KiOR update: “We do not believe we can restart the Columbus facility on an economically viable basis at this time.”

May 13, 2014 |

The following is excerpted from KiOR’s most recent 10-Q quarterly report, as filed with the SEC.

“We have substantial doubts about our ability to continue as a going concern. To continue as a going concern, we must secure additional capital to provide us with additional liquidity. On March 31, 2014, we entered into a Senior Secured Promissory Note and Warrant Purchase Agreement, which we refer to as the 2014 Note Purchase Agreement, with KFT Trust, Vinod Khosla, Trustee, who we refer to as Khosla or the 2014 Note Purchaser, and Khosla in its capacity as agent for Khosla. The 2014 Note Purchase Agreement contemplates multiple tranches of financing of up to $25 million. ”

“We have suspended all optimization projects we began during the first quarter of 2014 in order to bring the Columbus facility to a safe, idle state. As of March 31, 2014, we have not demonstrated any additional research and development progress or any demonstrable progress towards achieving our financing performance milestones described above. We do not believe we can restart the Columbus facility on an economically viable basis at this time and therefore cannot be certain as to whether we will be able to successfully secure additional financing or the ultimate timing of such additional financing. In addition, even if we meet the first two performance milestones, Khosla must determine, in its sole discretion, that the purchase of additional notes is appropriate for us to continue our operations before we can make additional borrowings under the 2014 Note Purchase Agreement.

“Other than the 2014 Note Purchase Agreement, we have no other near-term sources of financing. In addition, any new financing will require the consent of our existing debt holders and may require the restructuring of our existing debt.

“If we successfully achieve our performance milestones that allow us to receive the full amount under the 2014 Note Purchase Agreement in the near term, we expect to be able to fund our operations and meet our obligations until approximately August 31, 2014, but will need to raise additional funds to continue our operations beyond that date. If we are not successful in achieving our performance milestones or if we are otherwise unable to raise additional funds beyond approximately August 31, 2014, we will not have adequate liquidity to fund our operations and meet our obligations (including our debt payment obligations), in which case we will likely be forced to voluntarily seek protection under the U.S. Bankruptcy Code (or an involuntary petition for bankruptcy may be filed against us).

“As discussed above, during the first quarter of 2014, we commenced a series of optimization projects and upgrades at our Columbus facility. The optimization projects and upgrades are targeted at improving throughput, yield and overall process efficiency and reliability. In terms of throughput, we have experienced issues with structural design bottlenecks and reliability that have limited the amount of wood that we can introduce to our BFCC system.

“These issues have caused the Columbus facility to run significantly below its nameplate capacity for biomass of 500 bone dry tons per day and limited our ability to produce cellulosic gasoline and diesel. We have identified changes to the BFCC, hydrotreater and wood yard that we believe would improve the throughput performance of the Columbus facility. In terms of yield, we have identified additional enhancements that we believe would improve the overall yield of transportation fuels from each ton of biomass from the Columbus facility, which has been lower than expected due to a delay introducing our new generation of catalyst to the facility and mechanical failures impeding desired chemical reactions in the BFCC reactor. In terms of overall process efficiency and reliability, we have previously generated products with an unfavorable mix that includes higher percentages of fuel oil and off specification product. Products with higher percentages of fuel oil result in lower product and RIN revenue and higher overall costs.

“We have identified changes that we believe would improve our processes and increase reliability and on-stream percentage throughout at our Columbus facility. We also believe we could reduce operating costs by, among other things, decreasing natural gas consumption by the facility. We do not expect to implement these optimization projects until we are able to raise additional working capital. While we have completed some of these projects and upgrades, we have elected to suspend all optimization work and bring the Columbus facility to a safe, idle state, which we believe will enable us to restart the facility upon the achievement of additional research and development milestones and if we are able to raise additional working capital.”

The complete 10-Q filing is here.

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