KiOR: The Inside True Story of a Company Gone Wrong. Part 5, The Collapse 

Yep, 22 gallons per ton, and that’s it.

Ross next approached Dydak. According to Ross, she said that  “that the simulation could only recover about 22 gallons per ton of dry wood which is what I was calculating.”

That same week, Dydak quit KiOR.

Despite the warning given to him by a colleague about not speaking up, Ross persevered. According to the State of Mississippi in its lawsuit, his “persistent warnings earned him the nickname, Dr. Doom, within the company’s Pasadena, Texas headquarters.”

Yet as of August 2013, the State of Mississippi alleged in a lawsuit that:

KiOR had in fact been unable to prove that its biocrude could be successfully refined without having routine and persistent shut downs that would drive up costs, drive down production and render the process commercially unviable. These and the reasons for them were the exact concerns that CLE had expressed to KiOR in May 2010, well before the MDA ever loaned a single dollar to the Company. KiOR had not only failed to prove that its biocrude could be successfully refined by an oil company in its existing infrastructure; KiOR had been unable to successfully refine its biocrude in extended runs in its own refining equipment. 

The ring closes in around KiOR

By the summer of 2013, with the public disclosures required of the company as a public company, and with sufficient alarms raised not only by senior staff but by figures such as Paul O’Connor with direct access to the board, the management team came under more and more direct pressure regarding KiOR’s yields.

And, money was drying up. On July 26, 2013, the company reported to the SEC:

As previously disclosed, on March 17, 2013, KiOR, Inc. entered into an amendment to the Loan and Security Agreement, dated as of January 26, 2012 with the Company and KiOR Columbus as borrowers, 1538731 Alberta Ltd. as agent and lender, and 1538716 Alberta Ltd., as lender, and KFT Trust, Vinod Khosla, Trustee. 

Pursuant to the original Loan and Security Agreement, the Alberta Lenders had made a term loan to the Borrowers in the principal amount of $50 million and Khosla had made a term loan to the Borrowers in the principal amount $25 million, for a total of $75 million in principal amount. The Amendment, among other things, increased the amount available under the facility by $50 million, which the Borrowers may borrow from Khosla, based on the Borrowers’s capital needs, before March 31, 2014.

The rest of the SEC filing told the tale of consistent borrowing from Khosla:

On July 26, 2013, the Company borrowed $10 million from Khosla…on April 30, 2013, the Company borrowed $10 million from Khosla on April 24, 2013…on May 23, 2013, the Company borrowed $10 million from Khosla on May 17, 2013…on June 19, 2013, the Company borrowed $10 million from Khosla on June 17, 2013.

Why was Khosla making loans, rather than injecting equity into KiOR? No one has said for sure — but it would be worth pointing out that by establishing itself as a significant lender and senior debt-holder, Khosla and his allied entities would have stronger rights in a bankruptcy than as equity investors.

Meanwhile, more bad news came via further confirmation on poor yields from engineer Charlie Zhang, working at the Columbus plant, who supplied actual yield data from Columbus to Dennis Stamires that confirmed at Ross’ figures were correct. Ross had previously indicated that the yields were in the 22 per gallon range, a frightful shortfall from the 67 gallons per ton yields indicated in the company’s IPO documentation.

A crisis was looming.

On July 11, 2013, sources indicated to The Digest that Vinod Khosla, Samir Kaul and Fred Cannon held a dinner meeting in which the situation with the yields at Columbus was reviewed. At the dinner, Cannon received a directive that Paul O’Connor be permitted to review KiOR’s state of technology and progress.