fuel projects in Indonesia and Turkey; (2) cash flow distributions
from the Company's 60 percent ownership of Pegasus; (3) cash flow distributions
from Charco; and (4) a sale of all or a portion of the Company's 5 percent
ownership interest in KFP.
The Company expects no material net operating revenues from its
ownership interest in KFP in the foreseeable future. Additionally, the
Company's net production royalties (after fulfilling related royalty
obligations) once the KFP Facility reaches full production is projected to be
less than $200,000 per
11
<PAGE>
KFX INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
year. The Section 29 tax credit available for the KFP production of K-Fuel at
full capacity could result in an opportunity to sell the Company's interest to
TCK or other third parties; the Company intends to try to retain its production
royalty following any such sale. The value, amount or possibility of any such
sale will not be determinable until KFP reaches its full productive capacity,
currently expected to be in the third or fourth quarter of 1998.
Should the Company be required to seek any additional debt or equity
financing, the ability of the Company to do so may be affected by an existing
agreement with TCK and by the terms of the Convertible Debentures. With respect
to TCK, the Company must obtain TCK's consent to sell any Common Stock or to
incur any indebtedness other than indebtedness that is secured only by the
assets of a particular project and is non-recourse to the Company and its
subsidiaries. With respect to the Convertible Debentures, the Company may only
incur unsecured indebtedness of up to $8.0 million (of which approximately $1.5
million was outstanding as of May 13, 1998) and indebtedness secured only by the
assets of a particular project and is non-recourse to the Company and its
subsidiaries.
There are no assurances that any of these potential funding sources
will materialize, and the Company does not currently have any commitments with
respect to any such funding sources. If such events do not materialize, the
Company may be forced to seek debt and / or equity financing on terms and
conditions that may not be favorable to the Company, if available at all.
12
<PAGE>
KFX INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 27. Financial Data Schedule
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarterly period ended
March 31, 1998.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KFX Inc.
/s/ Jeffrey A. Hansen
----------------------------
Jeffrey A. Hansen
Chief Financial Officer
Date: May 13, 1998
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,797,030
<SECURITIES> 0
<RECEIVABLES> 505,938
<ALLOWANCES> 0
<INVENTORY> 148,995
<CURRENT-ASSETS> 11,566,420
<PP&E> 11,751,007
<DEPRECIATION> (7,490,283)
<TOTAL-ASSETS> 28,661,942
<CURRENT-LIABILITIES> 2,436,712
<BONDS> 0
0
0
<COMMON> 23,926
<OTHER-SE> 7,425,304
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 399,466
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,895,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 284,058
<INCOME-PRETAX> (1,496,401)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,496,401)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
