KiOR: The inside true story of a company gone wrong. Part 3, “You’ve Cooked the Books”

The reach-out to the CFO

By the end of July, members of the science team had become aware of the Whitlock investigation, and its closure.

Dennis Stamires recalled: “I reached out to John Karnes, the CFO, and I met with him on August 3rd and 4th, I showed him the data and asked Karnes to convince Cannon to stop disclosing false information to the public and to work with a Task Force to change the technology. Karnes promised me that he would do his best. I thought he Karnes was in a better position, as CFO, to convince Cannon to do something about it. I had presented him with information, but all I got was the same lip-service.”

For the science team, the urgency was not just an impending IPO, but a loss of morale and personnel. Jacques De Deken, Kevin Denicola, Robert Bartek and now Bill Coates had left. Catalyst expert Mike Brady was excluded from participating in the R&D meeting and from receiving technical information and resigned that month. Dr. Conrad Zhang, an expert on Biomass and bio-oil chemistry was re-assigned to teaching  chemistry to some university students, and he later resigned.

One investor looks deeper

On September 17th, Samir Kaul of Khosla Ventures became the first investor to request supporting data. According to the state of Mississippi, “Kaul requested that Cannon provide him with the supporting data of the yields set forth in the graphs. He also asked that Cannon arrange a conference call for Cannon, Kaul and Ditsch to discuss the information.”

Outreach again to the CEO

Internally, nothing came of the outreach to Karnes, and Stamires attempted again in mid-September, this time meeting with CEO Fred Cannon. The meeting took place on September 20th, and Cannon was warned specifically that:

1. The R&D  group under the leadership of Hacskaylo were “working in the wrong area of research, not capable of producing yields close to 84 gallons per dried ton of Biomass with reasonable quality, and production costs close to $2 per gallon of fuel.”

2. To date only minor improvements had  been made on the zeolite catalyst, and it was able to reach actual and reproducible  Bio oil yields no higher than 46-50 gallons per ton 15% or less oxygen content, at the KiOR’ Pilot plant with new more efficient Reactor licensed from CPERI.

3. The yields were far less from the those needed to sustain a profitable business, and substantially less than the 67 gallons per ton stated in the S-1 for the IPO.

Cannon received a follow-up email on October 10th repeating the same points. And on October 30th, Cannon received another email on this subject, urging him to form “a Task Force“ called “Project Team Oil Yield”, reporting directly to Cannon, composed of experts in the Field, to solve the present problems with the very low Bio oil yields and extreme high costs for producing the fuels.

Cannon did not reply.