Operations	6 Months Ended
Jun. 30, 2011
Operations	Note 10 - Operations Petrobras Agreement Effective August 23, 2010, Petrobras Brasileiro Ltda., through its subsidiary Petrobras America, Inc. (“Petrobras”), entered into a Joint Development Agreement (“JDA”) with the Company to jointly optimize our proprietary cellulosic ethanol process technology for sugarcane bagasse feedstock (“Bagasse”). The latest generation of the Company’s process design provides for substantial enhancements over the first generation, implemented in 2008 at the Company’s demonstration plant in Upton, Wyoming using Ponderosa Pine feedstock, including the ability to be optimized for multiple feedstocks. As part of this agreement, Petrobras will provide up to $11.0 million to adapt the Company’s demonstration facility to the use of Bagasse, validate the optimized process by producing cellulosic ethanol and bio-lignin from Bagasse in multiple campaigns and license the technology. Of the $11.0 million, $6.0 million represents fixed fees for the facility adaptation and production validation efforts and up to $5.0 million may be payable for a technology license. The JDA required that this project be effectively completed in nine months, or by May 2011. However, in light of unforeseen delays due to unexpected harsh winter weather conditions and several initial operational problems, Petrobras granted a waiver of that condition and the project is now scheduled to be completed in August 2011. In parallel, Petrobras and KL will jointly work on an industrial scale Bagasse based cellulosic ethanol plant project that shall be fully integrated into a sugarcane mill belonging to the Petrobras Group in Brazil slated to go on stream in 2013. The agreement, which has an initial term of 18 months and provides for mutual exclusivity in the area of developing cellulosic ethanol from Bagasse, provides Petrobras with the option to enter into a technology license for the use of the Company’s technology within Petrobras Group assets. For the three and six months ended June 30, 2011, approximately $785,000 million and $2.6 million of revenue, respectively, and approximately $1.7 million and $2.4 million of expenses, respectively, related to the JDA have been included in the consolidated statements of operations. Due to the start up delays previously mentioned, the plant adaptation and testing portion of the JDA is now scheduled to be completed in August 2011 instead of the projected completion in May 2011 that was used for the basis of revenue recognition. This revision was accounted for prospectively as a change in accounting estimate which resulted in a decrease of approximately $444,000 in product development services revenue for the three and six months ended June 30, 2011. These factors, among others, indicate the Company may be unable to meet its current obligations and may be unable to continue as a going concern unless it raises additional capital. Management is continuing its efforts to raise additional capital through various methods. In July 2011, as further detailed in Note 14, the Company refinanced the $6.5 million of Notes issued in November 2010 and raised $2.75 million in additional working capital from the issuance of convertible promissory notes. Continuing Operations During the period from its inception to September 30, 2010, the Company has incurred significant annual net losses and at June 30, 2011 and December 31, 2010, the Company had negative working capital (i.e. current assets less current liabilities) of approximately $15.8 million and $12.7 million, respectively. At June 30, 2011, total liabilities exceeded total assets by approximately $17.0 million. The advanced biofuels industry in which the Company operates continues to face significant challenges including technical risks, limited availability of debt and equity financing and changing public and governmental support. Discontinued Operations In January 2009, the Company determined that its majority-owned subsidiary, Patriot Motor Fuels LLC (“Patriot”), should be discontinued as a result of pricing and other competitive factors. Patriot distributed ethanol blended fuel. In June 2009, the Company also discontinued two additional businesses in which it held a majority interest: KL Management LLC (“KLM”), which managed ethanol facilities for third parties, and KLHC LLC (formerly known as KL Energy LLC, “KLHC”), which sold wholesale ethanol. All three businesses were discontinued as a result of the severe change in the economics of the first generation ethanol industry but especially due to the Company’s re-focus on cellulosic second generation ethanol commercialization. Operating results from discontinued operations were losses of approximately $7,000 during the three and six months ended June 30, 2011 and income of $5,000 and $31,000 during the three and six months ended June 30, 2010, respectively. At June 30, 2011 and December 31, 2010, these businesses had no assets and the only liabilities were accounts payable of approximately $316,000. The resolution of these liabilities is largely dependent on the completion of arbitration proceedings with MRE.

Operations

6 Months Ended

Jun. 30, 2011

Note 10 - Operations

Petrobras Agreement

Effective August 23, 2010, Petrobras Brasileiro Ltda., through its subsidiary Petrobras America, Inc. (“Petrobras”), entered into a Joint Development Agreement (“JDA”) with the Company to jointly optimize our proprietary cellulosic ethanol process technology for sugarcane bagasse feedstock (“Bagasse”). The latest generation of the Company’s process design provides for substantial enhancements over the first generation, implemented in 2008 at the Company’s demonstration plant in Upton, Wyoming using Ponderosa Pine feedstock, including the ability to be optimized for multiple feedstocks.

As part of this agreement, Petrobras will provide up to $11.0 million to adapt the Company’s demonstration facility to the use of Bagasse, validate the optimized process by producing cellulosic ethanol and bio-lignin from Bagasse in multiple campaigns and license the technology. Of the $11.0 million, $6.0 million represents fixed fees for the facility adaptation and production validation efforts and up to $5.0 million may be payable for a technology license. The JDA required that this project be effectively completed in nine months, or by May 2011. However, in light of unforeseen delays due to unexpected harsh winter weather conditions and several initial operational problems, Petrobras granted a waiver of that condition and the project is now scheduled to be completed in August 2011. In parallel, Petrobras and KL will jointly work on an industrial scale Bagasse based cellulosic ethanol plant project that shall be fully integrated into a sugarcane mill belonging to the Petrobras Group in Brazil slated to go on stream in 2013. The agreement, which has an initial term of 18 months and provides for mutual exclusivity in the area of developing cellulosic ethanol from Bagasse, provides Petrobras with the option to enter into a technology license for the use of the Company’s technology within Petrobras Group assets.

For the three and six months ended June 30, 2011, approximately $785,000 million and $2.6 million of revenue, respectively, and approximately $1.7 million and $2.4 million of expenses, respectively, related to the JDA have been included in the consolidated statements of operations. Due to the start up delays previously mentioned, the plant adaptation and testing portion of the JDA is now scheduled to be completed in August 2011 instead of the projected completion in May 2011 that was used for the basis of revenue recognition. This revision was accounted for prospectively as a change in accounting estimate which resulted in a decrease of approximately $444,000 in product development services revenue for the three and six months ended June 30, 2011.

These factors, among others, indicate the Company may be unable to meet its current obligations and may be unable to continue as a going concern unless it raises additional capital. Management is continuing its efforts to raise additional capital through various methods. In July 2011, as further detailed in Note 14, the Company refinanced the $6.5 million of Notes issued in November 2010 and raised $2.75 million in additional working capital from the issuance of convertible promissory notes.

Continuing Operations

During the period from its inception to September 30, 2010, the Company has incurred significant annual net losses and at June 30, 2011 and December 31, 2010, the Company had negative working capital (i.e. current assets less current liabilities) of approximately $15.8 million and $12.7 million, respectively. At June 30, 2011, total liabilities exceeded total assets by approximately $17.0 million. The advanced biofuels industry in which the Company operates continues to face significant challenges including technical risks, limited availability of debt and equity financing and changing public and governmental support.

Discontinued Operations

In January 2009, the Company determined that its majority-owned subsidiary, Patriot Motor Fuels LLC (“Patriot”), should be discontinued as a result of pricing and other competitive factors. Patriot distributed ethanol blended fuel. In June 2009, the Company also discontinued two additional businesses in which it held a majority interest: KL Management LLC (“KLM”), which managed ethanol facilities for third parties, and KLHC LLC (formerly known as KL Energy LLC, “KLHC”), which sold wholesale ethanol. All three businesses were discontinued as a result of the severe change in the economics of the first generation ethanol industry but especially due to the Company’s re-focus on cellulosic second generation ethanol commercialization.

Operating results from discontinued operations were losses of approximately $7,000 during the three and six months ended June 30, 2011 and income of $5,000 and $31,000 during the three and six months ended June 30, 2010, respectively. At June 30, 2011 and December 31, 2010, these businesses had no assets and the only liabilities were accounts payable of approximately $316,000. The resolution of these liabilities is largely dependent on the completion of arbitration proceedings with MRE.

KL Energy Corp 10-Q/A