Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

Former name, former address and former fiscal year, if changed since last report: N/A

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 x No ¨

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 x No ¨

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.

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

There were 51,487,890 and 53,650,509 shares of the registrant’s Class A and Class B common stock, respectively, outstanding on November 6, 2012.

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,” “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:

These forward-looking statements are subject to a number of important risks, uncertainties and assumptions. 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. The following factors, among others, could cause actual results to differ materially and adversely from those contained in forward-looking statements made in this Quarterly Report: our ability to commercialize successfully our cellulosic gasoline, diesel and fuel oil; our ability to effectively scale our proprietary technology platform and process design; the cost of constructing, operating and maintaining facilities necessary to produce our cellulosic gasoline, diesel and fuel oil in commercial volumes; our ability to raise additional capital in the future in order to fund our current operations and expand our business; the availability of cash to invest in the ongoing needs of our business; our ability to obtain government regulatory approvals for the registration of our products as cellulosic biofuel; the ability of our initial-scale commercial production facility, in which we are in the start-up phase, to satisfy the technical, commercial and production requirements under offtake agreements relating to the sale of cellulosic gasoline, diesel and fuel oil; market acceptance of our cellulosic gasoline, diesel and fuel oil; the ability of our initial-scale commercial production facility to produce fuel on time and at expected yields; and our ability to obtain and maintain intellectual property protection for our products and processes, as well as other risks and uncertainties described in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2011 as updated by Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012 and 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.

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.

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

KiOR, Inc., a Delaware corporation (the “Company”), is a next-generation renewable fuels company based in Pasadena, 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 consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, KiOR B.V. and KiOR Columbus, LLC. KiOR B.V., a Netherlands company, was formed on March 4, 2008 and liquidated in June 2012. 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.

The Company has developed a two-step proprietary technology platform to convert abundant and sustainable non-food biomass into cellulosic gasoline and diesel 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-cellulosic fuel technology platform. The Company is entering its commercialization phase and, in the first quarter of 2011, commenced construction of its first initial-scale commercial production facility in Columbus, Mississippi, which the Company mechanically completed in April 2012, completed commissioning in September 2012 and has entered the start-up phase. The Company expects to begin production in the fourth quarter of 2012.

The Company has incurred substantial net losses since its inception, generating cumulative operating net losses of $175.2 million and an accumulated deficit of $197.1 million as of September 30, 2012. The Company expects these losses to continue. The Company expects to incur additional costs and expenses related to the continued development and expansion of its business, including its research and development expenses, continued testing and development at its pilot and demonstration units, and engineering, design work, construction and start up of its planned commercial production facilities. The Company has not yet commercialized its cellulosic gasoline and diesel nor has it generated any revenue as of September 30, 2012. The Company expects to finance its operations for the foreseeable future with cash and cash equivalents currently on hand, potential cash contributions from product sales, and equity and debt financing from one or more public or private sources, including commercial banks, existing investors and federal, state and local governments. There can be no assurance that the Company will ever achieve or sustain profitability on a quarterly or annual basis.

The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP 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, results of operations, and changes in cash flows for the periods presented. All such adjustments represent normal recurring items, except as noted herein. These condensed consolidated financial statements are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 27, 2012. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The unaudited interim condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiary.

Inventory is valued at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of cost or net realizable market value. Inventories, which will consist of cellulosic gasoline, diesel and fuel oil, renewable crude oil, renewable cellulosic biomass (primarily pine logs and wood chips), and catalyst, are categorized as finished goods, work-in-process or raw material inventories. Inventory costs include transportation, chipping and overhead costs incurred during production.

The preparation of the condensed consolidated financial statements in conformity with GAAP 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, actual results could differ from these estimates.

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.

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:

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:

In July 2012, the Financial Accounting Standards Board (FASB) issued an update that simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. Examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses, and distribution rights. The amendments allow an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. An organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is “more likely than not” that the asset is impaired. The amendments in this update are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company does not have any indefinite-lived intangible assets subject to the new standard.

In June 2011, the FASB issued an amendment to an existing accounting standard which requires companies to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the statement of operations. The amendments are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted this standard in the first quarter of 2012 and the adoption did not have a material impact on its financial statements and disclosures.

In May 2011, the 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. The Company adopted this standard in the first quarter of 2012 and the adoption did not have a material impact on its financial statements and disclosures.

The Company’s assessment of the significance of a particular input to the fair value measurement of an asset or liability in its entirety requires management to make judgments and consider factors specific to the asset or liability. As of September 30, 2012 and December 31, 2011, the Company considered cash and cash equivalents, 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 at prevailing market rates.

Assets and liabilities recorded at fair value in the 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:

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. The Company had no financial liabilities measured at fair value at September 30, 2012 and December 31, 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 September 30, 2012 and December 31, 2011, there were no required fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis.

The following table sets forth the components of the Company’s inventory balances.

As of September 30, 2012, inventories consist of renewable cellulosic biomass, catalyst, spare parts and any transportation, chipping and overhead costs incurred.

Depreciation expense was approximately $797,000 and $550,000 for the three months ended September 30, 2012 and 2011, respectively, and approximately $2.1 million and $1.5 million for the nine months ended September 30, 2012 and 2011, respectively. Construction in progress as of September 30, 2012 and December 31, 2011 includes capitalized interest of $17.8 million and $2.6 million, respectively. For the three

months ended September 30, 2012 and 2011, we capitalized approximately $5.6 million and $728,000 of interest expense, respectively. For the nine months ended September 30, 2012 and 2011, we capitalized approximately $15.2 million and $1.7 million of interest expense, respectively. Gross construction in progress at September 30, 2012 was $236 million, offset by $32.2 million attributable to the non-interest bearing component of the Mississippi Development Authority Loan (see Note 7 — Long Term Debt ) and $550,000 for the land contributed by Lowndes County, Mississippi and Lowndes County Port Authority. Construction in progress at September 30, 2012 and December 31, 2011 primarily relates to the engineering, design, and development of the Company’s initial-scale commercial production facility in Columbus, Mississippi. Depreciation of construction in progress costs begins as soon as the facility is placed into service.

Intangible asset amortization expense was approximately $52,000 and $49,000 for the three months ended September 30, 2012 and 2011, respectively, and $149,000 and $145,000 for the nine months ended September 30, 2012 and 2011, respectively.

On January 26, 2012, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with 1538731 Alberta Ltd. as agent and lender, and 1538716 Alberta Ltd. (the “Alberta Lenders”), and KFT Trust, Vinod Khosla, Trustee (“Khosla” and, collectively with the Alberta Lenders, the “Lenders”). Pursuant to the Loan and Security Agreement, the Alberta Lenders made a term loan to the Company in the principal amount of $50 million and Khosla made a term loan to the Company in the principal amount $25 million, for a total of $75 million in principal amount (the “Loan Advance”). At closing, the Company paid the Lenders a facility charge in an amount equal to 1% of the Loan Advance. The Loan Advance bears interest from the funding date at 16.00% per annum (the “Loan Interest Rate”).

The Company agreed to pay interest on the Loan Advance in arrears on the first day of each month, beginning March 1, 2012. The Company may elect payment of paid-in-kind interest, instead of cash interest, during the first twelve months during which the Loan Advance is outstanding. If the Company elects payment of paid-in-kind interest, the interest is added to the principal balance of the loan. The Company elected payment of paid-in-kind interest for each month from March 1, 2012 through November 1, 2012. The paid-in-kind interest increased the Loan Advance balance by $7.5 million from inception of the loan to September 30, 2012.

time, subject to a prepayment premium if the Company prepays the Loan Advance prior to four years from the date of the loan. The prepayment premium is equal to 4% until the first anniversary of the date of the Loan and Security Agreement, and decreases by 1% on each subsequent anniversary.

The Company also agreed to pay the Lenders an end of term charge equal to the sum of $6,750,000 plus 9% of the aggregate amount of all interest paid-in-kind (instead of cash interest) upon the earlier to occur of the maturity of the Loan Advance, prepayment in full of the Loan Advance, or when the Loan Advance becomes due and payable upon acceleration. The Company is amortizing the end of charge term to interest expense and increasing the liability for the end of term charge over the life of the loan. The Company had amortized approximately $1.5 million as of September 30, 2012, which is included in the principal balance of the loan.

The Company’s obligations under the Loan and Security Agreement may be accelerated upon the occurrence of an event of default under the Loan and Security Agreement, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, cross-defaults, and a change of control default. In addition, the Company agreed to consummate the sale, in one or more transactions, of its equity securities with gross cash proceeds equal to at least $50 million on or before March 31, 2013, provided that the Company is not required to consummate such transactions so long as it maintains cash or liquid funds equal to at least six months of its projected cash requirements in accounts subject to the Lenders’ security interest. The Company also agreed that it will not make capital expenditures with respect to its planned first standard production facility in Mississippi in excess of $25 million unless the Company has raised at least $100 million from the sale, in one or more transactions, of its equity securities (including the proceeds of the equity transactions referred to in the preceding sentence).

The Company granted the Lenders a security interest in all or substantially all of its tangible and intangible property, including intellectual property, now owned or hereafter acquired, subject to certain exclusions. The Loan and Security Agreement also provides for indemnification of the Agent and Lenders and the Loan and Security Agreement and Warrants (as defined below) contain representations, warranties and certain covenants of the Lenders.

Pursuant to the Loan and Security Agreement, the Company issued the Lenders warrants (each an “Initial Warrant”) to purchase an aggregate of 1,161,790 shares of the Company’s Class A common stock, subject to certain anti-dilution adjustments, at an exercise price of $11.62 per share, which was the consolidated closing bid price for the Company’s Class A common stock on January 25, 2012. The Initial Warrants were issued as partial consideration for the Lenders’ entry into the Loan and Security Agreement and will expire 7 years from the date of the grant. Each Initial Warrant may be exercised by payment of the exercise price in cash or on a net issuance basis.

In addition, the Company may be obligated to issue each Lender one or more additional warrants to purchase shares of its Class A common stock if the Company elects payment of paid-in-kind interest on the outstanding principal balance of the Loan Advance for any month (the “PIK Warrants”). Except as described below, the number of shares of the Company’s Class A common stock underlying the PIK Warrants (assuming no net issuance) is an amount equal to 18% of the amount of interest paid-in-kind divided by the average closing price of the Company’s Class A common stock over the 5 consecutive trading days ending on, but excluding, the day such interest was due (the “Average Market Price”). The per share price of the PIK Warrants will be such Average Market Price. Notwithstanding the foregoing, if the Average Market Price is less than $11.62 per share of the Company’s Class A common stock, subject to adjustment for stock splits, combinations and the like (the “Warrant Floor Price”), on the date the interest in kind on the outstanding principal balance of the Loan Advance is due and payable for such month, then (x) the initial per share exercise price for such PIK Warrant issued to such Lender shall be equal to the Warrant Floor Price and (y) the number of shares of Class A common stock underlying such PIK Warrant (assuming no net issuance) issued to such Lender shall be increased to a number of shares of Class A Common Stock (determined pursuant to the mutual agreement of the Company and such Lender) that would cause the fair market value of such PIK Warrant to be no less than the fair market value of the PIK Warrant that would have been issued had the Company issued such warrants with an exercise price equal to the Average Market Price. The PIK Warrants will be issued as partial consideration for the Lenders’ entry into the Loan and Security Agreement and will expire 7 years from the 18 month anniversary of the closing date of the Loan and Security Agreement. The number of shares for which each PIK Warrant is exercisable and the associated exercise price is subject to certain anti-dilution adjustments. Each PIK Warrant may be exercised by payment of the exercise price in cash or on a net issuance basis. The Initial Warrants and any PIK Warrants obligate the Company to file a registration statement on Form S-3 covering the resale of such warrants and the shares of its Class A common stock issuable upon exercise of such warrants as soon as reasonably practicable after the Company becomes eligible to use the Form S-3. The Company is currently discussing with the warrant holders the timing of such a registration statement. The Company elected payment of paid-in-kind interest at the first of each month from March 2012 through September 2012, which required the Company to issue warrants to purchase an aggregate of 157,092 shares of the Company’s Class A common stock at exercise prices ranging from $11.62 to $13.15 per share to the Lenders. Subsequent to September 30, 2012, the Company elected paid-in-kind interest on the first day of each month from October 2012 through November 2012, which required the Company to issue warrants to purchase an aggregate of 62,713 shares of the Company’s Class A common stock at an exercise price of $11.62 per share to the Lenders.

In March 2011, KiOR Columbus entered into a loan agreement with the Mississippi Development Authority, (the “MDA”) pursuant to which the MDA agreed to make disbursements to KiOR Columbus from time to time, in a principal amount not to exceed $75 million in the aggregate, 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 cellulosic gasoline and diesel from Mississippi-grown biomass. Principal payments on the loan are due semiannually on June 30 and December 31 of each year, commencing on December 31, 2012. On each such payment date, the Company is required to pay an amount equal to 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, whichever is sooner. 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 MDA loan agreement contains no financial covenants, and events of default include a failure by KiOR Columbus or the Company 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 in Mississippi 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.

In 2011, the Company received all $75.0 million under the MDA loan to reimburse the Company for expenses incurred on the construction of its initial-scale commercial production facility located in Columbus, Mississippi.

The non-interest bearing component of the MDA loan was intended to incentivize the Company to design, construct and operate its initial-scale commercial production facility in Mississippi. The Company imputed interest on the MDA 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 $75.0 million in loan proceeds received, the Company estimated approximately $32.2 million was attributable to the non-interesting bearing component of the loan. Consequently, the Company recorded a discount on the MDA loan of $32.2 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 is recognized as interest expense, subject to interest capitalization during the construction phase, using the effective interest method. As of September 30, 2012, $2.7 million of the loan discount had been recognized as interest expense and subsequently capitalized.

Equipment Loan #1 — On December 30, 2008, the Company entered into an equipment loan agreement with Lighthouse Capital Partners VI, L.P. The loan agreement provides for advances at $100,000 minimum increments of 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. The loans were originally to 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.

In 2011, the Company amended Equipment Loan #1 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, which ended on February 29, 2012, included prepayment penalties and extended the maturities of the loans to January 2014. All other terms were unchanged. Interest during the principal deferral period was paid at 2.5% over the original stated interest rate and reverted to the original interest rate of 7.5% on March 1, 2012.

The Company agreed to pay the lender an end of term charge of $415,000, which consists of 7.5% of the original advances of $5.0 million, or $375,000, plus a $40,000 amendment fee the Company agreed to pay the lender on the maturity date. The Company is amortizing the end of term charge and amendment fee over the life of the loan and includes such amounts in interest expense on the Condensed Consolidated Statements of Operations. The Company had amortized approximately $391,000 as of September 30, 2012, which is included in the principal balance of the loan. As of September 30, 2012, borrowings of approximately $2.1 million on Equipment Loan #1 were outstanding.

Equipment Loan #2 — On March 25, 2010, the Company entered into an 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 maturity date of the loan is May 2013. The loan is collateralized by the equipment purchased with the advances at a cost of approximately $1.3 million. As of September 30, 2012, borrowings of approximately $236,000 were outstanding.

On January 27, 2010, the Company entered into a business loan agreement with Lighthouse Capital Partners VI, L.P. and Leader Lending, LLC for an amount of up to $7.0 million. During 2010, the Company borrowed the full $7.0 million under the loan agreement. A portion of the Loan Advance from the Alberta Lenders/Khosla Term Loan was used to repay the Business Loan in January 2012. The principal balance outstanding as of December 31, 2011 that was repaid in January 2012 consisted of $5.9 million of loan advances and $0.5 million of accrued end of term charge, collectively, representing the $6.4 million cash outflow from financing activity. In addition to the end of term charge the Company had accrued as of December 31, 2011, the portion of the end of term charge that the Company had not accrued for that the Company paid in January 2012 was $0.2 million and the prepayment premium for paying the loan prior to its maturity was $0.1 million, totaling $0.3 million. The Company paid approximately $6.7 million to terminate the loan.

For the three months ended September 30, 2012 and 2011, interest expense incurred was $0. For the nine months ended September 30, 2012 and 2011, interest expense was $274,000 and $0, respectively. Accrued interest payable at September 30, 2012 was $1.1 million.

The effective tax rate for the three and nine months ended September 30, 2012 and 2011 was 0%.

At September 30, 2012, the Company had a federal income tax net operating loss carryforward balance of $36.7 million. If unused, the net operating loss carryforwards begin expiring in 2028. The Company has a full valuation allowance for its net deferred tax assets because the Company has incurred losses since inception. 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 estimated gross suspended net operating loss for the net windfall incurred as a result of the difference between the book and tax deductions for restricted stock remains at approximately $11.7 million.

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.

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.

Under the MDA loan agreement, KiOR Columbus or 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, which was $75 million as of September 30, 2012. See Note 7 – Long-Term Debt for a description of the loan.

In January 2012, the Company entered into a Loan and Security Agreement with the Alberta Lenders and Khosla, in which the Alberta Lenders have made a term loan to the Company in the principal amount of $50 million and Khosla has made a term loan to the Company in the principal amount $25 million, for a total of $75 million in principal amount. See Note 7 – Long-Term Debt for a description of the loan. Both the Alberta Lenders and Khosla are beneficial owners of more than 5% of our existing 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 are entitled to receive dividends on an equal basis with the holders of Class B common stock. In no event may 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 Class B common stock is 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 is 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 will automatically, without any further action, convert into one fully paid and nonassessable share of Class A common stock upon a transfer of such share, subject to certain exceptions.

In connection with Equipment Loan #2, 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 ten years. Upon the close of the Company’s initial public offering on June 29, 2011, warrants to purchase 16,998 shares of Series B convertible preferred stock automatically converted into warrants to purchase an equivalent number of Class A common stock. Warrants issued in connection with Equipment Loan #2 were still outstanding as of September 30, 2012.

In connection with the amendment to Equipment Loan #1 and the Company’s Business Loan in February 2011 and April 2011, the Company agreed to issue warrants to purchase $300,000 of securities issued in a next-round equity financing, which resulted in the Company issuing warrants to purchase 61,200 shares of Series C convertible Preferred Stock at an exercise price of $4.902 per share. Upon the close of the initial public offering on June 29, 2011, 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 stock using a conversion price of 80% of the price per share in the Company’s initial public offering. Warrants issued in connection with amendments to Equipment Loan #1 and the Company’s Business Loan were still outstanding as of September 30, 2012.

Pursuant to the Loan and Security Agreement with the Alberta Lenders and Khosla, at closing the Company issued the Lenders warrants to purchase an aggregate of 1,161,790 shares of the Company’s Class A common stock at an exercise price of $11.62 per share. The fair value of the Initial Warrants was $8.51 per share and was valued on the issuance date using the following assumptions: a risk-free interest rate of 1.30%, expected volatility of 81.50%, no expected dividend yield and a term of seven years. In addition, the Company elected payment of paid-in-kind interest on the first day of each month from March 2012 through September 2012. The table below shows warrants issued and assumptions used to value the warrants:

The warrants may be exercised by payment of the exercise price in cash or on a net issuance basis. All warrants issued pursuant to the Loan and Security Agreement were outstanding as of November 1, 2012.

During the nine month period ended September 30, 2012, warrants to purchase 213,860 shares were exercised for 147,863 shares, net, of Class A common stock and warrants to purchase 411,312 shares were exercised for 392,155 shares, net, of Class B common stock.

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 an individual employee’s contributions and 50% of the next 2% of such individual employee’s contributions. New employees can immediately join the plan and participants immediately vest in employer matching contributions. Employer matching contributions under the plan totaled $178,000 and $119,400 for the three months ended September 30, 2012 and 2011, respectively, and $486,000 and $314,200 for the nine months ended September 30, 2012 and 2011, respectively.

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):

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

Options to purchase approximately 6.5 million shares of Class A common stock and options to purchase approximately 4.6 million shares of Class B common stock were outstanding as of September 30, 2012. Options to purchase approximately 7.3 million shares of Class A common stock and options to purchase approximately 6.3 million shares of Class B common stock were outstanding as of December 31, 2011.

There were no options granted during the three months ended September 30, 2012 and 2011 and the nine months ended September 30, 2012 under the 2007 Plan. The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2011 was $7.13. The total intrinsic value of options exercised during the three months ended September 30, 2012 and 2011 was $2.1 million and $26,000, respectively, and $17.3 million and $2.8 million for the nine months ended September 30, 2012 and 2011, respectively. There remains $13 million in unrecognized stock-based compensation cost that is expected to be recognized over a weighted-average period of 2.6 years.

The weighted average assumptions used to value stock option grants under the 2007 Plan for the three and nine months ended September 30, 2011 are as follows:

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.

As of September 30, 2012, there was $10.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2007 Plan. That cost is expected to be recognized over a weighted-average period of 3.4 years.

Following the effectiveness of the Company’s 2011 Long-Term Incentive Plan (the “2011 Plan”) described below, no further awards were made under the 2007 Plan.

The weighted average assumptions used to value stock option grants under the 2011 Plan for the nine months ended September 30, 2012 and September 30, 2011 are as follows:

There is a remaining $1.9 million in unrecognized stock-based compensation cost that is expected to be recognized over a weighted-average period of 3.9 years.

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 the Company’s 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.

As of September 30, 2012, there was $11.5 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2011 Plan. That cost is expected to be recognized over a weighted-average period of 2.8 years.

In March 2012, the Compensation Committee of the Board of Directors approved the Company’s performance metrics for the 2012 Company Annual Incentive Plan (the “2012 Incentive Plan”). The purpose of the 2012 Incentive Plan is to incentivize performance during 2012 to achieve the short-term and strategic goals of the Company and to align officers and key employees with the stockholders interest. Officers and key employees will participate in the 2012 Incentive Plan. Awards under the 2012 Incentive Plan are denominated in shares of Class A common stock under our 2011 Plan. If pre-determined performance goals are met, fully vested shares of Class A common stock will be granted to the officers and employees around March 2013, so long as the officer or employee is still an employee at that date. Participants in the 2012 Incentive Plan have the ability to receive up to 200% of the target number of shares originally granted.

For the nine months ended September 30, 2012, the Company granted target awards for an aggregate of 612,500 shares of Class A common stock and a maximum of 1,225,000 shares of Class A common stock may be earned under the 2012 Incentive Plan. For the nine months ended September 30, 2012, the Company recorded approximately $2.1 million in stock compensation expense related to the performance awards under the 2012 Plan, and the Company expects to expense approximately $2.2 million ratably through March 2013.

In June 2012, the Company’s Board of Directors adopted, and the Company’s stockholders subsequently approved, the Company’s 2012 Employee Stock Purchase Plan (the “2012 Plan”), which commenced on July 1, 2012. The 2012 Plan provides for a maximum of approximately 3.5 million shares of Class A common stock to be granted to eligible employees of the Company and any of its subsidiaries. Under the 2012 Plan, the Company allows eligible employees to semi-annually purchase, through payroll deductions, shares of Class A common stock at a discount up to 15% less than the fair market value at specified dates. Contributions to the 2012 Plan are limited to 10% of the employee’s pay during each of the two six-month offering periods each year and employees may not purchase more than $25,000 in shares each calendar year.

The awards to be granted for the purchase period beginning July 1, 2012 under the 2012 Plan was valued using the following assumptions: a risk-free interest rate of 0.15%, expected volatility of 77%, expected dividend yield of 0%, and an expected term of 0.5 years.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are a next-generation renewable fuels company, producing cellulosic gasoline and diesel from abundant non-food biomass. While other renewable fuels are derived from soft starches, such as corn starch or cane sugar, for ethanol, or from soy and other vegetable oils for biodiesel, cellulosic fuel is derived from lignocellulose found in wood, grasses and the non-edible portions of plants. We have developed a two-step proprietary technology to convert non-food lignocellulose into cellulosic gasoline and diesel that can be transported using the existing fuels distribution system for use in vehicles on the road today. Our cellulosic gasoline and diesel 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-cellulosic 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.

To demonstrate the scalability of our BFCC process from pilot scale, we have constructed a demonstration scale unit that represents a 400-times capacity increase over our pilot unit. From an initial overall process yield of biomass-to-cellulosic fuel of approximately 17 gallons per bone dry ton of biomass, or BDT, we now expect that our technology, when implemented at our first planned standard commercial production facility, would achieve an overall process yield of 72 gallons of cellulosic gasoline, diesel and fuel oil per BDT. Our research and development efforts are focused on increasing this yield to approximately 92 gallons per BDT.

Until recently, we have focused our efforts on research and development and the construction of our initial-scale commercial production facility, which we mechanically completed in April 2012, finished commissioning in September 2012 and have commenced the start-up phase, but we have yet to produce cellulosic gasoline or diesel or generate revenue. As a result, we had generated $175.2 million of operating losses and an accumulated deficit of $197.1 million from our inception through September 30, 2012. We expect to continue to incur operating losses through at least 2014 as we continue into the commercialization stage of our business.

Our biomass-to-cellulosic 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 BFCC process allows us to introduce solid biomass into a modified FCC system where it contacts our catalyst. The result is a hydrocarbon-based oil that can be upgraded through standard hydrotreating equipment into our cellulosic gasoline and diesel, which are virtually indistinguishable from their traditional petroleum-based counterparts.

We have not generated any revenue as of September 30, 2012. However, we expect to generate revenue in the fourth quarter of 2012 from sales of our cellulosic gasoline and diesel from our initial-scale commercial production facility, which we mechanically completed in April 2012 and finished commissioning in September 2012. The facility is now in the start-up phase. Start-up consist of operating the facility in the manner for which it was designed and identifying and addressing issues that cannot be identified during commissioning. We expect to experience many facility start ups and shut downs during this phase as we strive ultimately to achieve steady-state operations. We also expect to generate revenue from the sale of renewable identification numbers, or RINs, that we will retain if we sell our cellulosic gasoline and diesel to customers who are not obligated parties under the Renewable Fuel Standard program, or RFS2. Under RFS2, various varieties of renewable biofuels are assigned RINs for accounting, which are denominated in gallons of ethanol equivalent, or GEEs, based on their energy content. We expect that our cellulosic gasoline and diesel will have a GEE value of between 1.5 to 1.7. In July and August 2012, we received EPA approval for the registration of our cellulosic gasoline and diesel, respectively.

Our largest expenditures are the capital costs associated with the construction of our commercial production facilities and planned facility turnarounds. These costs are comprised of land acquisition, site preparation, engineering, utilities, permitting, facility construction, 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.

As of September 30, 2012, 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 fourth quarter of 2012.

Research and development expenses consist primarily of expenses for personnel focused on increasing the scale of our operations and the yield of our cellulosic gasoline and diesel. 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 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 experienced a significant increase in certain general and administrative expenses, such as additional compliance costs to operate as a public company. We expect to continue to incur these costs to comply with the corporate governance, internal control and similar requirements applicable to public companies, as well as increased costs for insurance and payment to outside consultants, attorneys and accountants. 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 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 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.

We incur interest expense in connection with our outstanding equipment loans, our loan with the Mississippi Development Authority and our term loan with Khosla and the Alberta Lenders (as such terms are defined below). We capitalize interest on long-term construction projects relating to operating assets with a total expected expenditure generally in excess of $10.0 million. To the extent our planned commercial production facilities are funded with debt, we anticipate capitalizing most of the interest costs that we incur.

Our outstanding warrants to purchase shares of our convertible preferred stock were 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 were 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 shares of our common stock; we reclassified the fair value to additional paid-in capital.

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.

Start-up activities are defined as those one-time activities related to opening a new facility, introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer or beneficiary, initiating a new process in an existing facility, commencing some new operation or activities related to organizing a new entity. All the costs associated with a potential site are expensed and recorded within the general and administrative expenses until the site is considered viable by management, at which time costs would be considered for manufacturing costs based on authoritative accounting literature.

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 accounting policies are the most critical to a full understanding and evaluation of our reported financial results and reflect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements.

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 initial-scale commercial production facility, demonstration unit, and pilot unit. The demonstration and pilot 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 September 30, 2012.

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.

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 the 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.

Inventory is valued at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of cost or net realizable market value. Inventories, which consist of cellulosic gasoline, diesel and fuel oil, renewable crude oil, renewable cellulosic biomass (primarily pine logs and wood chips), and catalyst, are categorized as finished goods, work-in-process or raw material inventories. Inventory costs include transportation, chipping and overhead costs incurred during production. Inventory also includes stores, supplies, and other spare parts.

Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Research and Development Expenses. Our research and development expenses increased by $390,000, or 5%, for the three months ended September 30, 2012 compared to the same period in 2011. This increase is primarily related to operating costs and maintenance associated with our research and development facilities, which increased by approximately $762,000. In late 2011, we expanded and commissioned a hydrotreater in our demonstration unit, providing a fully integrated manufacturing process from wood yard to the tanks and it is now operating at capacity. Also, in late 2011, we added a new analytical lab that is now fully operational. The increase in research and development expenses was also the result of a $686,000 increase in payroll and related expenses. We increased our research and development staff to approximately 112 employees during the three months ended September 30, 2012 compared to approximately 92 employees during the three months ended September 30, 2011. Payroll and related expenses for the three months ended September 30, 2012 included stock-based compensation of $641,000 compared to $247,000 for the three months ended September 30, 2011. The increase in research and development expenses was partially offset by a $915,000 decrease in laboratory testing expenses due to the expansion of our pilot and demonstration units and reduced utilization of third-party facilities for the hydrotreating and fractionating processes. Once we expanded our pilot and demonstration units, we no longer utilized third-party facilities for the hydrotreating and fractionating processes, which reduced our laboratory testing expenses. The remaining decrease of $143,000 is primarily due to adjustments to property taxes and electricity recorded during the three months ended September 30, 2011 that did not recur during the three months ended September 30, 2012.

General and Administrative Expenses. Our general and administrative expenses increased by $11.5 million, or 195%, for the three months ended September 30, 2012 compared to the same period in 2011. This increase was primarily the result of $10.2 million of start-up costs, an increase of $9.5 million compared to the same period in 2011, incurred at our initial-scale commercial production facility in Columbus, Mississippi that we mechanically completed in April 2012 and completed commissioning in September 2012. The facility is now in the start-up phase. Commissioning is the process to verify that our plant facility is fully functional and fit to purpose. The increase in general and administrative expenses is also due to an increase of $1.5 million in payroll and related expenses, excluding payroll and related expenses for our Columbus employees that are included in start-up costs. Payroll and related expenses included stock-based compensation of $2.8 million compared to $1.2 million for the three months ended September 30, 2012 and 2011, respectively.

Depreciation and Amortization Expense. Our depreciation and amortization expense increased by $251,000, or 42%, for the three months ended September 30, 2012 compared to the same period in 2011. The increase in depreciation expense is the result of additions to fixed assets, consisting primarily of expansions to our demonstration unit and pilot plant, the addition of a new analytical lab and new laboratory equipment, implementation of our enterprise resource planning system, and leasehold improvements at our Pasadena, Texas facility.

Interest Income. Interest income increased by $2,000 for the three months ended September 30, 2012 as compared to the same period in 2011. The increase is due to better performance of our investment of the proceeds from our initial public offering and Loan and Security Agreement with 1538731 Alberta Ltd. as agent and lender, and 1538716 Alberta Ltd., or the Alberta Lenders, and KFT Trust, Vinod Khosla, Trustee, which we refer to as Khosla and collectively with the Alberta Lenders, we refer to as the Lenders in money market accounts during the three months ended September 30, 2012 compared to the same period in 2011.

Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Research and Development Expenses. Our research and development expenses increased by $1.8 million, or 8%, for the nine months ended September 30, 2012 compared to the same period in 2011. This increase is related to operating costs and maintenance associated with our research and development facilities, which increased by approximately $2.4 million. As discussed above, we expanded and commissioned a hydrotreater in our demonstration unit and added a new analytical lab that is now fully operational. The increase in research and development expenses was also the result of a $2.2 million increase in payroll and related expenses due to the increase in our research and development staff referenced above in our discussion of the three months ended September 30, 2012 compared to the same period in 2011. Payroll and related expenses for the nine months ended September 30, 2012 included stock-based compensation of $1.4 million compared to $0.4 million for the nine months ended September 30, 2011. The increase in research and development expenses was partially offset by a $2.1 million decrease in laboratory fees and a $0.4 million decrease in consultant fees due to the expansion of our pilot and demonstration units and reduced utilization of third-party facilities for the hydrotreating and fractionating processes.

General and Administrative Expenses. Our general and administrative expenses increased by $21.9 million, or 127%, for the nine months ended September 30, 2012 compared to the same period in 2011. This increase was primarily the result of $18.0 million of start-up costs, an increase of $17.0 million compared to the same period in 2011, incurred at our initial-scale commercial production facility in Columbus, Mississippi. The increase in general and administrative expenses is also due to an increase of $4.4 million in payroll and related expenses, excluding our payroll and related expenses for our Columbus employees that are included in start-up costs. Payroll and related expenses included stock-based compensation of $7.7 million compared to $4.2 million for the nine months ended September 30, 2012 and 2011, respectively. The remaining increase in payroll and related expenses is due to an increase in our headcount. The remaining increase in general and administrative expenses primarily relates to costs incurred operating as a public company for the entire period in 2012.

Depreciation and Amortization Expense. Our depreciation and amortization expense increased by $545,000, or 32%, for the nine months ended September 30, 2012 compared to the same period in 2011. The increase in depreciation and amortization expense is due to the additions to fixed assets included in the items referenced above in our discussion of the three months ended September 30, 2012 compared to the same period in 2011.

Interest Income. Interest income increased by $11,000 for the nine months ended September 30, 2012 as compared to the same period in 2011. The increase is primarily due to nine months of our investment of the proceeds from our initial public offering and Loan and Security Agreement with the Lenders in money market accounts during the nine months ended September 30, 2012 compared to approximately three months during the same period in 2011.

Interest Expense, Net of Amounts Capitalized. Interest expense increased by approximately $274,000 for the nine months ended September 30, 2012 as compared to 2011 as we were unable to capitalize all of our interest during the nine months ended September 30, 2012 due to additional interest expense recorded for the termination of our Business Loan (as defined below).

Loss from Change in Fair Value of Warrant Liability. The loss from change in fair value of warrant liability expense decreased by $6.9 million, or 100%, for the nine months ended September 30, 2012 as compared to 2011. The change is related to the change in fair value of

our convertible preferred stock warrants, which were recorded as derivatives and reflected on our consolidated balance sheets as a current liability prior to the warrants converting into warrants to purchase common stock upon conversion of our convertible preferred stock at the close of our initial public offering. 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, reducing our convertible preferred stock warrant liability to zero.

Since inception, we have generated significant losses and as of September 30, 2012, have not yet generated any revenue. As of September 30, 2012, we had an accumulated deficit of approximately $197.1 million and we expect to continue to incur operating losses through at least 2014 as we prepare for the commercialization stage of our business. Commercialization of our technology will require significant capital and other expenditures, including costs related to construction of our first standard commercial production facility, which will require us to raise significant amounts of additional capital.

We will need to raise capital in addition to our $74.3 million of cash and cash equivalents as of September 30, 2012 to enable us to meet our liquidity needs for the next 12 months from September 30, 2012. Based on our current plan, we anticipate that our material liquidity needs over this period will consist of the following:

Our subsidiary KiOR Columbus LLC, or KiOR Columbus, has a loan with the MDA (as defined below), which we guarantee in full and which is described in further detail below under “Mississippi Development Authority Loan.” On December 31, 2012, we must begin making payments on our MDA loan of approximately $1.9 million semi-annually on December 31 and June 30 of each year until maturity.

Our Loan and Security Agreement with the Alberta Lenders and Khosla (as such terms are defined below) requires us to begin repayment of principal amounts on August 1, 2013 but currently requires us to pay interest on the Loan Advance (as defined below). On or before February 1, 2013, the terms of this loan permit us to make interest payments as payments-in-kind, which involves adding interest then due to the unpaid principal amount of the Loan Advance. We have elected payment of payment-in-kind interest each month from March 1 to November 1, 2012 and expect to continue electing payment-in-kind interest until February 1, 2013. From March 1 to July 1, 2013, we expect that our payments of accrued interest in cash on the Loan Advance will be approximately $1.2 million per month. Beginning August 1, 2013 we expect that our payments of principal and accrued interest in cash on the Loan Advance will be approximately $3.5 million per month. The Loan and Security Agreement is described in further detail below under “Alberta Lenders/Khosla Term Loan.”

The total cost of our planned first standard commercial production facility is estimated at $460 million, comprised of $350 million for the conversion plant and $110 million for a centralized hydrotreating plant being designed with capacity for our planned first standard commercial production facility and a second, similarly sized facility. Subject to our ability to raise additional capital, we expect to begin construction of this facility in the first half of 2013. In the near term, our plan is to continue value engineering for this project and to explore sourcing options for long-lead time procurement components. The terms of our Loan and Security Agreement for our January 2012 term loan provide that we may not make capital expenditures on our first standard commercial production facility in excess of $25 million until we have raised at least $100 million from sales of our equity securities in one or more transactions. We expect any financing for our planned first standard production facility will be contingent upon, among other things, successful start-up of our Columbus facility, entering into satisfactory feedstock supply and offtake agreements for the facility, receipt of necessary governmental and regulatory approvals and permits, any required equity financing, there being no material adverse effect on us or our industry (including relevant commodity markets) and general market conditions. Longer term, we also anticipate material liquidity needs for the construction of additional commercial production facilities.

Under the terms of our Loan and Security Agreement, we agreed to consummate the sale, in one or more transactions, of our equity securities with gross cash proceeds equal to at least $50 million on or before March 31, 2013, provided that we are not required to consummate such transactions so long as we maintain cash or liquid funds equal to at least six months of our projected cash requirements in accounts subject to the lenders’ security interest. As of September 30, 2012, we have not produced or generated any revenue or cash flow from sales of our cellulosic gasoline and diesel. Even if and when we begin to produce cellulosic gasoline and diesel, our offtake agreements are subject to the satisfaction of various conditions, some of which are in the control of the counterparties, before the counterparties are obligated to make payments to us thereunder.

We plan to raise capital in one or more external equity and/or debt financings over the next six months but have no committed sources of financing. If we are unable to obtain additional financing timely or at all, we would have to delay, scale back or eliminate our construction plans for our first standard production facility and other future facilities, which would harm our business and prospects.

Even if we do not proceed with our first standard commercial production facility, we will need to obtain external financing to meet our cash requirements, including overhead and other operating costs, debt service obligations and principal payments on our loans over the next 12 months from September 30, 2012. Our ability to obtain additional external debt financing will be limited by the amount and terms of our existing borrowing arrangements and the fact that all of our assets have been pledged as collateral for these existing arrangements. Our failure to obtain additional external financing to fund our cash requirements would require us to delay or scale back our business plan, including our research and development programs, require us to reduce our overhead and other operating costs and cause noncompliance with our existing debt covenants which would have a material adverse effect on our business, prospects and financial condition.

On January 26, 2012, we entered into a Loan and Security Agreement, which we refer to as the Loan and Security Agreement, with the Alberta Lenders and Khosla. Pursuant to the Loan and Security Agreement, the Alberta Lenders have made a term loan to us in the principal amount of $50 million and Khosla has made a term loan to us in the principal amount of $25 million, for a total of $75 million in principal amount, constituting the Loan Advance. At closing, we paid the Lenders a facility charge in an amount equal to 1% of the Loan Advance. The Loan Advance bears interest from the funding date at 16.00% per annum, which we refer to as the Loan Interest Rate.

We agreed to pay interest on the Loan Advance in arrears on the first day of each month, beginning March 1, 2012. We may elect payment of paid-in-kind interest, instead of cash interest, during the first twelve months during which the Loan Advance is outstanding. For paid-in-kind interest, the interest is added to the principal balance of the loan. We elected payment of paid-in-kind interest each month from March 1, 2012 through November 1, 2012. The paid-in-kind interest increased the Loan Advance balance by $7.5 million from inception of the loan to September 30, 2012.

The Loan Advance is payable in 30 equal monthly installments of principal and interest starting on August 1, 2013 and continuing on the first day of each month thereafter until the entire Loan Advance has been paid in full. The stated maturity date of the Loan Advance is February 1, 2016. At our option, we may prepay the Loan Advance, in whole or in part (including all accrued and unpaid interest) at any time, subject to a prepayment premium if we prepay the Loan Advance prior to four years from the date of the loan. The prepayment premium is equal to 4% until the first anniversary of the date of the Loan and Security Agreement, and decreases by 1% on each subsequent anniversary.

We also agreed to pay the Lenders an end of term charge equal to the sum of $6,750,000 plus 9% of the aggregate amount of all interest paid-in-kind (instead of cash interest) upon the earlier to occur of the maturity of the Loan Advance, prepayment in full of the Loan Advance, or when the Loan Advance becomes due and payable upon acceleration. We are amortizing the end of charge term to interest expense and increasing the liability for the end of term charge over the life of the loan. We amortized approximately $1.5 million as of September 30, 2012, which is included in the principal balance of the loan.

Our obligations under the Loan and Security Agreement may be accelerated upon the occurrence of an event of default under the Loan and Security Agreement, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, cross-defaults, and a change of control default. In addition, we agreed to consummate the sale, in one or more transactions, of our equity securities with gross cash proceeds equal to at least $50 million on or before March 31, 2013, provided that we are not required to consummate such transactions so long as we maintain cash or liquid funds equal to at least six months of our projected cash

requirements in accounts subject to the Lenders’ security interest. We also agreed that we will not make capital expenditures with respect to our planned first standard production facility in Mississippi in excess of $25 million unless we have raised at least $100 million from the sale, in one or more transactions, of our equity securities (including the proceeds of the equity transactions referred to in the preceding sentence).

We granted the Lenders a security interest in all or substantially all of our tangible and intangible property, including intellectual property, now owned or hereafter acquired, subject to certain exclusions. The Loan and Security Agreement also provides for indemnification of the Agent and Lenders and the Loan and Security Agreement and Warrants (as defined below) contain representations, warranties and certain covenants of the Lenders.

Pursuant to the Loan and Security Agreement, we issued the Lenders warrants, each of which we refer to as an Initial Warrant, to purchase an aggregate of 1,161,790 shares of our Class A common stock, subject to certain anti-dilution adjustments, at an exercise price of $11.62 per share, which was the consolidated closing bid price for our Class A common stock on January 25, 2012. The Initial Warrants were issued as partial consideration for the Lenders’ entry into the Loan and Security Agreement and will expire seven years from the date of the grant. Each Initial Warrant may be exercised by payment of the exercise price in cash or on a net issuance basis.

In addition, we may be obligated to issue each Lender one or more additional warrants to purchase shares of our Class A common stock if we elect payment of paid-in-kind interest on the outstanding principal balance of the Loan Advance for any month, which we refer to as the PIK Warrants. Except as described below, the number of shares of our Class A common stock underlying the PIK Warrants (assuming no net issuance) is an amount equal to 18% of the amount of interest paid-in-kind divided by the average closing price of our Class A common stock over the 5 consecutive trading days ending on, but excluding, the day such interest was due, which we refer to as the Average Market Price. The per share price of the PIK Warrants will be such Average Market Price. Notwithstanding the foregoing, the Average Market Price is less than $11.62 per share of our Class A common stock (subject to adjustment for stock splits, combinations and the like), which we refer to as the Warrant Floor Price, on the date the interest in kind on the outstanding principal balance of the Loan Advance is due and payable for such month, then (x) the initial per share exercise price for such PIK Warrant issued to such Lender shall be equal to the Warrant Floor Price and (y) the number of shares of Class A common stock underlying such PIK Warrant (assuming no net issuance) issued to such Lender shall be increased to a number of shares of Class A Common Stock (determined pursuant to the mutual agreement of us and such Lender) that would cause the fair market value of such PIK Warrant to be no less than the fair market value of the PIK Warrant that would have been issued had we issued such warrants with an exercise price equal to the Average Market Price. The PIK Warrants will be issued as partial consideration for the Lenders’ entry into the Loan and Security Agreement and will expire 7 years from the 18 month anniversary of the closing date of the Loan and Security Agreement. The number of shares for which each PIK Warrant is exercisable and the associated exercise price is subject to certain anti-dilution adjustments. Each PIK Warrant may be exercised by payment of the exercise price in cash or on a net issuance basis. The Initial Warrants and any PIK Warrants obligate us to file a registration statement on Form S-3 covering the resale of such warrants and the shares of our Class A common stock issuable upon exercise of such warrants as soon as reasonably practicable after we become eligible to use the Form S-3. We are currently discussing with the warrant holders the timing of such a registration statement. We elected payment of paid-in-kind interest at the first of each month from March 2012 through September 2012, which required us to issue warrants to purchase an aggregate of 157,092 shares of our Class A common stock at exercise prices ranging from $11.62 to $13.15 per share to the Lenders. Subsequent to September 30, 2012, we elected paid-in-kind interest on the first day of each month from October 2012 through November 2012, which required us to issue warrants to purchase an aggregate of 62,713 shares of our Class A common stock at an exercise price of $11.62 per share to the lenders.

In March 2011, KiOR Columbus entered into a loan agreement with the Mississippi Development Authority, or MDA, pursuant to which the MDA agreed to make disbursements to KiOR Columbus from time to time, in a principal amount not to exceed $75 million in the aggregate, to reimburse costs incurred by KiOR Columbus to purchase land, construct buildings and to purchase and install equipment for use in the manufacturing of our cellulosic gasoline and diesel from Mississippi-grown biomass. Principal payments on the loan are due semiannually on June 30 and December 31 of each year, commencing on December 31, 2012. On each such payment date, we are required to pay an amount equal to 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, whichever is sooner. In addition, we are 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 our 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 or the Company 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 in Mississippi 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.

In 2011, we received all $75.0 million under the MDA loan to reimburse us for expenses incurred on the construction of our initial-scale commercial production facility located in Columbus, Mississippi.

The non-interest bearing component of the MDA loan was intended to incentivize us to design, construct and operate our initial-scale commercial production facility in Mississippi. We 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 $75.0 million in loan proceeds received, we estimated approximately $32.2 million was attributable to the non-interest bearing component of the loan. Consequently, we recorded a discount on the

Mississippi Development Authority Loan of $32.2 million and a reduction of the capitalized cost of the related assets for which we were reimbursed in the same amount. The loan discount is recognized as interest expense, subject to interest capitalization during the construction phase, using the effective interest method. As of September 30, 2012, $2.7 million of the loan discount had been recognized as interest expense and subsequently capitalized.

Equipment Loan #1 — On December 30, 2008, we entered into an 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, we are required to make a payment equal to 7.5% of the total principal on the loan. The loans were originally to mature at dates from March 2012 to October 2012. During 2009, we borrowed all $5.0 million available under the loan. The loan tranches are collateralized by certain of our production pilot unit, lab equipment and office equipment valued at approximately $5.0 million.

In 2011, we amended Equipment Loan #1 to waive certain covenant restrictions to allow us to enter into the Mississippi Development Authority loan described above. In addition, the amendments provided for a deferral of principal payment for one year, which ended on February 29, 2012, included prepayment penalties and extended the maturities of the loans to January 2014. All other terms were unchanged. Interest during the principal deferral period was paid at 2.5% over the original stated interest rate and reverted to the original interest rate of 7.5% on March 1, 2012.

We agreed to pay the lender an end of term charge of $415,000, which consists of 7.5% of the original advances of $5.0 million, or $375,000, plus a $40,000 amendment fee we agreed to pay the lender on maturity date. We are amortizing the end of term charge and amendment fee over the life of the loan and included in interest expense on the Consolidated Statements of Operations. We amortized approximately $391,000 as of September 30, 2012, which is included in the principal balance of the loan. As of September 30, 2012, borrowings of approximately $2.1 million on Equipment Loan #1 were outstanding.

Equipment Loan #2 — On March 25, 2010, we entered into an 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 maturity date of the loan is May 2013. The loan is collateralized by the equipment purchased with the advances at a cost of approximately $1.3 million. As of September 30, 2012, borrowings of approximately $236,000 were outstanding under this loan.

On January 27, 2010, we entered into our first business loan agreement with Lighthouse Capital Partners VI, L.P. and Leader Lending, LLC for an amount of up to $7.0 million. During 2010, we borrowed the full $7.0 million under the loan agreement. A portion of the Loan Advance from the Alberta Lenders/Khosla Term Loan was used to repay the Business Loan in January 2012. The principal balance outstanding as of December 31, 2011 that was repaid in January 2012 consisted of $5.9 million of loan advances and $0.5 million of accrued end of term charge, collectively, representing a $6.4 million cash outflow from financing activity. In addition to the end of term charge we had accrued as of December 31, 2011, the portion of the end of term charge that we had not accrued for that we paid in January 2012 was $0.2 million. The prepayment premium for paying the loan prior to its maturity was $0.1 million, totaling $0.3 million. We paid approximately $6.7 million to terminate the loan.

Operating activities. Net cash used in operating activities for the nine months ended September 30, 2012 was $54.0 million compared to $37.6 million for the same period in 2011. Net cash used in operating activities for the nine months ended September 30, 2012 reflects net loss of $66.7 million partially offset by non-cash charges of $11.8 million and $1.0 million net change in our operating assets and liabilities. The non-cash charge of $11.8 million primarily consisted of $9.4 million in stock based compensation and $2.2 million in depreciation and amortization. The net change in operating assets and liabilities of $1.0 million consisted of a $2.3 million increase in accrued liabilities and a $1.5 million increase to accounts payable which was offset by a $2.6 million decrease to inventories and a $0.2 million decrease to prepaid expenses and other current assets. The net cash used in operating activities for the nine months ended September 30, 2011 reflects net loss of $49.1 million and a $1.9 million net change in our operating assets and liabilities partially offset by non-cash charges of $13.4 million. The net change in operating activities of $1.9 million for 2011 included a decrease in accounts payable of $2.3 million and a decrease in prepaid expenses of $1.0 million which was partially offset by an increase in accrued liabilities of $1.4 million. The non-cash charge of $13.4 million consisted of $6.9 million in derivative fair value adjustments for our convertible preferred stock warrants, $4.8 million of stock compensation expense, and $1.7 million in depreciation and amortization expense.

Investing Activities. Net cash used in investing activities for the nine months ended September 30, 2012 was $70.6 million compared to $104.1 million for the same period in 2011. During the nine months ended September 30, 2012 and 2011, the cash used in investing activities is primarily related to the construction of our initial-scale commercial production facility in Columbus, Mississippi, which we mechanically completed in April 2012 and finished commissioning in September 2012.

Financing Activities. Net cash provided by financing activities was $67.3 million for the nine months ended September 30, 2012 as compared to cash provided by financing activities of $242.6 million for the same period in 2011. The net cash provided by financing activities for the nine months ended September 30, 2012 was primarily attributable to net cash receipt from borrowings of approximately $75 million under our Loan and Security Agreement that we closed in January 2012. The increase was partially offset by us using a portion of the borrowings under the Loan and Security Agreement to pay-off the Business Loan in January 2012. The outstanding principal balance and accrued end of term charge that we paid-off was approximately $6.4 million. Net cash provided by financing activities for the nine months ended September 30, 2011 was primarily attributed to net proceeds from our initial public offering of $148.6 million, $55.0 million from the issuance of our Series C convertible preferred stock, and $39.4 million borrowings under the MDA loan.

During the periods presented, we did not, nor do we currently have, any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

In June 2011, the FASB issued an amendment to an existing accounting standard which requires companies to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the statement of operations. The amendments are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted this standard in the first quarter of 2012 and the adoption did not have a material impact on our financial statements and disclosures.

In May 2011, the 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 adopted this standard in the first quarter of 2012 and the adoption did not have a material impact on our financial statements and disclosures.

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We generally invest our cash in investments with short maturities or with frequent interest reset terms. Accordingly, our interest income fluctuates with short-term market conditions. As of September 30, 2012, our investment portfolio consisted primarily of money market funds. Due to the short-term nature of our investment portfolio, our exposure to interest rate risk is minimal.

Prior to December 31, 2010 we incurred certain operating expenses in currencies other than the U.S. dollar in relation to our subsidiary located in the Netherlands and, therefore, were subject to volatility in cash flows due to fluctuations in exchange rates between the U.S. Dollar and the Euro. This subsidiary was liquidated in June 2012.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 as of the end of the period covered by this Quarterly Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2012 to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and such information is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting during the quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We are not a party to any material litigation or proceeding and are not aware of any material litigation or proceeding, pending or threatened against us.

There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, except as provided below.

We will need substantial additional capital in the future in order to meet our ongoing operating and other costs, expand our business, and meet our debt service obligations.

We require substantial additional capital to meet our ongoing overhead and other operating costs, grow our business, particularly as we continue to design, engineer and construct our commercial production facilities, meet our debt service obligations and pay other costs, including payments due at maturity of our borrowings. The extent of our need for additional capital will depend on many factors, including the amounts necessary to fund startup of the Columbus, Mississippi production facility, the funds necessary to cover the front-end capital expenditures for our planned first standard commercial production facility in Mississippi, and the funds necessary to meet any related equity contribution requirements or debt service obligations, whether we succeed in producing cellulosic gasoline and diesel at commercial scale, our ability to control costs, the progress and scope of our research and development projects, the effect of any acquisitions of other businesses or technologies that we may make in the future and the filing, prosecution and enforcement of patent claims.

As of September 30, 2012, we have aggregate indebtedness of $171.9 million. On December 31, 2012, we must begin making semi-annual payments of $1.9 million under our MDA loan until maturity. On August 1, 2013, we must begin making payments of principal and accrued interest of approximately $3.5 million per month in cash on our term loan with Khosla and the Alberta Lenders over the course of 30 months.

We had $74.3 million of cash and cash equivalents as of September 30, 2012. Even if we do not proceed with our first standard commercial production facility in Mississippi, we expect we will need to obtain external financing in 2013 to meet our cash requirements, including our debt service obligations, principal payments on our loans, overhead and other operating costs for the next 12 months from September 30, 2012. Future financings that involve the issuance of equity securities would cause our existing stockholders to suffer dilution. In addition, debt financing sources may be unavailable to us, may be expensive and any debt financing may subject us to restrictive covenants that limit our ability to conduct our business or otherwise be on unfavorable terms. Also, all or substantially all of our assets are pledged as security for borrowings under the Loan and Security Agreement, which may limit our ability to raise additional debt financing. We may be unable to raise sufficient additional funds on acceptable terms, or at all. If we are unable to raise sufficient funds, our ability to fund our operations, continue our current business plan, comply with debt covenants, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited. If this happens, we may be forced to delay the construction of commercial production facilities, delay, scale back or terminate research or development programs or the commercialization of products resulting from our technologies, curtail or cease operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights or grant licenses on terms that are unfavorable to us. If adequate funds are unavailable, we will be unable to execute successfully our business plan or to continue our business. In addition, we have significant indebtedness that is secured by all of our assets. In the event of a default on our debt, our lenders could foreclose on our assets. If that were to occur, our operations would be severely jeopardized, if not entirely curtailed.

We have a history of net losses, and we expect significant increases in our costs and expenses to result in continuing losses as we seek to commercialize our cellulosic gasoline and diesel.

We have incurred substantial net losses since our inception, including net losses of $66.7 million for the nine months ended September 30, 2012 and $64.1 million, $45.9 million and $14.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. We expect these losses to continue. As of September 30, 2012, we had an accumulated deficit of $197.1 million. We expect to incur additional costs and expenses related to the continued development and expansion of our business, including our research and development expenses, continued testing and development at our pilot and demonstration units and engineering and design work and construction of our planned commercial production facilities. As noted above, we also expect our cash requirements to meet our debt service obligations and other costs related to our borrowings to increase beginning on December 31, 2012. As of September 30, 2012, we have not yet commercialized our cellulosic gasoline and diesel nor have we generated any revenue. We cannot assure you that we will ever achieve or sustain profitability on a quarterly or annual basis.

We have significant indebtedness which is secured by all of our assets, which may limit cash flow available to invest in the ongoing needs of our business and may negatively impact our ability to expand our business.

As of September 30, 2012, we had approximately $161.4 million principal amount of debt outstanding. This consists of:

Our January 2012 loan is secured by all of our assets, including our intellectual property assets. Our MDA loan is secured by certain equipment, land and buildings of KiOR Columbus and is guaranteed by us in full. Our loan with Lighthouse Capital Partners VI, L.P. is collateralized by certain of our production pilot unit, lab equipment and office equipment valued at approximately $5.0 million. Our loan with Silicon Valley Bank is collateralized by the equipment purchased at a cost of approximately $1.3 million.

In addition, the terms of our debt facilities impose certain obligations and limitations on our future activities, which include:

The terms of our MDA and January 2012 loans permit us to defer principal and/or interest payments for a period of time. On December 31, 2012, we must begin making principal payments on our MDA loan semi-annually on December 31 and June 30 of each year until maturity. On August 1, 2013, we must begin making payments of principal and accrued interest in cash on our loan with the Alberta Lenders and Khosla.

Our business plan also contemplates that we will need to raise additional funds to build our planned standard commercial production facilities and subsequent facilities, continue the development of our technology and products, commercialize any products resulting from our research and development efforts and satisfy our debt service obligations. Even if we do not proceed with our first standard commercial production facility in Mississippi, we expect we will need to obtain external financing in 2013 to meet our cash requirements and we currently have no committed sources of external financing. Our leverage could have significant adverse consequences, including:

We may not have sufficient funds or may be unable to arrange for additional financing to pay the amounts due under our existing debt. In addition, a failure to comply with the covenants under our existing debt instruments could result in an event of default. Furthermore, there are cross-default provisions in certain of our existing debt instruments such that an event of default under one agreement or instrument could result in an event of default under another. If an event of default resulted in the acceleration of all of our payment obligations under our debt instruments as of October 31, 2012, we would be required to pay our lenders an aggregate of $171.9 million. In the event of an acceleration of amounts due under our debt instruments as a result of an event of default, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments, and the lenders could seek to enforce their security interests in the collateral securing such indebtedness. Because of the covenants under our existing debt instruments and the pledge of our existing assets as collateral, we have a limited ability to obtain additional debt financing.

We are vulnerable to disruptions to our renewable fuel production operations, because all our production operations exist in a single first-of-kind facility.

Because all of our production operations exist in a single facility, significant and prolonged disruptions at the facility would have a material adverse effect on our business, financial condition and results of operations. Our initial-scale commercial production facility in Columbus, Mississippi is our only existing production facility. We are in the start-up phase at this first-of-kind facility, and the facility has not produced any cellulosic gasoline or diesel nor generated any revenues. During the start-up phase we expect to experience many start-ups and shutdowns that will disrupt and delay our production activities for significant time periods. We do not know when or if we will complete the start-up phase. Even if we achieve steady-state operations at the facility, we will be required to perform periodic maintenance and turnarounds at the facility. All or a significant portion of the facility may be disrupted during maintenance or a turnaround. These disruptions will make any future revenue and cash flows unpredictable.

Our operations also may be disrupted by external events such as an interruption of electricity, natural gas, water treatment or other utilities. Other potentially disruptive events include natural disasters, severe weather conditions, workplace or environmental accidents, mechanical failure, fires, explosions, interruptions of supply, work stoppage, losses of permits or authorizations or acts of terrorism. Some of these events can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Further, we conduct our Columbus, Mississippi operations in a first-of-kind facility and our employees have limited experience operating the facility. We can provide no assurance that we will not incur losses related to these or other events beyond the limits or outside the coverage of our insurance policies. Further, disruptions to our operations could have a material adverse affect on our business and results of operations during the period of time that the facility is not operating.

Operations may also be disrupted by external factors such as an interruption of electricity, natural gas, water treatment or other utilities. Other potentially disruptive factors discussed elsewhere in these risk factors include natural disasters, severe weather conditions, workplace or environmental accidents, interruptions of supply, work stoppage, losses of permits or authorizations or acts of terrorism. Disruptions to our operations could have a material adverse affect on our business and results of operations during the period of time that the facility is not operating.

We may be unable to obtain regulatory approval for the registration of our products as cellulosic biofuel under applicable regulatory requirements. The denial or delay of any of such approvals could delay our commercialization efforts and adversely impact our potential customer relationships, business and results of operations.

In order for our gasoline to qualify as a renewable fuel, advanced biofuel or cellulosic biofuel for the purpose of satisfying the mandates of the RFS2, upon petition the EPA will conduct its own assessment of the greenhouse gas emissions associated with the production and use of our gasoline and must verify that our feedstocks qualify as renewable cellulosic biomass. The EPA may not complete this assessment in a timely manner, which could delay or increase the costs of the commercialization of our products, or it may determine that our gasoline does not reduce greenhouse gas emissions in a sufficient amount to qualify as a renewable fuel, advanced biofuel or cellulosic biofuel under RFS2. The EPA could also decide that our feedstocks do not meet the definition of renewable biomass, and thus our products would be ineligible for RFS2 credits. A decision by the EPA that our products do not qualify as a renewable fuel, advanced biofuel or cellulosic biofuel for purposes of satisfying renewable fuel mandates would significantly reduce demand for our product, which would materially and adversely affect our business.

We elected payment of paid-in-kind interest under our Loan and Security Agreement on the dates listed below, which required us to issue warrants to the Lenders to purchase shares of our Class A common stock in the following amounts at the following exercise prices:

Each of the warrants was exercisable in full on the date of grant and expires in July 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Alberta Lenders/Khosla Term Loan” in Item 2 of Part I of this Quarterly Report.

The warrants described herein were issued in private transactions pursuant to Section 4(2) of the Securities Act. The recipients of these warrants acquired the warrants for investment purposes only and without intent to resell, were able to fend for themselves in these transactions, and were accredited investors as defined in Rule 501 of Regulation D promulgated under Section 3(b) of the Securities Act. Appropriate restrictions were set out in the agreements for these transactions, including legends setting forth that the applicable securities have not been registered. These securityholders had adequate access, through their relationships with us, to information about us.

Our initial public offering of Class A common stock was effected through a Registration Statement on Form S-1 (File No. 333-173440), which we refer to as the Registration Statement, that was declared effective by the SEC on June 23, 2011. The net offering proceeds to us were approximately $148.6 million. Of the net proceeds, as of September 30, 2012, we estimate that $80 million have been used for general corporate purposes, front-end engineering for our first planned standard commercial production facility in Mississippi, and start-up costs for our initial-scale commercial production facility in Columbus, Mississippi that was mechanically completed in April 2012 and finished commissioning in September 2012, and $13 million was used to expand our demonstration unit, pilot plant and construct other infrastructure assets in Pasadena, Texas. In addition to the uses described in the Registration Statement, as of September 30, 2012, we have used approximately $49.2 million of the net offering proceeds to fund additional costs incurred during the nine months ended September 30, 2012 relating to our Columbus project comprised of scope changes, expediting costs, and, to a lesser extent, cost increases. At September 30, 2012, the remaining net proceeds were invested in short-term, interest-bearing investment grade securities.

See the Exhibit Index accompanying this Quarterly Report, which is incorporated by reference herein.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


KiOR, Inc.
By:		/s/ John H. Karnes
		John H. Karnes
		Chief Financial Officer (Principal Financial Officer)

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2012 and December 31, 2011, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2012 and September 30, 2011, (iii) Condensed Consolidated Statements of Convertible Preferred Stock, Stockholders’ Equity (Deficit) and Accumulated Comprehensive Loss for the nine months ended September 30, 2012, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and September 30, 2011, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets — September 30, 2012 and December 31, 2011			4
Condensed Consolidated Statements of Operations and Comprehensive Loss — Three and Nine Months Ended September 30, 2012 and 2011			5
Condensed Consolidated Statements of Convertible Preferred Stock, Stockholders’ Equity (Deficit) and Accumulated Comprehensive Loss			6
Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2012 and 2011			8
Notes to Condensed Consolidated Financial Statements			10
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			31
ITEM 4. Controls and Procedures			31

PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			33
ITEM 1A. Risk Factors			33
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			35
ITEM 6. Exhibits			36
Exhibit 10.3(b)
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABEL LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 EXTENSION DEFINITION LINKBASE DOCUMENT


	September 30, 2012			December 31, 2011
Assets
Current assets:
Cash and cash equivalents	$	74,299		$	131,637
Inventories		2,517			—
Prepaid expenses and other current assets		1,836			1,000

Total current assets		78,652			132,637
Property, plant and equipment, net		235,948			169,923
Intangible assets, net		2,384			2,233
Other assets		1,905			471

Total assets	$	318,889		$	305,264

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	10,701		$	5,506
Accounts payable		4,918			6,496
Accrued capital expenditures		759			14,571
Accrued liabilities		6,004			2,648

Total current liabilities		22,382			29,221
Long-term debt, less current portion, net of discount of $38,241 and $31,852 at September 30, 2012 and December 31, 2011, respectively		112,474			47,304
Other liabilities		174			—

Total liabilities		135,030			76,525

Commitments and contingencies (Note 9)

Stockholders’ equity:
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 shares authorized at September 30, 2012 and December 31, 2011; 45,345,514 and 40,815,079 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively		4			4
Class B common stock — $0.0001 par value; 70,800,000 shares authorized at September 30, 2012 and December 31, 2011; 59,616,227 and 61,425,575 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively		6			6
Additional paid-in capital		380,969			359,108
Deficit accumulated during the development stage		(197,120	)		(130,379	)

Total stockholders’ equity		183,859			228,739

Total liabilities and stockholders’ equity	$	318,889		$	305,264


	Three Months Ended September 30,						Nine Months Ended September 30,						Period from July 23, 2007 (Date of Inception) through September 30, 2012
	2012			2011			2012			2011
Operating expenses:
Research and development expenses	$	(8,659	)	$	(8,269	)	$	(25,069	)	$	(23,251	)	$	(92,659	)
General and administrative expenses		(17,448	)		(5,905	)		(39,182	)		(17,267	)		(75,500	)
Depreciation and amortization expenses		(849	)		(598	)		(2,229	)		(1,684	)		(7,061	)

Loss from operations		(26,956	)		(14,772	)		(66,480	)		(42,202	)		(175,220	)
Other income (expense), net:
Interest income		4			2			13			2			189
Beneficial conversion feature expense related to convertible promissory note		—			—			—			—			(10,000	)
Interest expense, net of amounts capitalized		—			—			(274	)		—			(2,328	)
Foreign currency loss		—			—			—			—			(435	)
Loss from change in fair value of warrant liability		—			—			—			(6,914	)		(9,279	)

Other income (expense), net		4			2			(261	)		(6,912	)		(21,853	)

Loss before income taxes		(26,952	)		(14,770	)		(66,741	)		(49,114	)		(197,073	)
Income tax expenses - current		—			—			—			—			(47	)
Net loss	$	(26,952	)	$	(14,770	)	$	(66,741	)	$	(49,114	)	$	(197,120	)
Deemed dividend related to the beneficial conversion feature of Series C convertible preferred stock		—			—			—			(19,669	)

Net loss attributable to stockholders	$	(26,952	)	$	(14,770	)	$	(66,741	)	$	(68,783	)

Net loss per share of Class A common stock, basic and diluted	$	(.26	)	$	(.15	)	$	(.64	)	$	(.73	)

Net loss per share of Class B common stock, basic and diluted	$	(.26	)	$	(.15	)	$	(.64	)	$	(.73	)

Weighted-average Class A and B common shares outstanding, basic and diluted		104,805			101,724			104,085			46,096

Other comprehensive loss:
Other comprehensive loss		—			—			—			—			—

Comprehensive loss	$	(26,952	)	$	(14,770	)	$	(66,741	)	$	(49,114	)	$	(197,120	)


	Nine Months Ended September 30,						Period from July 23, 2007 (Date of Inception) through
	2012			2011			September 30, 2012
Cash flows from operating activities
Net loss	$	(66,741	)	$	(49,114	)	$	(197,120	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		2,229			1,684			7,061
Stock-based compensation		9,395			4,787			16,810
Non cash compensation from warrants issued on common stock		—			—			298
Beneficial conversion feature		—			—			10,000
Derivative fair value adjustments		—			6,914			9,279
Accrued interest		—			—			534
Amortization of debt discount		—			—			300
Non cash compensation equity bonus		133			—			133
Changes in operating assets and liabilities
Inventories		(2,643	)		—			(2,643	)
Prepaid expenses and other current assets		(164	)		(944	)		(947	)
Accounts payable		1,497			(2,311	)		860
Accrued liabilities		2,337			1,386			4,256

Net cash used in operating activities		(53,957	)		(37,598	)		(151,179	)

Cash flows from investing activities
Purchases of property, plant and equipment		(70,331	)		(104,107	)		(253,127	)
Purchases of intangible assets		(300	)		—			(727	)

Net cash used in investing activities		(70,631	)		(104,107	)		(253,854	)

Cash flows from financing activities
Proceeds from issuance of convertible promissory note to stockholder		—			—			15,000
Proceeds from equipment loans		—			—			6,000
Payments on equipment loans		(951	)		(397	)		(4,015	)
Proceeds from business loans		—			—			7,000
Payments on business loans (see Note 7 — Long Term Debt )		(6,370	)		(189	)		(7,478	)
Proceeds from stock option exercises / warrants		1,157			126			1,465
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		—			—			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 offering costs		—			148,647			148,644
Borrowings under the Mississippi Development Authority loan		—			39,391			75,000
Borrowings under the Alberta Lenders/Khosla term loan		75,000			—			75,000
Debt issuance costs		(1,586	)		—			(1,586	)

Net cash provided by financing activities		67,250			242,578			479,414

Effect of exchange rate on cash and cash equivalents		—			—			(82	)
Net (decrease) increase in cash and cash equivalents		(57,338	)		100,873			74,299
Cash and cash equivalents
Beginning of period		131,637			51,350			—

End of period	$	74,299		$	152,223		$	74,299


	Convertible Preferred Stock					Class A Common Stock				Class B Common Stock, formerly common stock				Addt’l Paid-in- Capital		Deficit Accum During the Dev. Stage			Acc. Other Comp. Loss			Total Stockholders’ Deficit
	Shrs		$			Shrs		$		Shrs		$
Issuance of Series A convertible preferred stock		14,400	$	2,599			—		—		—		—		—		—			—		$	—
Receivable from Series A convertible preferred stockholder		—		(1,155	)		—		—		—		—		—		—			—			—
Issuance of common stock		—		—			—		—		14,400		1		2,598		—			—			2,599
Comprehensive loss:
Net loss		—		—			—		—		—		—		—		(472	)		—			(472	)
Currency translation adjustment		—		—			—		—		—		—		—		—			—			—

Total comprehensive loss																							(472	)

Balance at December 31, 2007		14,400	$	1,444			—	$	—		14,400	$	1	$	2,598	$	(472	)	$	—		$	2,127
Collection of receivable from Series A convertible preferred stockholder		—		1,155			—		—		—		—		—		—			—			—
Issuance of Series A convertible preferred stock		9,600		1,761			—		—		—		—		—		—			—			—
Issuance of Series A-1 convertible preferred stock		20,572		10,024			—		—		—		—		—		—			—			—
Comprehensive loss:
Net loss		—		—			—		—		—		—		—		(5,866	)		—			(5,866	)
Currency translation adjustment		—		—			—		—		—		—		—		—			93			93

Total comprehensive loss																							(5,773	)

Balance at December 31, 2008		44,572	$	14,384			—	$	—		14,400	$	1	$	2,598	$	(6,338	)	$	93		$	(3,646	)
Stock-based compensation- options		—		—			—		—		—		—		331		—			—			331
Comprehensive loss:
Net loss		—		—			—		—		—		—		—		(14,059	)		—			(14,059	)
Currency translation adjustment		—		—			—		—		—		—		—		—			122			122

Total comprehensive loss																							(13,937	)

Balance at December 31, 2009		44,572	$	14,384			—	$	—		14,400	$	1	$	2,929	$	(20,397	)	$	215		$	(17,252	)
Stock-based compensation- options		—		—			—		—		—		—		730		—			—			730
Stock options exercised		—		—			—		—		524		—		43		—			—			43
Stock-based compensation- Common and Class A common stock		—		—			60		—		896		—		200		—			—			200
Issuance of Series B convertible preferred stock		24,480		120,000			—		—		—		—		—		—			—			—
Issuance of warrants on common stock		—		—			—		—		—		—		298		—			—			298
Comprehensive loss:
Net loss		—		—			—		—		—		—		—		(45,927	)		—			(45,927	)
Currency translation adjustment		—		—			—		—		—		—		—		—			(215	)		(215	)

Total comprehensive loss																							(46,142	)

Balance at December 31, 2010		69,052	$	134,384			60	$	—		15,820	$	2	$	4,199	$	(66,324	)	$	—		$	(62,123	)


	Nine Months Ended
	September 30,
	2012		2011
Supplemental disclosure of noncash investing and financing activities:
Change in accrued purchase of property, plant and equipment	$	2,612	$	4,377
Issuance of warrants in connection with Alberta Lenders/Khosla term loan	$	10,873	$	—
Capitalization of paid-in-kind interest	$	7,506	$	—
Accrued capitalized interest expense payable	$	1,085	$	—
Debt discount amortization	$	6,325	$	—
Accrued debt issuance costs	$	105	$	—
Options exercised	$	16	$	—
Capitalization of prepaid builders risk insurance	$	100	$	—
Convertible preferred stock warrants issued in connection with loan amendments	$	—	$	300
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
Financing of Insurance Premiums	$	770	$	436
Imputed interest on Mississippi Development Authority loan	$	—	$	17,232


	September 30, 2012
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Financial assets
Money market funds	$	70,354	$	—	$	—	$	70,354

Total financial assets	$	70,354	$	—	$	—	$	70,354


	December 31, 2011
	Level 1		Level 2		Level 3		Total
Financial assets
Money market funds	$	101,475	$	—	$	—	$	101,475

Total financial assets	$	101,475	$	—	$	—	$	101,475


	March 1, 2012			April 1, 2012			May 1, 2012			June 1, 2012			July 1, 2012			August 1, 2012			September 1, 2012
Shares issuable		23,293			14,163			19,142			22,698			22,425			26,520			28,851
Fair value	$	6.04		$	10.31		$	7.27		$	5.98		$	6.28		$	5.24		$	5.19
Exercise Price	$	11.62		$	13.15		$	11.62		$	11.62		$	11.62		$	11.62		$	11.62
Expected volatility		81.50	%		88.00	%		88.00	%		83.00	%		83.00	%		83.00	%		83.00	%
Risk-free interest rate		0.60	%		1.61	%		1.35	%		0.93	%		1.11	%		1.03	%		1.01	%
Dividend yield		—			—			—			—			—			—			—
Expected term (in years)		7			7			7			7			7			7			7


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Research and development	$	641	$	247	$	1,374	$	466
General and administrative		2,916		1,340		8,021		4,321

Total stock-based compensation expense	$	3,557	$	1,587	$	9,395	$	4,787


	Shares			Weighted Average Exercise Price		Weighted Average Remaining Life (Years)		Aggregate Intrinsic Value
	(In thousands)							(In thousands)
Outstanding at December 31, 2011		13,566		$	1.50
Options Granted		—			—
Exercised		(1,908	)		0.61
Forfeited		(592	)		1.49

Outstanding at September 30, 2012		11,066		$	1.65		7.0	$	86,859

Exercisable		6,200		$	1.17		7.2	$	51,068


	Three and Nine Months Ended September 30,
	2011
Expected volatility		83.15	%
Risk-free interest rate		2.12	%
Dividend yield		—	%
Expected term (in years)		5.7


	Number of Shares (In thousands)			Weighted- Average Grant-Date Fair Value
Nonvested—December 31, 2011		889		$	15.00
Granted		—			—
Vested		(173	)		15.00
Forfeited		—			—

Nonvested—September 30, 2012		716		$	15.00


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Shares			Exercise Price		Life (Years)		Intrinsic Value
	(In thousands)							(In thousands)
Outstanding at December 31, 2011		214		$	14.76
Options Granted		45			7.75
Exercised		—			—
Forfeited		(8	)		14.01

Outstanding at September 30, 2012		251		$	13.53		9.1	$	70

Exercisable		44		$	14.74		9.0	$	—


	Three Months Ended September 30,						Increase
	2012			2011			$		%
	(Dollars in thousands)
Operating expenses:
Research and development expenses	$	(8,659	)	$	(8,269	)	$	390		5	%
General and administrative expenses		(17,448	)		(5,905	)		11,543		195	%
Depreciation and amortization expense		(849	)		(598	)		251		42	%

Total operating expenses	$	(26,956	)	$	(14,772	)	$	12,184


	September 30, 2012			December 31, 2011
	(Amounts in thousands)
Property, Plant and Equipment:
Construction in progress	$	202,906		$	146,852
Lab and testing equipment		4,309			3,927
Leasehold improvement		5,029			2,418
Manufacturing machinery and equipment		28,034			19,418
Computer equipment and software		1,132			689
Furniture and fixtures		134			134
Land		550			550

Total property, plant and equipment		242,094			173,988
Less: accumulated depreciation		(6,146	)		(4,065	)

Net property, plant and equipment	$	235,948		$	169,923


	Nine Months Ended September 30,						Increase
	2012			2011			$		%
	(Dollars in thousands)
Operating expenses:
Research and development expenses	$	(25,069	)	$	(23,251	)	$	1,818		8	%
General and administrative expenses		(39,182	)		(17,267	)		21,915		127	%
Depreciation and amortization expense		(2,229	)		(1,684	)		545		32	%

Total operating expenses	$	(66,480	)	$	(42,202	)	$	24,278


	Nine Months Ended September 30,						Increase (Decrease)
	2012			2011			$			%
	(Dollars in thousands)
Other income (expense), net:
Interest income	$	13		$	2		$	11			550	%
Interest expense, net of amounts capitalized		(274	)		0			274			N/A
Loss from change in fair value of warrant liability		0			(6,914	)		(6,914	)		(100	)%

Other income (expense), net	$	(261	)	$	(6,912	)	$	(6,651	)


Date Issued	Numbers of Underlying Shares		Exercise Price
July 1, 2012		22,425	$	11.62
August 1, 2012		26,520	$	11.62
September 1, 2012		28,851	$	11.62
October 1, 2012		23,550	$	11.62
November 1, 2012		39,163	$	11.62