KiOR: the inside true story of a company gone wrong, Part 2

The Impending Public Statement on the Technology

Meanwhile, there was pressure on the company to make disclosures regarding the company’s progress towards scale, and the yields it was achieving, Specifically, there was pressure on regarding a statement describing KiOR’s technology that could be placed at the KiOR Website and also to be given to the public and potential investors.

Dennis Stamires confirmed that there was a controversy. He himself sent an April 5th memo to CEO Fred Cannon and VP Technology Dan Strope, calling for only “Credible” information only to be released. *The message in the event of being Legally challenged, it should be defendable.” He did not receive a response, he said.

On April 10th, a draft Technology Statement to be posted on the KiOR Website, prepared by Matt Hargarten of Dig Communications, was circulated by Andre Ditsch. It would not reach some members of the scientific team until as late as May 11th.

An uproar ensued regarding the draft statement. Bottom line, there were heavy complaints about false claims, misleading information and fake terms like “KiOR’s Proprietary Magic Catalyst“. CFO Kevin Denicola indicated to team members that he too had serious concerns about the truthfulness of the proposed Technology Statement.

Inflated Numbers: The July 2010 Report

In May 2010, John Hacskaylo joined KiOR as VP R&D. With Cannon and Ditsch, they formed what was described to The Digest as “The Troika, [which] manages all the important issues and business items of KIOR”.

The issues? These would grow to include:

The negotiations with the Mississippi Authority regarding a loan of $75 million; negotiations with Chevron / Catchlight regarding the formation of a joint venture; the Technology Review/ Assessment by R.W. Beck; the Application to DOE for a $1 billion Loan guarantee; the preparation of the KiOR S-1 Prospectus for a NASDAQ IPO; negotiations with potential investors, and updates on KiOR’ s technological progress.

One team member wrote of this time:

The formation of “The Troika” caused a deep division and disputes  among KiOR’s managers, which later on dripped down to lower levels of operations, and prevented normal working business communications among employees. Hacskaylo created and highly promoted this culture. R&D personnel were told to whom they can talk and to whom should not talk about their work. Co-operation, trust and willingness to communicate fast disappeared, and a spirit of fear of being punished and fired prevailed in the organization.”

In a July 2010 Report, entitled “Yield Improvement Efforts”, according to those familiar with the report, Hacskaylo replotted the previous Pilot plant data to show a steady substantial oil yield increase in the period of 2009 – 2010, claiming that the Pilot was 50% ahead of the Vasalos report’s findings, in gallons per dried ton of Biomass feed and projecting an 80% increase in yield from the upcoming Demo Plant, or 72 gallons per ton.

The yields, according to key members of the science team, were simply not true, and incredibly inflated. The results were inflated from the latest pilot data. Further, the Demo plant as designed at this time did not incorporate improvements that KiOR had deployed at the pilot.

As one observer noted, “Hacskaylo’s new, much greater inflated oil yields, generously met and even exceeded the milestones which earlier Ditsch, Kaul, and Khosla had set forth to be accomplished quarterly for the year 2010, by the R&D group. Hacskaylo managed to accomplish (on paper only) the [required] milestones of increased Bio-oil yields”, without the bother of actually improving the process, so went the theory.

It is not known whether financial motives, data confusion, or honest mistakes went into the July report or into the criticism thereof. It can be noted that executives of KiOR were rewarded with stock options for meeting milestones and accomplishing goals, but there’s no direct evidence that data was changed for monetary gain. It is clear however that the new data was not supported by those familiar with the raw data coming from the pilot plant. The Digest has obtained and carefully reviewed original data from the pilot from this period and the July 2010 report, and can confirm that the raw data and the July 2010 report do not agree.

Another report was made to Khosla in November 2010, and again team members say that the data was “corrected” and the yields “improved” from actual KiOR data. We are all left to guess exactly why.

At this stage, Denicola is reported to have attempted “professionally…to correct this problem and give the public and investors a truthful and representative account of the actual status of KiOR’s technology at that time,” according to one team member familiar with his efforts, but he was unsuccessful. Denicola subsequently resigned.