Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
KIOR > SEC Filings for KIOR > Form 10-Q on 12-May-2014All Recent SEC Filings

Show all filings for KIOR INC

Form 10-Q for KIOR INC


12-May-2014

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements as of December 31, 2013, the notes accompanying those financial statements and management's discussion and analysis as contained in our Annual Report on Form 10-K, or Annual Report, filed with the SEC on March 17, 2014 and in conjunction with the unaudited condensed consolidated financial statements and notes in Item 1 of Part I of this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various important factors, including those discussed below and in the section entitled "Risk Factors" included in Item 1A of Part II below, in Item 1A of Part I of our Annual Report. Due to the fact that we have generated only limited revenue to date, we believe that the financial information contained in this report is not indicative of, or comparable to, the financial profile that we expect to have if and when we begin to generate significant revenues. We undertake no obligation to update publicly any forward-looking statements, even if new information becomes available or other events occur in the future, except to the extent required by law.

Overview

We are a next-generation renewable fuels company. We have developed a proprietary catalytic process that allows us to produce cellulosic gasoline and diesel from abundant, lignocellulosic biomass. Our cellulosic gasoline and diesel are true hydrocarbon fuels which are similar to their traditional petroleum-based counterparts and yet we estimate they will result in over 60% less life cycle GHG emissions. While other renewable fuels are derived from soft starches, such as corn starch or cane sugar, for ethanol, or from soy and other vegetable oils for biodiesel, cellulosic fuel is derived from lignocellulose found in wood, grasses and the non-edible portions of plants. Our biomass-to-cellulosic fuel technology platform combines our proprietary catalyst systems with FCC processes that have been used in crude oil refineries to produce gasoline for over 60 years.

In April 2012, we mechanically completed our Columbus facility. During the fourth quarter of 2012, we commissioned our proprietary BFCC operation at the Columbus facility, and produced our first "on specification" cellulosic intermediate oil in limited quantities. In the first quarter of 2013, we commissioned the Columbus plant's hydrotreater and fractionation units, and made our first cellulosic diesel and gasoline shipments in March 2013 and June 2013, respectively. During 2013, we gradually increased production at our Columbus facility but did not reach "steady state" production.

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. Borrowings under the 2014 Notes Purchase Agreement are subject to the achievement of performance milestones. The performance milestones (i) require us to demonstrate that we have made material progress in implementing our business, financial, operational and technology plans, (ii) require us to demonstrate that there is a likelihood of eventual commercial success of our business plan when considered in light of both internal and external factors, including without limitation, market conditions, costs, competitive developments and our ability to secure financing and (iii) require Khosla to believe that the purchase of additional notes is appropriate for us to continue our operations.

As discussed in further detail below, 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.

Subject to our ability to achieve these additional research and development milestones, our ability to raise capital, our ability to successfully complete our optimization projects and upgrades and the success of these projects and upgrades in improving operations at our Columbus facility, we intend to begin construction of our next commercial production facility. We will also need to raise additional capital to continue our operations, build our next commercial production facility and subsequent facilities, continue the development of our technology and products, commercialize any products resulting from our research and development efforts, and satisfy our debt service obligations.

We were incorporated and commenced operations in July 2007. Since our inception, we have operated as a development stage company, performing extensive research to develop, enhance, refine and commercialize our biomass-to-cellulosic fuel technology platform. We have focused our efforts on research and development and getting our Columbus facility to steady state operations. As a result, we have generated significant net losses since our inception. As of March 31, 2014, we had an accumulated deficit of $604.9 million, and we expect to continue to incur operating losses until we construct our first standard commercial production facility and it is operational. As discussed above, we have substantial doubts about our ability to continue as a going concern and we must raise capital in one or more external equity and/or debt financings to fund the cash requirements of our ongoing operations. Other than the 2014 Note Purchase Agreement, all of our other committed sources of financing are contingent upon, among other things, our raising $400 million from one or more offerings, private placements or other financing transactions, which we do not expect to occur prior to the completion of the optimization projects and upgrades at our Columbus facility.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates have not materially changed from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2013. These policies include inventories, impairment of long-lived assets and intangible assets, stock-based compensation, income taxes and common stock warrants.

Results of Operations

During 2014, we ceased production at our Columbus facility in order to focus on optimization projects and upgrades that were targeted at improving throughput, yield and overall process efficiency and reliability. While we have completed some of these projects and upgrades, we have elected to suspend all optimization work and to bring the Columbus facility to an idle state. During this time, unless and until we restart the facility, we expect to have no production and limited revenue from the facility, but will continue to incur significant operating costs and expenses. 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.

Three Months Ended March 31, 2014 compared to the Three Months Ended March 31, 2013

Revenues



                                     Three Months Ended March 31,                       Change
                                    2014                      2013                 $               %
                                        (Amounts in thousands)
Revenues:
Product revenue                $           102           $            68     $         34               50 %
Renewable identification
number revenue                               -                         3               (3 )           (100 )%
Total revenues                 $           102           $            71     $         31


Product revenue. Our product revenue was $102,000 for the three months ended March 31, 2014 compared to $68,000 for the same period in 2013. Product revenue was primarily generated by cellulosic gasoline, diesel, and fuel oil shipments from products we produced prior to idling our Columbus facility. For the three months ended March 31, 2014, our revenue from our Columbus facility consisted of the following:

                         Three Months Ended March 31,
                           2014                 2013
Product revenue
Cellulosic Gasoline   $       58,000       $            -
Cellulosic Diesel     $       39,000       $       16,000
Fuel Oil              $        5,000       $            -

Gallons produced
Cellulosic Gasoline                -               22,000
Cellulosic Diesel                  -                8,000
Fuel Oil                           -               22,000

Gallons sold
Cellulosic Gasoline           29,000                    -
Cellulosic Diesel              5,000                5,000
Fuel Oil                       5,000                    -

The remaining product revenue for the three months ended March 31, 2013 was generated from our research and development facilities and it primarily relates to revenue earned from the sale of blended diesel to one of our offtake customers for fleet testing. Currently, we have ceased work on a series of optimization projects and upgrades at the Columbus facility and are bringing the facility to an idle state. These projects were targeted at improving throughput, yield and overall process efficiency and reliability and to address problems we have had to date in the Columbus facility with structural design bottlenecks and reliability issues, operations below nameplate capacity, unfavorable product mix and higher costs due to overall process inefficiencies. As a result of this cessation of operations, we are unable to estimate 2014 production levels.

Renewable identification number revenue. Our renewable identification number, or RIN revenue was zero for the three months ended March 31, 2014 compared to $3,000 for the same period in 2013. For the three months ended March 31, 2013, our RIN revenue consisted of $3,000 from 8,000 cellulosic diesel RINs. Our fuel oil shipments generate RINs.

If and when we restart our Columbus facility, we expect that our revenues from sales of cellulosic gasoline and diesel and RINs will be limited and unpredictable, at least in the near term, as we then continue to bring the facility to steady state operations. In addition, we ceased work on optimization projects and upgrades at our Columbus facility and have brought the facility to an idle state. During this time, we expect to have little to no revenue. We also expect that our revenues will be subject to price fluctuations, including the prices we obtain from different customers for our cellulosic gasoline, diesel and fuel oil and RINs under our off-take agreements or spot sale arrangements. All revenues for the three months ended March 31, 2014 are attributable to customers in the United States. In addition, the value of cellulosic gasoline and diesel RINs decreased following the announcement in November 2013 of proposed 2014 Renewable Volume Obligation, or RVO, rulemaking through the EPA. We expect the value we receive for our cellulosic gasoline and diesel RINs will continue to be depressed during pendency of such rulemaking and could remain depressed if the final RVO rulemaking does not support companies like ours.

Operating Expenses





                                         Three Months Ended March 31,                  Change
                                           2014                 2013               $             %
                                            (Amounts in thousands)
Operating expenses:
Cost of product revenue               $        9,434       $        5,408     $    4,026             74 %
Research and development expenses     $        6,741       $        9,166     $   (2,425 )          (26 )%
General and administrative expenses            7,416               14,676         (7,260 )          (49 )%
Total operating expenses              $       23,591       $       29,250     $   (5,659 )

Cost of product revenue. Our cost of product revenue was $9.4 million for the three months ended March 31, 2014 as compared to $5.4 million for the same period in 2013. In March 2013, as a result of producing finished products and having our first cellulosic diesel shipment from the Columbus facility, we placed the plant into service. Depreciation, operating and manufacturing costs incurred at our Columbus facility subsequent to placing the plant into service are presented as cost of product revenue. The increase in cost of product revenue is primarily due to three months of operating costs during the three months ended March 31, 2014 compared to two months of operating costs during the three months ended March 31, 2013. Also, our cost of product revenue for the three months ended March 31, 2014 includes costs incurred for our optimization projects and upgrades prior to ceasing the project. We expect that our operating costs at Columbus will decrease for the remainder of 2014 as we have brought the plant to an idle state until financing is available to restart the facility.

Research and Development Expenses. Our research and development expenses decreased by $2.4 million, or 26%, for the three months ended March 31, 2014 compared to the same period in 2013. The decrease in research and development expenses was primarily due to a decrease of $900,000 in research and development payroll and related expenses as a result of reduced headcount, less overtime, and less stock compensation. Our research and development headcount decreased from an average of approximately 108 employees during the three months ended March 31, 2013 compared to an average of approximately 80 employees during the three months ended March 31, 2014. Our stock compensation expense was lower primarily due to us not expecting to achieve as many goals under our 2013 Incentive Plan as we did under our 2012 Incentive Plan. There was also a decrease to research and development expense of $900,000 in maintenance costs associated with our research and development facilities primarily a result of a reduction in maintenance contractors. Our research and development laboratory testing and supplies expenses decreased by $400,000 for the three months ended March 31, 2014 compared to the same period in 2013 and the remaining $200,000 decrease to research and development expenses primarily related to a reduction in consultant fees.


General and Administrative Expenses. Our general and administrative expenses decreased by $7.3 million, or 49%, for the three months ended March 31, 2014 compared to the same period in 2013. This decrease was primarily the result of $6.6 million of start-up costs incurred at our Columbus facility during the three months ended March 31, 2013 reported as general and administrative expenses compared to $0.3 million of general and administrative during the same period in 2014, a decrease of $6.3 million. This $6.3 million decrease is primarily due to two months of start-up costs in 2013 reported in general and administrative expenses prior to us placing our Columbus facility into service in March 2013 which concluded us classifying costs as start-up. Operating costs at the facility subsequent to us placing it into service are now included in cost of product revenue, unless they are general and administrative in nature.

The remaining decrease to general and administrative expenses of approximately $1.0 million is primarily due to a decrease of $1.8 million in payroll and related expenses and a decrease of $0.3 million related to accounting fees. Our accounting fees during the first quarter of 2013 were higher than the first quarter of 2014 due to incremental fees we incurred related to Sarbanes-Oxley work as we were concluding testing for our first year of compliance. The decrease in payroll and related expenses is primarily due to a decrease of $1.2 million in stock based compensation expense due to us not expecting to achieve as many goals under our 2013 Incentive Plan as we did under our 2012 Incentive Plan. The remaining decrease to payroll and related expenses of $0.6 million is primarily due to our headcount decreasing from an average of approximately 47 employees during the three months ended March 31, 2013 compared to an average of approximately 35 employees during the three months ended March 31, 2014. The decrease to general and administrative expenses was partially offset by an increase of $1.1 million in legal fees during the first quarter of 2014. Increased legal fees relate to shareholders' lawsuit and the SEC inquiry of us and are discussed in more detail in Part II, Item 1 - Legal Proceedings.

Other Income (Expense), Net



                                         Three Months Ended March 31,                  Change
                                           2014                 2013               $             %
                                            (Amounts in thousands)
Other income (expense), net:
Interest income                       $            -       $            1     $       (1 )         (100 )%
Interest expense, net of amounts
capitalized                           $       (7,105 )     $       (2,157 )   $    4,948            229 %
Total operating expenses              $       (7,105 )     $       (2,156 )   $    4,949

Interest Income. Interest income decreased by $1,000 for the three months ended March 31, 2014 as compared to the same period in 2013. The decrease is primarily due to less cash on hand invested in money market accounts.

Interest Expense, Net of Amounts Capitalized. Interest expense increased by approximately $4.9 million for the three months ended March 31, 2014 compared to the same period in 2013. In March 2013, we placed our initial-scale commercial production facility in Columbus, Mississippi into service, which significantly reduced interest expense capitalized after the in-service date. Until we incur significant capital expenditures at our next commercial production facility, we expect that the majority of our interest expense will not be capitalized.

Liquidity and Capital Resources

Since inception, we have generated significant losses. As of March 31, 2014, we had an accumulated deficit of approximately $604.9 million and we expect to continue to incur operating losses until we construct our first standard commercial production facility and it is operational. We must raise significant additional capital by approximately August 31, 2014 in order to fund the cash requirements of our ongoing operations.

Other than the 2014 Note Purchase Agreement, which contemplates an investment in us of up to an aggregate of $25.0 million in available funds, subject to our achievement of performance milestones, we have no other near-term sources of financing. The performance milestones we must satisfy in order to receive the full amount under the 2014 Note Purchase Agreement (i) require us to demonstrate that we have made material progress in implementing our business, financial, operational and technology plans, (ii) require us to demonstrate that there is a likelihood of eventual commercial success of our business plan when considered in light of both internal and external factors, including without limitation, market conditions, costs, competitive developments and our ability to secure financing and (iii) require Khosla to believe that the purchase of additional notes is appropriate for us to continue our operations.

As discussed in further detail above, 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.


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).

Even if we are able to achieve such performance milestones or secure any additional financing, any investment may require significant changes to our current business structure, including, but not limited to: a change in the focus of our business; suspension of some or all of our operations; delaying or scaling back our business plan, including our research and development programs; reductions in headcount, overhead and other operating costs; and the longer-term or permanent closing of our Columbus facility, each of which would have a material adverse effect on our business, prospects and financial condition. We have substantial doubts about our ability to continue as a going concern.

Commercialization of our technology will also require significant capital and other expenditures, including costs related to: (i) ongoing efforts to achieve steady-state operations, (ii) a series of optimization projects and upgrades at our Columbus facility and (iii) the construction of our next commercial production facility, all of which will also require us to raise significant amounts of additional capital.

As of March 31, 2014, we had cash and cash equivalents of $4.2 million. As of April 30, 2014, we had cash and cash equivalents of $3.3 million.

Our material liquidity needs over the next twelve months from April 30, 2014 consist of the following:

Funding our research and development costs and overhead costs, which we expect to be approximately $35 million. We do not expect to generate sufficient revenue from the sale of our cellulosic fuel to allow us to fund these costs from internally generated cash from operations until we construct our first standard commercial production facility and it is operational.

Funding our debt service costs, which we expect to be approximately $3.8 million, assuming we continue to elect to pay-in-kind interest due under the Loan and Security Agreement.

Funding the current operating costs of our Columbus facility, including costs to bring the facility to an idle state and maintain the facility in near ready startup mode, which we expect to be approximately $16 million. We expect to have a little to no revenue from our Columbus facility over the next 12 months, unless and until we restart the facility.

In addition to the cash on hand at April 30, 2014 and the additional $20 million . . .

  Add KIOR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for KIOR - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.