This will likely cause us to default under our existing debt and we could be forced to seek relief under the US Bankruptcy Code (or an involuntary petition for bankruptcy may be filed against us). 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 Commitment in the near term, we expect to be able to fund our operations and meet our obligations until August 31, 2014, but will need to raise additional funds to continue our operations beyond that date.

—KiOR 10-K

KiOR developed a proprietary catalytic process to produce cellulosic gasoline and diesel from lignocellulosic biomass. The biomass-to-cellulosic fuel technology platform combines KiOR’s proprietary catalyst systems with FCC processes that have been used in crude oil refineries to produce gasoline for more than 60 years. The BFCC process operates at moderate temperatures and pressures to convert biomass in a matter of seconds into a cellulosic crude oil that can be refined using standard refining equipment into cellulosic gasoline and diesel.

Biomass is sized and dried before it is fed into the BFCC reactor through a proprietary biomass feed system. Once inside the reactor, the biomass interacts with the proprietary catalyst. The catalyst vaporizes the biomass and effects chemical reactions designed to target specific hydrocarbon molecules.

When the catalyst and vapor exit the reactor, the catalyst is stripped from the vapor which is then condensed and separated with KiOR’s proprietary technology into cellulosic crude oil, water and light gases.

The crude oil proceeds to the hydrotreating unit to be refined into gasoline, diesel and fuel oil. The water and light gases are diverted to a cogeneration unit where they are used to produce steam to generate sufficient electricity to power the facility.

The catalyst is recovered, regenerated by combusting the product coke deposited during the initial reaction, and is recycled back into the reactor where it once again interacts with incoming biomass. This regeneration step creates a loop that is standard in FCC.

In the hydrotreating unit, the renewable crude oil undergoes a reaction with hydrogen to remove residual oxygen and render a true hydrocarbon liquid product which can be fractionated into gasoline, jet fuel and diesel with common distillation technology.

KiOR has optimized the gasoline output component from 37% to 61%, the jet fuel component from 30% to 40%, the diesel output component from 31% to 55% and the fuel oil output component from 8% to 9% of the total liquid product. The focus of the commercialization efforts are with respect to our gasoline and diesel.

In January, KiOR President and CEO Fred Cannon said that the company was halting production of cellulosic gasoline, diesel and fuel oil at its plant in Columbus, Mississippi in order to implement a number of optimization projects it identified as necessary—based on its experience in 2013—to optimize production to enhance yield, throughput and operability and to minimize cost.

In the 10-K, KiOR said that it had note been able to achieve the throughput and yield targets for the facility because of structural bottlenecks, reliability and mechanical issues, and catalyst performance.

• Throughput. Structural design bottlenecks and reliability limited the amount of wood that can be introduced to the BFCC system. These issues caused the Columbus facility to run significantly below its nameplate capacity for biomass of 500 bone dry tons per day and limited the production of cellulosic gasoline and diesel.

• Yield. Yield has been lower than expected due to a delay introducing a new generation of catalyst to the facility and mechanical failures impeding desired chemical reactions in the BFCC reactor.

• Overall process efficiency and reliability. Mechanical reliability issues with the BFCC hydrotreater and catalyst contamination has resulted in an output of unfavorable product mix that includes higher percentages of fuel oil, resulting in lower product and RIN revenue and higher overall costs. Frequent shutdown and start-up of the BFCC hydrotreater has resulted in off-specification product.

• Cost structure. KiOR is aiming to reduce its cost structure by, among other things, decreasing natural gas consumption by the facility. We do not expect to complete these optimization projects until we achieve additional research and development milestones and receive additional financing.

While the company has completed some of those projects and upgrades, it is now suspending further optimization work and bringing the Columbus facility to a safe, idle state.

As of 28 February 2014, the company had aggregate indebtedness of $279.5 million. In December 2012, it began making semi-annual payments of $1.9 million under its loan with the Mississippi Development Authority (MDA). If KiOR does not successfully secure financing, it will not be able to make its MDA payment on 30 June—constituting a default under the MDA Loan.

In addition, it must make specified investments within Mississippi by 31 December 2015, including an aggregate $500.0 million investment in property, plant and equipment located in Mississippi and expenditures for wages and direct local purchases in Mississippi totaling $85.0 million. Of the total amount committed to be spent, $218 million has been spent on plant and equipment as of 31 December 2013, leaving an amount of $282 million remaining to be invested, while expenditures for wages and direct local purchases totaled approximately $51 million at 31 December 2013 leaving $34 million remaining to be spent.

Based on our current estimates, we believe that we will be unable to meet the specified investment requirement in property, plant and equipment and certain other expenditures in wages and direct local purchases under our MDA loan and if the Columbus facility is not operating for a significant portion of 2014, we expect we will be unable to meet the specified expenditures for wages and direct local purchases. Failure to meet these requirements would constitute a default under our MDA loan. Any defaults under our MDA Loan could, in turn, result in cross defaults under our other loan facilities.

—KiOR 10-K

Two lawsuits have been filed against KiOR and some of its executive officers and directors in August and December 2013. In addition, the SEC has served the company with a subpoena, pursuant to a formal order of investigation.