Tuesday, October 07, 2014

KiOR Squanders Waste-to-Energy Leadership

KiOR (KIOR:  OTC/PK) was among the first public waste-to-energy companies, launching its initial public offering mid-year 2011.  The stock debuted near $15.00 per share and very briefly provided its shareholders with a modest gain.  It has pretty much been downhill every since, with the stock ending last week near its all-time low of $0.10 per share.  Part of the problem in recent weeks has been KiOR’s fall from grace with Nasdaq.  The company apparently failed to pay all fees required by Nasdaq.  Rather than follow the usual appeals process, the company accepted its delisting fate, landing unceremoniously as a quotation on the Over-the-Counter service.

KiOR has been attempting to perfect a catalytic pyrolysis technology to turn cellulosic biomass into renewable gasoline.  Cellulosic biomass is processed in a reactor with proprietary catalysts to remove oxygen from the organic compounds and convert them to hydrocarbons.  Seven years after its inception, KiOR has yet to achieve sufficient yields from its process to begin large-scale commercial operations.  In recent weeks, KiORs struggles have spilled over into a board room drama, culminating in director resignations and firings, accusations and counter accusations.

Even large sums of financial support have not been enough to commercialize KiOR’s technology.  Vinod Khosla and his venture capital firm Khosla Ventures were ardent supporters.  The company also had the support of FedEx and Catchlight Energy, a joint venture of Chevron and Weyerhauser.  As of June 2014, the company had taken in $426 million through the sale of common stock and and another $250 million through long-term debt.  Creditors will have to little to divvy up in a bankruptcy proceeding, if that is what it comes to.  KiOR only has $58 million in assets.

How can an investor differentiate between a winning technology and business model and one that is doomed to failure?  Sadly there is probably no particular event that provides a definitive signal of KiOR’s breakdown.  Repeated delays in the move to commercial production and the shuttering of the company’s Columbus, Missouri production facility might have been considered red flags.  The loss of key personnel such as the chief financial officer might be an even stronger signal that circumstances have become so bad there is little hope for recovery. 

It is not yet clear if the episode being written today is KiOR’s final chapter.  Certainly it is a sorry tale of how a promising company  -  or at least a company that made a lot of promises  -  has lost its leadership in the renewable fuels industry.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


No comments: