Attached files
file | filename |
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EX-31.2 - EX-31.2 - Kior Inc | c21414exv31w2.htm |
EX-10.2 - EX-10.2 - Kior Inc | c21414exv10w2.htm |
EX-32.1 - EX-32.1 - Kior Inc | c21414exv32w1.htm |
EX-31.1 - EX-31.1 - Kior Inc | c21414exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-35213
KiOR, INC.
(Exact name of registrant as specified in its charter)
Delaware | 51-0652233 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
13001 Bay Park Road | ||
Pasadena, Texas | 77507 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code:
(281) 694-8700
(281) 694-8700
Former name, former address and former fiscal year, if changed since last report: Not
applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the registrants classes of common stock, as of the close
of business on August 10, 2011, is set forth below:
Class | Amount Outstanding | |
Class A Common Stock, par value $0.0001 per share | 40,099,369 | |
Class B Common Stock, par value $0.0001 per share | 61,848,696 |
KiOR, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011
INDEX
2
Table of Contents
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q (Quarterly Report) contains forward-looking statements.
All statements other than statements of historical fact contained in this Quarterly Report,
including statements regarding our future results of operations and financial position, business
strategy and plans and our objectives for future operations, are forward-looking statements. The
words believe, may, will, estimate, continue, anticipate, intend, expect and
similar expressions are intended to identify forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections about future events
and financial trends that we believe may affect our financial condition, results of operations,
business strategy, short-term and long-term business operations and objectives, and financial
needs.
In particular, forward-looking statements in this Quarterly Report include statements about:
| the size of the potential markets for our gasoline and diesel blendstocks; |
||
| the expected production costs and cost-competitiveness of our gasoline and diesel blendstocks; |
||
| the anticipated performance attributes of our renewable crude oil and gasoline and diesel blendstocks; |
||
| the accuracy of our estimates regarding expenses, construction costs, future revenue and capital requirements; |
||
| the timing of the construction and commencement of operations at our planned commercial production facilities; |
||
| achievement of advances in our technology platform and process design, including improvements to our yield; |
||
| our ability to produce renewable crude oil and blendstocks at commercial scale; |
||
| our ability economically to obtain feedstock; |
||
| our ability to locate production facilities near low-cost, abundant and sustainable feedstock; |
||
| the future price and volatility of petroleum-based products and of our current and future feedstocks; |
||
| government regulatory certification, including certification of our gasoline and
diesel blendstocks as cellulosic biofuels and registration of our blendstocks with the
U.S. Environmental Protection Agency as fuels, and industry acceptance of our gasoline
and diesel blendstocks, as well as certification, registration and acceptance of our
blendstocks for use in jet fuel; |
||
| government policymaking and incentives relating to renewable fuels; |
||
| our ability to obtain and retain potential customers for our gasoline and diesel blendstocks; |
||
| our ability to hire and retain skilled employees; |
||
| our ability to obtain and maintain intellectual property protection for our products and processes; and |
||
| the ability of our competitors, many of whom have greater resources than we do, to
offer alternatives to our gasoline and diesel blendstocks. |
These forward-looking statements are subject to a number of risks, uncertainties and
assumptions, including those described in Risk Factors Item 1A of Part II of this Quarterly
Report. Moreover, we operate in a competitive and rapidly changing environment in which new risks
emerge from time to time. It is not possible for our management to predict all risks. In light of
these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed
in this Quarterly Report may not occur and actual results could differ materially and adversely
from those anticipated or implied in the forward-looking statements.
Although we believe that the expectations reflected in forward-looking statements are
reasonable, we cannot guarantee that the events and circumstances reflected in the forward-looking
statements will occur or be achieved. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements for any reason after the date of this
Quarterly Report, except to the extent required by law.
3
Table of Contents
KIOR, Inc.
(A development stage enterprise)
(A development stage enterprise)
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 207,577 | $ | 51,350 | ||||
Restricted cash |
100 | 100 | ||||||
Prepaid expenses and other current assets |
970 | 85 | ||||||
Total current assets |
208,647 | 51,535 | ||||||
Property, plant and equipment, net |
80,072 | 34,880 | ||||||
Intangible assets, net |
2,330 | 2,426 | ||||||
Other assets |
300 | | ||||||
Total assets |
$ | 291,349 | $ | 88,841 | ||||
Liabilities, Convertible Preferred Stock and Stockholders Equity (Deficit) |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt, net of discount |
$ | 1,629 | $ | 4,480 | ||||
Accounts payable |
13,472 | 3,207 | ||||||
Accrued liabilities |
2,376 | 671 | ||||||
Convertible preferred stock warrants liability |
| 3,185 | ||||||
Total current liabilities |
17,477 | 11,543 | ||||||
Long-term debt, less current portion, net of discount |
29,707 | 5,037 | ||||||
Total liabilities |
47,184 | 16,580 | ||||||
Commitments and contingencies (Note 8) |
||||||||
Convertible preferred stock: |
||||||||
Series A convertible preferred stock, $0.0001 par value, 0 and 24,000,000 shares authorized at June
30, 2011 and December 31, 2010, respectively; 0 and 24,000,000 shares issued and outstanding at June
30, 2011 and December 31, 2010, respectively |
| 4,360 | ||||||
Series A-1 convertible preferred stock, $0.0001 par value, 0 and 25,600,000 shares authorized at June
30, 2011 and December 31, 2010, respectively; 0 and 20,571,576 shares issued and outstanding at June
30, 2011 and December 31, 2010, respectively |
| 10,024 | ||||||
Series B convertible preferred stock, $0.0001 par value, 0 and 25,000,000 shares authorized at June
30, 2011 and December 31, 2010, respectively; 0 and 24,479,802 shares issued and outstanding at June
30, 2011 and December 31, 2010, respectively |
| 120,000 | ||||||
Stockholders equity (deficit): |
||||||||
Preferred stock $0.0001 par value, 2,000,000 shares authorized, none issued and outstanding |
| | ||||||
Class A
common stock, $0.0001 par value; 250,000,000 and 112,100,000 shares authorized at June 30,
2011 and December 31, 2010, respectively; 39,299,369 and 60,000 shares issued and outstanding at
June 30, 2011 and December 31, 2010, respectively |
4 | | ||||||
Class B
common stock (formerly common stock) $0.0001 par value; 70,800,000 and 72,000,000 shares
authorized at June 30, 2011 and December 31, 2010, respectively; 61,848,696 and 15,820,000 shares
issued and outstanding at June 30, 2011 and December 31, 2010, respectively |
6 | 2 | ||||||
Additional paid-in capital |
344,822 | 4,199 | ||||||
Deficit accumulated during the development stage |
(100,667 | ) | (66,324 | ) | ||||
Total stockholders equity (deficit) |
244,165 | (62,123 | ) | |||||
Total liabilities, convertible preferred stock and stockholders equity (deficit) |
$ | 291,349 | $ | 88,841 | ||||
See accompanying notes to condensed consolidated financial statements
4
Table of Contents
KIOR, Inc.
(A development stage enterprise)
(A development stage enterprise)
Condensed Consolidated Statement of Operations
(Amounts in thousands, except per share data)
(Unaudited)
Period from | ||||||||||||||||||||
July 23, | ||||||||||||||||||||
2007 (Date | ||||||||||||||||||||
of | ||||||||||||||||||||
Inception) | ||||||||||||||||||||
Three Months Ended | Six Months Ended | through | ||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development expenses |
$ | (7,723 | ) | $ | (4,240 | ) | $ | (14,994 | ) | $ | (8,621 | ) | $ | (50,836 | ) | |||||
General and administrative expenses |
(7,161 | ) | (2,122 | ) | (11,350 | ) | (3,348 | ) | (24,564 | ) | ||||||||||
Depreciation and amortization expenses |
(563 | ) | (406 | ) | (1,085 | ) | (685 | ) | (3,623 | ) | ||||||||||
Loss from operations |
(15,447 | ) | (6,768 | ) | (27,429 | ) | (12,654 | ) | (79,023 | ) | ||||||||||
Other income (expense), net: |
||||||||||||||||||||
Interest income |
| 2 | | 2 | 170 | |||||||||||||||
Beneficial conversion feature expense
related to convertible promissory note |
| (10,000 | ) | | (10,000 | ) | (10,000 | ) | ||||||||||||
Interest expense, net of amounts capitalized |
| (356 | ) | | (722 | ) | (2,054 | ) | ||||||||||||
Foreign currency gain (loss) |
| 16 | | 24 | (435 | ) | ||||||||||||||
Loss from change in fair value of warrant
liability |
(5,504 | ) | (2,290 | ) | (6,914 | ) | (2,290 | ) | (9,278 | ) | ||||||||||
Other expense, net |
(5,504 | ) | (12,628 | ) | (6,914 | ) | (12,986 | ) | (21,597 | ) | ||||||||||
Loss before income taxes |
(20,951 | ) | (19,396 | ) | (34,343 | ) | (25,640 | ) | (100,620 | ) | ||||||||||
Income tax expenses current |
| | | | (47 | ) | ||||||||||||||
Net loss |
$ | (20,951 | ) | $ | (19,396 | ) | $ | (34,343 | ) | $ | (25,640 | ) | $ | (100,667 | ) | |||||
Deemed dividend related to the beneficial
conversion feature of Series C convertible
preferred stock |
(19,669 | ) | | (19,669 | ) | | (19,669 | ) | ||||||||||||
Net loss attributable to stockholders |
$ | (40,620 | ) | $ | (19,396 | ) | $ | (54,012 | ) | $ | (25,640 | ) | $ | (120,336 | ) | |||||
Net loss per share of Class A and B common
stock, basic and diluted |
$ | (.43 | ) | $ | (.27 | ) | $ | (.60 | ) | $ | (.39 | ) | ||||||||
Weighted-average Class A and B common shares
outstanding, basic and diluted |
19,208 | 15,580 | 17,820 | 15,180 | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements
5
Table of Contents
KIOR, Inc.
(A development stage enterprise)
(A development stage enterprise)
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders Equity (Deficit)
(Amounts in thousands)
(Unaudited)
Class B | ||||||||||||||||||||||||||||||||||||
Common Stock, | Deficit | Total | ||||||||||||||||||||||||||||||||||
Convertible | Class A | formerly Common | Addtl | Accum | Stockholders | |||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Stock | Paid-in- | During the | Equity | |||||||||||||||||||||||||||||||
Shrs | $ | Shrs | $ | Shrs | $ | Capital | Dev. Stage | (Deficit) | ||||||||||||||||||||||||||||
Balance at December 31, 2010 |
69,052 | $ | 134,384 | 60 | $ | | 15,820 | $ | 2 | $ | 4,199 | $ | (66,324 | ) | $ | (62,123 | ) | |||||||||||||||||||
Issuance of Class A Common Stock Public Offering |
| | 10,000 | 1 | | | 137,522 | | 137,523 | |||||||||||||||||||||||||||
Common Stock Issued Restricted |
| | 44 | | | | | | | |||||||||||||||||||||||||||
Stock Based Compensation Options |
| | | | | | 2,454 | | 2,454 | |||||||||||||||||||||||||||
Stock Based Compensation Restricted |
| | | | | | 746 | | 746 | |||||||||||||||||||||||||||
Stock Options/Warrants Exercised |
| | 132 | | 1,457 | | 125 | | 125 | |||||||||||||||||||||||||||
Issuance of Series C Convertible Preferred Stock |
11,220 | 55,000 | | | | | | | | |||||||||||||||||||||||||||
Conversion of Series A Convertible Preferred Stock |
(24,000 | ) | (4,360 | ) | | | 24,000 | 2 | 4,358 | | 4,360 | |||||||||||||||||||||||||
Conversion of Series A-1 Convertible Preferred
Stock |
(20,572 | ) | (10,024 | ) | | | 20,572 | 2 | 10,022 | | 10,024 | |||||||||||||||||||||||||
Conversion of Series B Convertible Preferred Stock |
(24,480 | ) | (120,000 | ) | 24,480 | 2 | | | 119,998 | | 120,000 | |||||||||||||||||||||||||
Conversion of Series C Convertible Preferred Stock |
(11,220 | ) | (55,000 | ) | 4,583 | 1 | | | 54,999 | | 55,000 | |||||||||||||||||||||||||
Conversion of Convertible Preferred Stock Warrants
Liability |
| | | | | | 10,399 | | 10,399 | |||||||||||||||||||||||||||
Beneficial Conversion Feature on Issuance of
Series C
Convertible Preferred Stock and Stock Warrants |
| | | | | | 19,669 | | 19,669 | |||||||||||||||||||||||||||
Deemed Dividend Related to the Beneficial
Conversion
Feature
on Series C Convertible Preferred Stock and
Stock
Warrants |
| | | | | | (19,669 | ) | | (19,669 | ) | |||||||||||||||||||||||||
Net loss |
| | | | | | | (34,343 | ) | (34,343 | ) | |||||||||||||||||||||||||
Balance at June 30, 2011 |
| $ | | 39,299 | $ | 4 | 61,849 | $ | 6 | $ | 344,822 | $ | (100,667 | ) | $ | 244,165 | ||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
6
Table of Contents
KIOR, Inc.
(A development stage enterprise)
(A development stage enterprise)
Condensed Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
Period from July | ||||||||||||
23, 2007 (Date of | ||||||||||||
Inception) | ||||||||||||
Six Months Ended June 30, | through June 30, | |||||||||||
2011 | 2010 | 2011 | ||||||||||
Cash flows from operating activities |
||||||||||||
Net loss |
$ | (34,343 | ) | $ | (25,640 | ) | $ | (100,667 | ) | |||
Adjustments to reconcile net loss to cash used in operating activities: |
||||||||||||
Depreciation and amortization |
1,085 | 685 | 3,622 | |||||||||
Stock-based compensation |
3,200 | 156 | 4,461 | |||||||||
Non cash compensation from warrants issued on common stock |
| | 298 | |||||||||
Beneficial conversion feature expense
related to convertible promissory note |
| 10,000 | 10,000 | |||||||||
Derivative fair value adjustments |
6,914 | 2,290 | 9,279 | |||||||||
Accrued Interest |
| | 534 | |||||||||
Amortization of debt discount and fees |
| 119 | 300 | |||||||||
Changes in other operating assets and liabilities |
||||||||||||
Prepaid expenses and other current assets |
(1,185 | ) | 33 | (1,089 | ) | |||||||
Accounts payable |
(453 | ) | (781 | ) | 425 | |||||||
Accrued liabilities |
205 | 147 | 805 | |||||||||
Net cash used in operating activities |
(24,577 | ) | (12,991 | ) | (72,032 | ) | ||||||
Cash flows from investing activities |
||||||||||||
Purchases of property, plant and equipment |
(50,738 | ) | (8,021 | ) | (85,253 | ) | ||||||
Purchases of intangible assets |
| | (427 | ) | ||||||||
Restricted cash |
| | (100 | ) | ||||||||
Net cash used in investing activities |
(50,738 | ) | (8,021 | ) | (85,780 | ) | ||||||
Cash flows from financing activities |
||||||||||||
Proceeds from issuance of convertible promissory note to stockholder |
| | 15,000 | |||||||||
Proceeds from equipment loans |
| 1,000 | 6,000 | |||||||||
Payments on equipment loans |
(308 | ) | (789 | ) | (2,886 | ) | ||||||
Proceeds from business loans |
| 7,000 | 7,000 | |||||||||
Payments on business loans |
(189 | ) | | (1,108 | ) | |||||||
Proceeds from stock option/warrant exercises |
125 | 21 | 168 | |||||||||
Proceeds from issuance of Series A convertible preferred stock |
| | 4,360 | |||||||||
Proceeds from issuance of Series A-1 convertible preferred stock |
| | 10,024 | |||||||||
Proceeds from issuance of Series B convertible preferred stock |
| 50,000 | 95,000 | |||||||||
Proceeds from issuance of Series C convertible preferred stock |
55,000 | | 55,000 | |||||||||
Proceeds from issuance of common stock in initial public offering, net
of expenses |
137,523 | | 137,523 | |||||||||
Borrowings under the Mississippi Development Authority loan |
39,391 | | 39,391 | |||||||||
Net cash provided by financing activities |
231,542 | 57,232 | 365,472 | |||||||||
Effect of exchange rate on cash and cash equivalents |
| (57 | ) | (83 | ) | |||||||
Net increase in cash and cash equivalents |
156,227 | 36,163 | 207,577 | |||||||||
Cash and cash equivalents |
||||||||||||
Beginning of period |
51,350 | 5,176 | | |||||||||
End of period |
$ | 207,577 | $ | 41,339 | $ | 207,577 | ||||||
See accompanying notes to condensed consolidated financial statements
7
Table of Contents
KIOR, Inc.
(A development stage enterprise)
(A development stage enterprise)
Condensed Consolidated Statement of Cash Flows (continued)
(Amounts in thousands)
(Unaudited)
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Supplemental disclosure of noncash investing and financing activities: |
||||||||
Accrued purchase of property, plant and equipment |
$ | 12,225 | $ | 1,010 | ||||
Convertible preferred stock warrants issued in connection with loan
amendments |
$ | 300 | $ | 665 | ||||
Conversion of convertible promissory note to stockholder into Series B
convertible preferred stock |
$ | | $ | 15,000 | ||||
Conversion of Series A, A-1, B, and C convertible preferred stock into
Class A and Class B common stock |
$ | 134,384 | $ | | ||||
Conversion of convertible preferred stock warrants into Class A and
Class B common stock warrants |
$ | 10,399 | $ | |
See accompanying notes to condensed consolidated financial statements
8
Table of Contents
KIOR, Inc.
(A development stage enterprise)
(A development stage enterprise)
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. General
Organization
KiOR, Inc., a Delaware corporation (the Company), is a next-generation renewable fuels
company based in Houston, Texas. The Company was incorporated and commenced operations in July 2007
as a joint venture between Khosla Ventures, an investment partnership, and BIOeCON B.V.
The accompanying condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, KiOR B.V. (in liquidation) and KiOR Columbus LLC. KiOR
B.V., a Netherlands company, was formed on March 4, 2008 and commenced the process of liquidation
in March 2010. As of December 31, 2010, all of the operations of KiOR B.V. were combined into the
operations of KiOR, Inc. KiOR Columbus, LLC, a wholly owned subsidiary of the Company (KiOR
Columbus), was formed on October 6, 2010.
Nature of Business
The Company has developed a proprietary technology platform to convert abundant and
sustainable non-food biomass into hydrocarbon-based crude oil. The Company processes its renewable
crude oil using standard refinery equipment into gasoline and diesel blendstocks that can be
transported using the existing fuels distribution system for use in vehicles on the road today.
Since inception, the Company has performed extensive research and development efforts to
develop, enhance, refine and commercialize its biomass-to-fuel technology platform. The Company is
now entering its commercialization phase and, in the first quarter of 2011, commenced construction
of its first initial-scale commercial production facility in Columbus, Mississippi.
Development Stage Enterprise
The Company is a development stage enterprise, and has incurred losses since inception. Until
recently, the Company has focused its efforts on the research and development of its
biomass-to-renewable fuel technology platform, and it has yet to generate revenue from its process.
As a result, it has generated operating losses of $79.0 million and accumulated deficit of $100.7
million since inception. The Company expects to continue to incur operating losses through at least
2013 as it continues into the commercialization stage of its business. The Companys ultimate
success is dependent upon the successful transition of the Company from primarily a research and
development company to an operating company. There can be no assurance that the Companys
proprietary technologies will be successful on a commercial scale, that it will be successful in
funding its long-term expansion plans or that it will be able to generate sufficient revenue in the
future to sustain operations.
The Company closed its initial public offering of 10,000,000 shares of Class A common stock at
a price to the public of $15.00 per share on June 29, 2011. Upon the closing of the sale of shares
of the Companys Class A common stock to the public, all outstanding shares of the Series A and
Series A-1 convertible preferred stock converted into 44.6 million shares of common stock on a
1-to-1 basis (which was redesignated Class B common stock upon the completion of the Companys
initial public offering), (2) all outstanding shares of Series B convertible preferred stock were
converted automatically into 24.5 million shares of Class A common stock on a 1-to-1 basis, and all
outstanding shares of Series C convertible preferred stock were converted automatically into 4.6
million shares of Class A common stock using a conversion price of 80% of the issuance price to the
public in the initial public offering (the IPO price).
9
Table of Contents
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America and the applicable
rules and regulations of the Securities and Exchange Commission (SEC) for interim financial
information. Certain information and note disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to these rules and regulations. In the
opinion of the Company, these financial statements contain all adjustments necessary to present
fairly its financial position as of June 30, 2011 and December 31, 2010 and the results of its
operations and changes in its cash flows for the six months ended June 30, 2011 and 2010. All such
adjustments represent normal recurring items, except as noted herein. These condensed consolidated
financial statements should be read in conjunction with the financial statements as of and for the
year ended December 31, 2010 and the notes thereto included in the Companys prospectus filed with
the SEC on June 24, 2011.
Use of Estimates
The preparation of the condensed consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenue and expenses during the reporting period. Accordingly, the
three and six months ended June 30, 2011, are not necessarily indicative of the results to be
expected for the year ending December 31, 2011 or for any other interim period or for any future
year.
Comprehensive Income/Loss
The Company did not have any items of other comprehensive income/loss during the six months
ended June 30, 2011. During the six months ended June 30, 2010, the Company recognized a cumulative
translation loss of $57,000.
Stock Split
On June 9, 2011, the Company authorized a 2-for-1 split of all common stock and convertible
preferred stock authorized, issued and outstanding at that time. On April 16, 2010, the Company
authorized a 4-for-1 split on all common stock and convertible preferred stock authorized, issued
and outstanding at that time. All share and per share amounts in the condensed consolidated
financial statements and related notes have been restated to reflect the 2-for-1 and 4-for-1
splits.
Net Loss per Share of Common Stock
Basic net loss per share of common stock is computed by dividing the Companys net loss
attributable to its stockholders by the weighted-average number of shares of common stock
outstanding during the period. Diluted net loss per share of common stock is computed by giving
effect to all potentially dilutive securities, including stock options, warrants and convertible
preferred stock. Basic and diluted net loss per share of common stock attributable to the Companys
stockholders was the same for all periods presented on the Condensed Consolidated Statements of
Operations, as the inclusion of all potentially dilutive securities outstanding would have been
antidilutive. As such, the numerator and the denominator used in computing both basic and diluted
net loss per share are the same for each period presented.
In April 2011, the Company issued Series C convertible preferred stock with a beneficial
conversion feature (See Note 9 Convertible Preferred Stock) and recorded deemed dividends
relating to the beneficial conversion feature of $19.7 million for the three and six month periods
ended June 30, 2011. While it was outstanding, all of the Companys preferred stock participated in
earnings or losses of the Company. Consequently, net losses were adjusted for the deemed
distributions relating to the beneficial conversion feature and losses attributable to preferred
stockholders to calculate the net loss attributable to common stockholders.
10
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The following table presents the calculation of historical basic and diluted net loss per
share of common stock attributable to the Companys common stockholders:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||
Net loss per share: |
||||||||||||||||
Numerator: |
||||||||||||||||
Net loss |
$ | (20,951 | ) | $ | (19,396 | ) | $ | (34,343 | ) | $ | (25,640 | ) | ||||
Deemed dividend related to the beneficial conversion feature of
Series C convertible preferred stock |
(19,669 | ) | | (19,669 | ) | | ||||||||||
Net loss attributable to stockholders |
(40,620 | ) | (19,396 | ) | (54,012 | ) | (25,640 | ) | ||||||||
Net loss attributable to preferred stockholders |
32,428 | 15,197 | 43,364 | 19,716 | ||||||||||||
Net loss attributable to Class A common stockholders and Class B
common stockholders basic and diluted |
$ | (8,192 | ) | $ | (4,199 | ) | $ | (10,648 | ) | $ | (5,924 | ) | ||||
Net loss attributable to Class A common stockholders basic and
diluted |
$ | (406 | ) | | $ | (305 | ) | | ||||||||
Net loss attributable to Class B common stockholders basic
and diluted |
(7,786 | ) | (4,199 | ) | (10,343 | ) | (5,924 | ) | ||||||||
Net loss attributable to Class A common stockholders and Class B
common stock holders basic and diluted |
$ | (8,192 | ) | $ | (4,199 | ) | $ | (10,648 | ) | $ | (5,924 | ) | ||||
Denominator: |
||||||||||||||||
Weighted-average Class A common shares used in computing net loss
per share of Class A common stock basic and diluted |
951 | | 510 | | ||||||||||||
Weighted-average Class B common shares used in computing net
loss per share of Class B common stock basic and diluted |
18,257 | 15,580 | 17,310 | 15,180 | ||||||||||||
Weighted-average Class A common stock and Class B common stock
basic and diluted |
19,208 | 15,580 | 17,820 | 15,180 | ||||||||||||
Net loss per share of Class A common stock basic and diluted |
$ | (.43 | ) | $ | | $ | (.60 | ) | $ | | ||||||
Net loss per share of Class B common stock basic and diluted |
$ | (.43 | ) | $ | (.27 | ) | $ | (.60 | ) | $ | (.39 | ) | ||||
The following outstanding shares on a weighted average basis of potentially dilutive
securities were excluded from the computation of diluted net loss per share of common stock for the
periods presented because including them would have been antidilutive:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Convertible preferred stock (as converted basis) |
76,041 | 56,397 | 72,566 | 50,516 | ||||||||||||
Convertible preferred stock warrants (as converted basis) |
720 | 715 | 721 | 655 | ||||||||||||
Common stock warrants (as converted basis) |
129 | | 143 | | ||||||||||||
Stock options |
14,732 | 10,080 | 14,492 | 10,133 | ||||||||||||
Total |
91,662 | 67,192 | 87,922 | 61,304 | ||||||||||||
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Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued a new accounting standard
update, which amends the fair value measurement guidance and includes some enhanced disclosure
requirements. The most significant change in disclosures is an expansion of the information
required for Level 3 measurements based on unobservable inputs. The standard is effective for
fiscal years beginning after December 15, 2011. We will adopt this standard in the first quarter of
2012 and are currently evaluating its impact on our financial statements and disclosures.
In June 2011, the FASB issued a new accounting standard, which eliminates the current option
to report other comprehensive income and its components in the statement of stockholders equity.
Instead, an entity will be required to present items of net income and other comprehensive income
in one continuous statement or in two separate, but consecutive, statements. The standard is
effective for fiscal years beginning after December 15, 2011. We will adopt this standard in the
first quarter of 2012.
3. Fair Value of Financial Instruments
The Companys assessment of the significance of a particular input to the fair value
measurement in its entirety requires management to make judgments and consider factors specific to
the asset or liability. As of June 30, 2011 and December 31, 2010, the Company considered the cash
and cash equivalents, restricted cash and accounts payable to be representative of their fair
values because of their short-term maturities. Further, the Companys long-term debt approximates
fair value as it has been negotiated on an arms length basis with reputable third-party lenders.
Assets and liabilities recorded at fair value in the condensed consolidated financial
statements are categorized based upon the level of judgment associated with the inputs used to
measure their fair value. Hierarchical levels, which are directly related to the amount of
subjectivity associated with the inputs to the valuation of these assets or liabilities are as
follows:
| Level 1 Observable inputs, such as quoted prices in active markets
for identical assets or liabilities. |
||
| Level 2 Observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities, quoted prices in markets
that are not active, or other inputs that are observable or can be
corroborated by observable market data for substantially the full term
of the assets or liabilities. |
||
| Level 3 Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities and which reflect managements best estimate of
what market participants would use in pricing the asset or liability
at the measurement date. Consideration is given to risk inherent in
the valuation technique and the risk inherent in the inputs to the
model. |
Assets and liabilities measured at fair value are classified in their entirety based on the
lowest level of input that is significant to the fair value measurement. The following tables set
forth the Companys financial instruments that were measured at fair value on a recurring basis by
level within the fair value hierarchy (amounts in tables in thousands). The Company had no
financial liabilities at June 30, 2011.
June 30, 2011 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets |
||||||||||||||||
Money market funds |
$ | 206,283 | $ | | $ | | $ | 206,283 | ||||||||
Total financial assets |
$ | 206,283 | $ | | $ | | $ | 206,283 | ||||||||
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December 31, 2010 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets |
||||||||||||||||
Money market funds |
$ | 45,033 | $ | | $ | | $ | 45,033 | ||||||||
Total financial assets |
$ | 45,033 | $ | | $ | | $ | 45,033 | ||||||||
Financial liabilities |
||||||||||||||||
Convertible preferred stock
warrant liability |
$ | | $ | | $ | 3,185 | $ | 3,185 | ||||||||
Total financial liabilities |
$ | | $ | | $ | 3,185 | $ | 3,185 | ||||||||
Money market funds increased $161.3 million from December 31, 2010 to June 30, 2011 primarily
due to cash proceeds of $137.5 million, net of expenses, from the Companys initial public offering
that closed June 29, 2011. The increase was also due to a transfer into the money market account
of $75.0 million funded by cash receipts of $55.0 million from the issuance of Series C convertible
preferred stock and $39.4 million borrowed under the Mississippi Development Authority loan. This
increase was offset by $20.0 million transferred to a KiOR Columbus operating cash account to fund
construction of the Companys initial-scale commercial production facility in Columbus, Mississippi
and $31.2 million transferred to other operating cash accounts to fund operating expenses.
The change in the fair value of the convertible preferred stock warrant liability is
summarized below (amounts in thousands):
Fair value as of December 31, 2010 |
$ | 3,185 | ||
Fair value of warrants liability for loan amendment |
300 | |||
Change in fair value of warrant liability |
6,914 | |||
Transfers out of Level 3 (see Note 10 Convertible Preferred Stock Warrants) |
(10,399 | ) | ||
Fair value as of June 30, 2011 |
$ | | ||
The Companys assets and liabilities that are measured at fair value on a non-recurring basis
include long-lived assets and intangible assets. These items are recognized at fair value when they
are considered to be impaired. At June 30, 2011 and December 31, 2010, there were no required fair
value adjustments for assets and liabilities measured at fair value on a non-recurring basis.
4. Property, Plant and Equipment
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Amounts in thousands) | ||||||||
Property, plant and equipment: |
||||||||
Construction in progress (1) |
$ | 58,238 | $ | 14,604 | ||||
Lab and testing equipment |
3,811 | 3,250 | ||||||
Leasehold improvement |
2,741 | 2,194 | ||||||
Manufacturing, machinery and equipment |
17,633 | 16,305 | ||||||
Computer equipment and software |
437 | 347 | ||||||
Furniture and fixtures |
165 | 143 | ||||||
Total property, plant and equipment |
83,025 | 36,843 | ||||||
Less: accumulated depreciation |
(2,953 | ) | (1,963 | ) | ||||
Net property, plant and equipment |
$ | 80,072 | $ | 34,880 | ||||
(1) | Gross construction in progress is $75.4 million, offset by $17.2 million
attributable to the non-interest bearing component of the Mississippi Development
Authority Loan (see Note 6 Long Term Debt). |
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Table of Contents
Depreciation expense was $515,000 and $358,000 for the three months ended June 30, 2011 and
2010, respectively, and was $989,000 and $589,000 for the six months ended June 30, 2011 and 2010,
respectively. Construction in progress as of June 30, 2011 and December 31, 2010 includes
capitalized interest of $1.0 million and $118,000, respectively. The Company capitalized interest
of $586,000 and $0, respectively, for the three-month periods ended June 30, 2011 and 2010, and
$911,000 and $0, respectively, for the six-month periods ended June 30, 2011 and 2010.
5. Intangible Assets
Intangible assets consist of the following: |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Amounts in thousands) | ||||||||
Intangible assets: |
||||||||
Purchased biomass conversion technology |
$ | 2,599 | $ | 2,599 | ||||
Accumulated amortization |
(621 | ) | (535 | ) | ||||
Purchased biomass conversion technology, net |
1,978 | 2,064 | ||||||
Technology licenses |
400 | 400 | ||||||
Accumulated amortization |
(48 | ) | (38 | ) | ||||
Technology licenses, net |
352 | 362 | ||||||
Intangible assets, net |
$ | 2,330 | $ | 2,426 | ||||
Intangible asset amortization expense was $48,000 for the three months ended June 30, 2011 and
2010 and $96,000 for the six months ended June 30, 2011 and 2010, respectively.
6. Long-Term Debt
Long-term debt consists of the following: |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Amounts in thousands) | ||||||||
Long-term debt: |
||||||||
Equipment loans |
$ | 3,438 | $ | 3,710 | ||||
Business loan |
6,252 | 6,327 | ||||||
Mississippi Development Authority Loan |
39,391 | | ||||||
Less: unamortized debt discounts |
(17,745 | ) | (520 | ) | ||||
Total debt, net of discount |
31,336 | 9,517 | ||||||
Less: current portion |
(1,629 | ) | (4,480 | ) | ||||
Long-term debt, net of discount |
$ | 29,707 | $ | 5,037 | ||||
Mississippi Development Authority Loan
In March 2011, KiOR Columbus entered into a loan agreement with the Mississippi Development
Authority, or MDA, pursuant to which the MDA has agreed to make disbursements to KiOR Columbus from
time to time, in a principal amount not to exceed $75 million, to reimburse costs incurred by KiOR
Columbus to purchase land, construct buildings and to purchase and install equipment
for use in the manufacturing of the Companys renewable crude oil and transportation fuels
from Mississippi-grown biomass. Principal payments on the loan are due semiannually on June 30 and
December 31 of each year, commencing on the earlier of (a) December 31, 2012 and (b) the next
scheduled payment date that is at least six months after the Company commences commercial
production of renewable crude oil from Mississippi-grown biomass at its initial-scale commercial
production facility for sale to customers in the ordinary course of business. On each such payment
date, the Company is required to pay an amount equal to the lesser of an amount sufficient to repay
the total loan within (a) a period of time determined by the weighted-average life of the equipment
being purchased with the proceeds thereof or (b) 20 years. Under the loan agreement, the Company
committed to employing at least 30 employees, with aggregate salaries of at least $1.0 million,
once the Companys initial-scale commercial production facility is fully operational. In addition,
the Company is required to pay the entire outstanding principal amount of the loan, together with
all other applicable costs, charges and expenses no later than the date 20 years from the date of
its first payment on the loan. The loan is non-interest bearing.
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The loan agreement contains no financial covenants, and events of default include a failure by
KiOR Columbus to make specified investments within Mississippi by December 31, 2015, including an
aggregate $500.0 million investment in property, plant and equipment located in Mississippi and
expenditures for wages and direct local purchases totaling $85.0 million. If an event of default
occurs and is continuing, the MDA may accelerate amounts due under the loan agreement. The loan is
secured by certain equipment, land and buildings of KiOR Columbus.
As of June 30, 2011, the Company received $39.4 million of the Mississippi Development
Authority Loan to reimburse the Company for expenses incurred on the construction of the
initial-scale commercial production facility located in Columbus, Mississippi.
The non-interest bearing component of the Mississippi Development Authority Loan was intended
to incentivize the Company to design, construct and operate its initial-scale commercial production
facility in Columbus, Mississippi. The Company imputed interest on the Mississippi Development
Authority Loan and determined the loan discount to be the difference between the face value of the
loan and the discounted present value of the loan using an estimated market rate of 5.5%, with such
rate based on interest bearing loans of a similar nature and terms. Of the $39.4 million in loan
proceeds received through June 30, 2011, the Company estimated approximately $17.2 million was
attributable to the non-interesting bearing component of the loan. Consequently, the Company
recorded a discount on the Mississippi Development Authority Loan of $17.2 million and a reduction
of the capitalized cost of the related assets for which the Company was reimbursed in the same
amount. The loan discount will be recognized as interest expense, subject to interest
capitalization during the construction phase, using the effective interest method.
Equipment Loans
Equipment Loan #1 On December 30, 2008, the Company entered into its first
equipment loan agreement with Lighthouse Capital Partners VI, L.P. The loan agreement provides for
advances at $100,000 minimum increments up to $5.0 million in the aggregate for purchases of
equipment. All advances must have been funded no later than September 30, 2009. Each advance
represents a separate loan tranche that is payable monthly over a three-year period from the date
of issuance of the advance at an annual interest rate of 7.5%. In addition, at loan maturity, the
Company is required to make a payment equal to 7.5% of the total principal on the loan, which is
amortized over the life of the loan and included in interest expense on the Condensed Consolidated
Statements of Operations. The loans mature at dates from March 2012 to October 2012.
During 2009, the Company borrowed all $5.0 million available under the loan. The loan tranches
are collateralized by certain of the Companys production pilot unit, lab equipment and office
equipment valued at approximately $5.0 million.
Equipment Loan #2 On March 17, 2010, the Company entered into a second equipment
loan agreement with Silicon Valley Bank with total availability of $1.0 million, limited to two
advances of at least $500,000 each. The full amount of the availability under the loan agreement
was drawn down in a single advance of $1 million. The loan is payable monthly over a three-year
period at an annual interest rate of 10%. The loan is collateralized by the equipment purchased
with the advances at a cost of approximately $1.3 million.
Business Loan
On January 27, 2010, the Company entered into its first business loan agreement with
Lighthouse Capital Partners VI, L.P. and Leader Lending, LLC for an amount of up to $7.0 million.
Advances are payable monthly over a three-year period at an annual interest rate of 12% commencing
on the date of the advance. In addition, at loan maturity, the Company is required to make a
payment
equal to 7.5% of the total amount drawn on the loan, which is amortized over the life of the
loan and included in interest expense, net of amounts capitalized, on the Consolidated Statements
of Operations.
During 2010, the Company borrowed the full $7.0 million under the loan agreement. The loan is
collateralized by the Companys assets not previously pledged as collateral on the equipment loans
described above.
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Table of Contents
Amendments of Equipment and Business Loan
In
February 2011 and April 2011, the Company amended Equipment
Loan #1 and its Business Loan
to waive certain covenant restrictions to allow the Company to enter into the Mississippi
Development Authority Loan described above. In addition, the amendments provided for a deferral of
principal payment for one year, included prepayment penalties and extended the maturities of the
loans to January 2014. All other terms were unchanged. Interest during the principal deferral
period is paid at 1% to 2.5% over the original stated interest rate and reverts to the original
interest rate upon expiration of the deferral period. In connection with the amendments, the
Company paid aggregate fees of $60,000 upon execution of the amendments and agreed to pay $240,000
upon maturity. In addition, the Company agreed to issue warrants to purchase $300,000 of securities
issued in a next-round equity financing, if such equity financing of at least $35 million was
completed prior to May 15, 2011. If such financing was not completed prior to May 15, 2011, the
Company agreed to issue warrants to purchase 61,200 shares of Series B Preferred Stock at an
exercise price of $4.902 per share. The Series C convertible preferred stock issued in April 2011
in the aggregate amount of $55.0 million met the next-round equity financing requirement and, as a
result, warrants to purchase 61,200 shares of Series C convertible preferred stock at an exercise
price of $4.902 per share were issued in connection with the equipment and business loan
amendments. The Company recorded a liability of $300,000 in connection with the warrants that were
required to be issued. The warrants to purchase shares of Series C convertible preferred stock
automatically converted into warrants to purchase 25,000 shares of Class A common stock upon the
close of the initial public offering on June 29, 2011 using a conversion price of 80% of the IPO
price (see Note 10 Convertible Preferred Stock Warrants) and the warrant liability was
reclassified to additional paid-in capital.
Convertible Promissory Note to Stockholder
On August 5, 2009, the Company entered into a non-interest bearing convertible promissory note
agreement for $15.0 million (the Note), which included a beneficial conversion feature, with one
of its stockholders, Khosla Ventures. The Note was a general unsecured obligation of the Company
and was payable in full on August 4, 2011. Principal payments were not required prior to the
maturity date. The Note was convertible into shares of the Companys convertible preferred stock
upon the occurrence of certain events. On April 16, 2010, the Note was converted into 5.2 million
shares of Series B convertible preferred stock.
One of the triggering events enabling conversion of the Note into shares of the Companys
convertible preferred stock was met in April 2010. The triggering event was: if on or before the
maturity date of the Note, the Company consummates a sale, or series of related sales, of its
convertible preferred stock, pursuant to which the Company receives gross proceeds of at least
$10.0 million, excluding any amounts as a result of conversion of the Note (a Qualified
Financing), then simultaneously with the Qualified Financing, the principal balance then
outstanding under the Note shall convert into the same class and series of convertible preferred
stock sold in the Qualified Financing at a conversion price per share equal to 60% of the price per
share paid by the investors in the Qualified Financing. The Companys Series B convertible
preferred stock issuance in April 2010 (see Note 9 Convertible Preferred Stock) triggered this
conversion option and the note holder subsequently exercised the right to convert.
In accordance with FASB ASC 470-20, Debt with Conversion and Other Options, the Company
recorded a $10.0 million expense to beneficial conversion feature expense on the Consolidated
Statement of Operations connected with the conversion of the Note into Series B convertible
preferred stock. The $10.0 million reflects the value assigned to the beneficial conversion
feature. The value of the beneficial conversion feature was not readily determinable upon issuance
of the Note because the conversion feature was contingent upon the occurrence of a Qualified
Financing transaction. Neither the timing nor value of such transaction could be estimated at the
time the Note was issued. Therefore, the Company recorded the entire amount of the beneficial
conversion feature to the condensed Consolidated Statements of Operations at the time the
conversion occurred and value for the beneficial conversion feature could be determined.
7. Income Taxes
The effective tax rate for the six months ended June 30, 2011 and 2010 was 0%.
At June 30, 2011 and December 31, 2010, the Company had a federal net operating loss
carryforward balance of $24.8 million and $18.1 million, respectively. If unused, the net operating
loss carryforwards begin expiring in 2028. The Company has a full valuation allowance of $29.1
million for its net deferred tax assets because the Company has incurred losses since inception. In
addition, certain changes in the ownership of the Company could result in limitations on the
Companys ability to utilize the federal net operating loss carryforwards.
The Companys only taxing jurisdiction is the United States (federal and state). The Companys
tax years 2007 to present remain open for federal examination.
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Table of Contents
8. Commitments and Contingencies
Litigation
From time to time, the Company may be subject to legal proceedings and claims that arise in
the ordinary course of business. The Company is not a party to any material litigation or
proceedings and is not aware of any material litigation or proceedings, pending or threatened
against it.
New Equipment Purchases
The Company has several contracts in place for the purchase of various manufacturing equipment
related to the construction of its initial-scale commercial production facility in Columbus,
Mississippi. These contracts are non-cancelable and payments are due at various intervals based on
the progress of the assembly of the equipment. As of June 30,
2011, payments aggregating to $63.2 million are due at various times with the final payments due at time of completion, which is
estimated to be in early 2012.
Commitments under the Mississippi Development Authority Loan
Under the Mississippi Development Authority Loan agreement, the Company committed to make
specified investments within Mississippi by December 31, 2015, including an aggregate $500.0
million investment in property, plant and equipment located in Mississippi and expenditures for
wages and direct local purchases totaling $85.0 million. The
Company is a parent guarantor for the payment of the outstanding
balance under the loan. As of June 30, 2011, the Company had
$39.4 million in outstanding borrowings under the loan which are
guaranteed by the Company.
9. Convertible Preferred Stock
Issuance of Series C Convertible Preferred Stock
In April 2011, the Company issued 11,219,908 shares of Series C convertible preferred stock
for total consideration of $55.0 million. Each share of Series C convertible preferred stock had
the same voting rights as Series B convertible preferred stock. The holders of the Series C
convertible preferred stock were entitled to a dividend, if declared, on each such outstanding
share in an amount at least equal to $.3921. Each share of Series C convertible preferred stock was
convertible at the option of the holder at any time without payment of additional consideration
into such number of fully paid and non-assessable shares of Class A common stock as would be
determined by dividing the original issue price of the Series C convertible preferred stock, by the
Series C convertible preferred stock conversion price, which was initially equal to the original
issue price of $4.902. Pursuant to the terms of the Series C convertible preferred stock, the
conversion price was adjusted to 80% of the IPO price.
At the date of issuance, the proceeds received for the Series C convertible preferred stock
were less than the fair value of the Class A common stock that was issuable upon conversion at the
effective conversion price of $4.902 per share, with such fair value as determined by management
and the Board of Directors. As a result, the Series C convertible preferred stock contained a
beneficial conversion feature which was required to be recognized as a reduction in net income
attributable to common stockholders ratable over the conversion period. The conversion period was
the period from the date of issuance until the earlier of the conversion of the Series C
convertible preferred shares into Class A common shares or October 31, 2011. Upon completion of
the Companys initial public offering, the Series C convertible preferred stock was
automatically converted to Class A common stock at 80% of the IPO price, or $12. During the
period from April 21, 2011 to June 29, 2011, the Company recognized a deemed dividend related to
the beneficial conversion feature of Series C convertible preferred stock of $19.7 million. Since
the adjusted conversion price of 80% of the IPO price resulted in the Series C convertible
preferred stock being converted into Class A common stock with a fair value that was less
than the proceeds received for the Series C convertible preferred stock, no additional deemed
dividends related to the beneficial conversion feature of Series C convertible preferred stock was
required.
Issuance of Series A, Series A-1 and Series B Convertible Preferred Stock
During 2007 and 2008, the Company authorized 45.6 million shares of convertible preferred
stock, of which 24.0 million shares were designated as Series A convertible preferred stock and
21.6 million shares were designated as Series A-1 convertible preferred stock. At incorporation in
2007, 14.4 million shares of Series A convertible preferred stock were issued under an agreement
with Khosla Ventures for total consideration of $2.6 million, of which $1.4 million was paid at
issuance and $1.2 million was paid on June 17, 2008. On June 17, 2008, the Company issued 9.6
million shares of Series A convertible preferred stock and 20.6 million shares of Series A-1
convertible preferred stock to Khosla Ventures for $1.8 million and $10.0 million, respectively. An
additional 4.0 million shares of Series A-1 convertible preferred stock were authorized on December
31, 2009.
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Table of Contents
During 2010, the Company authorized 24.6 million shares of Series B convertible preferred
stock. On April 16, 2010, 5.2 million of these shares were issued for total consideration of $25.0
million. An additional 5.2 million shares were issued to Khosla Ventures upon the conversion of the
$15.0 million convertible promissory note. While no additional consideration was received from
Khosla Ventures, the Company was required to record a $10.0 million charge to beneficial conversion
feature expense on the Consolidated Statements of Operations, with regards to the Note, with an
offset to additional paid in capital, to properly reflect the $25.0 million in total value of
Series B convertible preferred stock issued to Khosla Ventures (See Note 6 Long-Term Debt).
On May 3, 2010, an additional 5.0 million shares of the Series B convertible preferred shares
were issued for total consideration of $25.0 million. On July 19, 2010, 9.2 million additional
shares of Series B convertible preferred stock were issued for total consideration of $45.0
million.
At the date of the Companys initial public offering, all convertible preferred shares were
converted into common stock; accordingly, at June 30, 2011 there was not any preferred stock
issued or outstanding. A summary of convertible preferred stock issued and outstanding at
December 31, 2010 is as follows (amounts in thousands, except per share data):
December 31, 2010 | ||||||||||||||||||||
Shares | Liquidation | |||||||||||||||||||
Shares | Issued and | Preference per | Liquidation | Carrying | ||||||||||||||||
Authorized | Outstanding | Share | Amount | Value | ||||||||||||||||
Series A |
24,000 | 24,000 | $ | 0.183 | $ | 4,380 | $ | 4,360 | ||||||||||||
Series A-1 |
25,600 | 20,572 | $ | 0.487 | 10,008 | 10,024 | ||||||||||||||
Series B |
24,500 | 24,480 | $ | 4.902 | 120,001 | 120,000 | ||||||||||||||
Total |
74,100 | 69,052 | $ | 134,389 | $ | 134,384 | ||||||||||||||
The convertible preferred stock was recorded at fair value on the dates of issuance, net of
issuance costs. The convertible preferred stock was classified outside of stockholders equity
because the shares contained liquidation features that were not solely within the control of the
Company.
Rights, preferences and privileges of the convertible preferred stock
Voting Each holder of Series A, Series A-1, Series B and Series C convertible
preferred stock was entitled to cast 10 votes for every share of common stock into which the shares
were convertible and to cast one vote for every share of Class A common stock into which the shares
were convertible, as applicable, as of the record date for determining stockholders entitled to
vote on such matters. Prior to conversion of the convertible preferred stock upon the completion of
our initial public offering, holders of convertible preferred stock voted together with the holders
of common stock and Class A common stock as a single class, except as required by law.
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Dividends The holders of shares of the convertible preferred stock were entitled to
receive dividends prior and in preference to any declaration or payment of any dividend on the
common stock or Class A common stock of the Company. The holders of the convertible preferred stock
were to first receive a dividend on each such outstanding share of convertible preferred stock in
an amount at least equal to the following (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization with respect to the
convertible preferred stock):
Dividend | ||||
Amount | ||||
per share | ||||
Series A |
$ | 0.01465 | ||
Series A-1 |
$ | 0.03890 | ||
Series B |
$ | 0.39210 | ||
Series C |
$ | 0.39210 |
Dividends on the convertible preferred stock were not cumulative and were to be paid when and
if declared by the Board of Directors of the Company. No additional dividend was to be declared or
paid with respect to any share of common stock or Class A common stock unless such dividend were
also declared or paid on a pro rata basis with respect to all shares of convertible preferred
stock.
Liquidation Preferences In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of the convertible preferred stock were
entitled to be paid out of the assets of the Company available for distribution before any payment
was made to the holders of Class A common stock or common stock, an amount per share equal to one
times the convertible preferred stock original issue price (as defined in the table below) for each
share of convertible preferred stock, plus any dividends declared but unpaid. Class A common stock
and common stock had the same liquidation preference.
If, upon a liquidation, dissolution or winding up of the Company, the assets of the Company
available for distribution to its stockholders were insufficient to pay the holders of the
convertible preferred stock the full amount to which they are entitled, the holders of the
convertible preferred stock were to share ratably in any distribution of the assets available for
distribution in proportion to the respective amounts, which would otherwise be payable of the
shares held.
Original | ||||
Issue Price(1) | ||||
Series A |
$ | 0.183 | ||
Series A-1 |
$ | 0.487 | ||
Series B |
$ | 4.902 | ||
Series C |
$ | 4.902 |
(1) | Original issue price is subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization with respect to each series of convertible preferred
stock. |
Conversion Each share of Series A and Series A-1 convertible preferred stock was
convertible at any time without payment of additional consideration into such number of fully paid
and non-assessable shares of common stock or, if all shares of common stock were converted into
Class A common stock, Class A common stock as is determined by dividing the original issue price of
the Series A or Series A-1 convertible preferred stock, as applicable, by the associated conversion
price, which was initially equal to the original issue price. The conversion price was subject to
adjustment upon issuance of additional shares of Class A common stock or common stock by the
Company.
Each share of Series B convertible preferred stock was convertible at the option of the holder
at any time without payment of additional consideration into such number of fully paid and
non-assessable shares of Class A common stock as was determined by dividing the original issue
price of the Series B convertible preferred stock, by the Series B convertible preferred stock
conversion
price, which was initially equal to the original issue price. The conversion price was subject
to adjustment upon issuance of additional shares of Class A common stock or common stock by the
Company.
Each share of Series C convertible preferred stock was convertible at the option of the holder
at any time without payment of additional consideration into such number of fully paid and
non-assessable shares of Class A common stock as was determined by dividing the original issue
price of the Series C convertible preferred stock, by the Series C convertible preferred stock
conversion price, which was initially equal to the original issue price. The conversion price was
adjustable to 80% of the issuance price of the Companys Class A common stock, if the Company
completed an initial public offering of Class A common stock with aggregate proceeds greater than
$50.0 million and at a price in excess of $4.902 per Class A common share by October 31, 2011.
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In the event of liquidation, dissolution or winding up of the Company or a deemed liquidation
event, the conversion rights would have terminated at the close of business on the last full day
preceding the date fixed for the payment of any amounts distributable on such event to the holders
of the convertible preferred stock.
The Company closed its initial public offering of 10,000,000 shares of Class A common stock at
a price to the public of $15.00 per share on June 29, 2011. Upon the closing of the sale of shares
of the Companys Class A common stock to the public, all outstanding shares of the Series A and
Series A-1 convertible preferred stock converted into 44.6 million shares of common stock on a
1-to-1 basis (which was renamed Class B common stock upon the completion of the Companys initial
public offering), (2) all outstanding shares of Series B convertible preferred stock were converted
automatically into 24.5 million shares of Class A common stock on a 1-to-1 basis, and (3) all
outstanding shares of Series C convertible preferred stock were converted automatically into 4.6
million shares of Class A common stock using a conversion price of 80% of the issuance price to the
public of $15 per share.
Redemption Any shares of convertible preferred stock that would have been redeemed
or otherwise acquired by the Company or any of its subsidiaries would have automatically and
immediately cancelled and retired and could not be reissued, sold or transferred. Neither the
Company nor any of its subsidiaries could have exercised any voting or other rights granted to the
holders of the convertible preferred stock following redemption.
10. Convertible Preferred Stock Warrants
Warrants Issued in Connection with Equipment Loans
In connection with Equipment Loan #1 dated December 30, 2008, the Company issued warrants to
purchase 411,312 shares of the Companys Series A-1 convertible preferred stock at an exercise
price of $.487 per share. The agreement also required the Company to issue another set of warrants
as part of the next round of equity financing to occur. With the issuance of Series B convertible
preferred stock on April 16, 2010, the lenders of Equipment Loan #1 received warrants to purchase
an additional 30,600 shares of the Companys Series B convertible preferred stock at an exercise
price of $4.902. Each set of warrants is exercisable upon issuance and expires eight years from the
issuance date. The issuance date fair value of these warrants was estimated to be $155,000 and has
been recorded as a reduction, or discount, to the carrying value of the loan. The discount is being
amortized to interest expense over the term of the loan. The warrants were valued on the issuance
date using the following assumptions: a risk-free interest rate of 1.14%, expected volatility of
72%, no expected dividend yield and a term of eight years.
In connection with Equipment Loan #2 dated March 25, 2010, the Company issued warrants to
purchase 16,998 shares of the Companys Series B convertible preferred stock at an exercise price
of $2.941 per share. The warrants are exercisable upon issuance and expire ten years from the
issuance date. The issuance date fair value of these warrants was estimated to be $42,000 and has
been recorded as a reduction, or discount, to the carrying value of the loan. The discount is being
amortized to interest expense over the term of the loan. The warrants were valued on the issuance
date using the following assumptions: a risk-free interest rate of 0.50%, expected volatility of
98.8%, no expected dividend yield and a term of 10 years.
Warrants Issued in Connection with the Business Loan
In connection with the Business Loan dated January 27, 2010, the Company issued warrants to
purchase 261,460 shares of the Companys Series B convertible preferred stock at an exercise price
of $2.941 per share. The warrants are exercisable upon issuance and expire seven years from the
issuance date. The issuance date fair value of these warrants was estimated to be $623,000 and has
been recorded as a reduction, or discount, to the carrying value of the loan. The discount is
being amortized to interest expense over the term of the loan. The warrants were valued on the
issuance date using the following assumptions: a risk-free interest rate of 0.50%, expected
volatility of 98.8%, no expected dividend yield and a term of seven years.
Warrants Issued in Connection with Amendments of Equipment and Business Loan
In connection with the amendment to Equipment Loan #1 and the Companys Business Loan, the
Company agreed to issue warrants to purchase $300,000 of securities issued in a next-round equity
financing, if such equity financing of at least $35 million was completed prior to May 15, 2011. If
such financing was not completed prior to May 15, 2011, the Company agreed to issue warrants to
purchase 61,200 shares of Series B convertible Preferred Stock at an exercise price of $4.902 per
share. The Series C convertible preferred stock issued in April 2011 in the aggregate amount of
$55.0 million met the next-round equity financing requirement and, as a result, warrants to
purchase 61,200 shares of Series C convertible preferred stock at an exercise price of $4.902 per
share were issued in connection with the equipment and business loan amendments. Upon execution of
the loan amendments, but prior to issuance of the stock warrants, the Company recorded a liability
of $300,000 and has been recorded as a reduction, or discount, to the carrying value of the loan.
The discount is being amortized to interest expense over the term of the loan.
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Convertible Preferred Stock Warrant Liability
Outstanding warrants to purchase shares of the Companys convertible preferred stock were
freestanding warrants that were subject to redemption and were therefore classified as liabilities
on the Condensed Consolidated Balance Sheets at fair value. The initial liability recorded was
adjusted for changes in fair value at each reporting date with an offsetting entry recorded as a
component of other income (expense) in the Condensed Consolidated Statements of Operations. Upon
conversion of the underlying convertible preferred stock, the warrants automatically converted into
warrants to purchase the number of shares of Class A or Class B common stock into which the
underlying preferred stock was convertible using the same exercise provisions, exercise prices and
expiration dates as the warrants to purchase convertible preferred stock. Also, upon conversion,
the warrants ceased to be subject to redemption and were reclassified to additional paid-in capital
in stockholders deficit on the Condensed Consolidated Balance Sheets. The Company estimates the
fair value of its convertible preferred stock warrants using the Black-Scholes option-pricing
model.
Upon the close of the initial public offering on June 29, 2011, (1) warrants to purchase
411,312 shares of Series A-1 convertible preferred stock automatically converted into warrants to
purchase an equivalent number of Class B common shares, (2) warrants to purchase 309,398 shares of
Series B convertible preferred stock automatically converted into warrants to purchase an
equivalent number of Class A common shares, and (3) warrants to purchase 61,200 shares of Series C
convertible preferred stock automatically converted into warrants to purchase 25,000 shares of
Class A common shares using a conversion price of 80% of the IPO price. The Company performed its
final mark-to-market adjustment on the convertible preferred stock warrant liability on June 29,
2011, the date the initial public offering closed and the warrant liabilities became equity
instruments. The related convertible preferred stock warrant liability of $10.4 million, of which
$9.7 million related to warrants issued in connection with equipment and business loans and $0.7
million related to warrants issued in connection with amendments to equipment and business loans,
at June 29, 2011 was reclassified to additional paid-in capital.
Convertible preferred stock warrant liability consisted
of the following (see Note 11
Stockholders Equity) (amounts in thousands, except per share
data):
Exercise | Shares as of | Fair Value as of | ||||||||||||||||||
Price per | June 30, | December 31, | June 30, | December 31, | ||||||||||||||||
Underlying Stock/Description | Share | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
Series A-1
convertible
preferred stock |
$ | 0.487 | | 411 | $ | | $ | 1,975 | ||||||||||||
Series B
convertible
preferred stock |
$ | 4.902 | | 31 | | 109 | ||||||||||||||
Series B
convertible
preferred stock |
$ | 2.941 | | 279 | | 1,101 | ||||||||||||||
Warrant liability |
| | | | ||||||||||||||||
Total |
| 721 | $ | | $ | 3,185 | ||||||||||||||
11. Stockholders Equity
Classes of Common Stock
Common stock was renamed Class B common stock upon the completion of the Companys initial
public offering. Each share of Series A and Series A-1 convertible preferred stock was converted
into Class B common stock and each share of Series B and C convertible preferred stock was
converted into Class A common stock.
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The holders of Class A common stock are entitled to one vote for each share of Class A common
stock held. Class A common stockholders shall be entitled to receive dividends on an equal basis
with the holders of Class B common stockholders. In no event shall the Company authorize or issue
dividends or other distributions on shares of Class B common stock payable in shares of Class B
common stock without authorizing and issuing a corresponding and proportionate dividend or other
distribution on shares of Class A common stock payable in shares of Class A common stock. Each
holder of shares of Class B common stock shall be entitled to the number of votes equal to the
whole number of shares of Class A Common Stock into which such shares of Class B common stock held
by such holder are convertible as of the record date for determining stockholders entitled to vote
on such matter times ten. Each share of Class B common stock shall be convertible, at the option
of the holder thereof, at any time and from time to time, and without the payment of additional
consideration by the holder thereof, into one fully paid and nonassessable share of Class A common
stock. Each share of Class B common stock shall automatically, without any further action, convert
into one (1) fully paid and nonassessable share of Class A common stock upon a transfer of such
share, subject to certain exceptions.
Common Stock Warrants
As of December 31, 2010, the Company had warrants outstanding to purchase 157,424 shares of
its Class A common stock at an exercise price of $.09 per share. During the six-month period ended
June 30, 2011, warrants to purchase 130,000 shares were exercised at $.09 per share for net
proceeds received by the Company of $11,700, leaving warrants to purchase 27,424 shares outstanding
at June 30, 2011.
Upon the close of the initial public offering on June 29, 2011, (1) warrants to purchase
411,312 shares of Series A-1 convertible preferred stock automatically converted into warrants to
purchase an equivalent number of Class B common shares, (2) warrants to purchase 309,058 shares of
Series B convertible preferred stock automatically converted into warrants to purchase an
equivalent number of Class A common shares, and (3) warrants to purchase 61,200 shares of Series C
convertible preferred stock automatically converted into warrants to purchase 25,000 shares of
Class A common shares using a conversion price of 80% of the IPO price. We performed our final
mark-to-market adjustment on the convertible preferred stock warrant liability on June 29, 2011,
the date the initial public offering closed and the warrant liabilities became warrants to purchase
equity instruments. The related convertible preferred stock warrant liability of $10.4 million, of
which $9.7 million related to warrants issued in connection with equipment and business loans and
$.7 million related to warrants issued in connection with amendments to equipment and business
loans, at June 29, 2011 was reclassified to additional paid-in capital. See Note 10 Convertible
Preferred Stock Warrants.
12. Employee Benefit Plan
The Company has a 401(k) plan covering all of its U.S. employees. Effective May 1, 2010, the
Company began matching 100% of the first 3% of individual employee contributions and 50% of the
next 2% of individual employee contributions. New employees can immediately join the plan and
participants immediately vest in employer matching contributions. Employer matching contributions
under the plan totaled $107,300 and $31,300 for the three months ended June 30, 2011 and 2010 and
$194,700 and $31,300 for the six months ended June 30, 2011 and 2010, respectively.
13. Stock-Based Compensation
Amended and Restated 2007 Stock Option/Stock Issuance Plan
The Company established the 2007 Stock Option/Stock issuance Plan (the 2007 Plan) as a
method to grant stock options, common stock and Class A common stock as an incentive to employees
and nonemployees. The 2007 Plan, as originally approved, provided for a maximum of 10.2 million
common shares to be granted to eligible employees, consultants and directors. On April 16, 2010,
the 2007 Plan was amended such that the maximum number of common shares to be granted to eligible
employees, consultants and directors is now 22.0 million. Options granted under the 2007 Plan are
granted at an exercise price that approximates the fair market value of the stock at the time the
option is granted. The stock options expire on the tenth anniversary of the date of grant. A
portion of the stock options became exercisable upon issuance and the remaining stock options
vested ratably over a five-year period. Shares of common stock or Class A common stock issued under
the 2007 Plan granted at the discretion of the 2007 Plan administrator and were either granted
through the immediate purchase of such shares or as a bonus for services rendered to the Company.
Options to purchase approximately 9.2 million shares of Class A common stock and options to
purchase approximately 7.0 million shares of Class B common stock were outstanding as of June 30,
2011 under the 2007 Plan. Options to purchase approximately 9.8 million
shares of common stock and options to purchase approximately 5.6 million shares of Class A
common stock were outstanding as of December 31, 2010. The company issued restricted stock for the
first time in June 2011. Approximately 1.6 million unvested restricted shares were outstanding at
June 30, 2011. The shares are issuable to employees, directors and consultants upon having
satisfied the necessary service conditions to earn the rights to the shares. The restricted shares
have graded vesting in the range of four to five years.
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In March 2011, the Company amended the 2007 Plan to allow the 2007 Plan Administrator to set
the exercise price of any stock option grants under the 2007 Plan, even if such exercise price did
not correspond with the fair value of the underlying common stock, provided that such grants at the
grant date contained conditions of vesting and exercise for termination of services in compliance
with Section 409A of the Internal Revenue Code. Concurrent with the 2007 Plan amendment, the
Company issued options to purchase an aggregate of 2,428,262 shares of Class A common stock at
$1.98 per share to three senior executives. The options vest 100% at the end of five years of
service and expire on December 31, 2016. The options were valued at $6.02 on the grant date using
the following assumptions: a risk-free interest rate of 2.13%, expected volatility of 84%, no
expected dividend yield and a term of five and one half years. The total value of the options as of
the grant date was determined to be $14.6 million, which will be amortized over the vesting period
of the options of five years.
Stock-Based Compensation Expense
Stock-based compensation expense related to options and restricted stock granted was allocated
to research and development expense and sales, general and administrative expense as follows (in
thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Research and development |
$ | 152 | $ | 25 | $ | 220 | $ | 50 | ||||||||
Sales, general and administrative |
2,444 | 91 | 2,980 | 106 | ||||||||||||
Total stock-based compensation expense |
$ | 2,596 | $ | 116 | $ | 3,200 | $ | 156 | ||||||||
No income tax benefit has been recognized relating to stock-based compensation expense and no
tax benefits have been realized from exercised stock options.
Stock option activity for the Company during the first six months of 2011 was as follows:
Weighted | ||||||||
Average | ||||||||
Shares | Exercise Price | |||||||
(In thousands) | ||||||||
Outstanding at December 31, 2010 |
15,408 | $ | 0.74 | |||||
Options Granted |
3,200 | 5.12 | ||||||
Exercised |
(1,459 | ) | 0.07 | |||||
Forfeited |
(1,718 | ) | 0.11 | |||||
Outstanding at June 30, 2011 |
15,431 | $ | 1.79 | |||||
There is a remaining $24.7 million in unrecognized stock-based compensation cost that is
expected to be recognized over a weighted-average period of 4.6 years.
The weighted-average grant date fair market value of options granted during the three-month
period ended June 30, 2011 was $10.63. There were no grants during the three-month period ended
June 30, 2010. The weighted-average grant date fair market value of options granted during the six
month period ended June 30, 2011 and 2010 was $7.13, and $0.06, respectively.
Assumptions used to value stock option grants for the quarter ended June 30, 2011 are as
follows:
Three Months | ||||
Ended | ||||
June 30, 2011 | ||||
(In thousands) | ||||
Expected Volatility |
80.5 | % | ||
Risk-free interest rate |
2.1 | % | ||
Dividend Yield |
0 | % | ||
Expected Life |
6.3 |
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There were no grants in the three months ended June 30, 2010. The Company has never paid
dividends and does not expect to pay dividends. The risk-free interest rate was based on the market
yield currently available on United States Treasury securities with maturities approximately equal
to the options expected term. Expected term represents the period that the Companys stock-based
awards are expected to be outstanding. The simplified method was used to calculate the expected
term. Historical share option exercise experience does not provide a reasonable basis upon which
to estimate expected term as the Company is a development stage company and fair market value of
shares granted changed from our historical grants as a result of its initial public offering in
June 2011. The expected volatility was based on the historical stock volatilities of several
comparable publicly-traded companies over a period equal to the expected terms of the options, as
the Company does not have a long trading history to use to estimate the volatility of its own
common stock.
Restricted stock activity for the Company during the first six months of 2011 was as follows:
June 30, 2011 | ||||
(In thousands) | ||||
Total unvested shares at beginning of the period: January 1 |
| |||
Shares Granted |
1,623 | |||
Shares Vested |
| |||
Shares Forfeited |
| |||
Total unvested shares at end of period: June 30 |
1,623 | |||
Common Stock Subject to Repurchase In accordance with the stock option agreements
between the Company and the holders of options to purchase shares of its common stock, option
holders may exercise their options prior to vesting. The Company has the right to repurchase, at
the lower of the original purchase price or the then current fair market value; any unvested (but
issued) common shares upon termination of service of the option holder. The consideration received
for an exercise of an unvested option is considered to be a deposit of the exercise price and the
related dollar amount is recorded as a liability. The shares and liability are reclassified into
equity on a ratable basis as the award vests. As of June 30, 2011 and December 31, 2010, there were
no shares outstanding subject to repurchase by the Company.
Stock Grants In March 2010, the Board of Directors of the Company authorized the
issuance of 896,000 shares of common stock to the Companys chief executive officer in lieu of a
cash bonus. The shares were valued at $81,000 and were fully vested at the time of issuance and
recorded as stock-based compensation expense.
Following the effectiveness of our 2011 Long-Term Incentive Plan described below, no further
awards will be made under the 2007 Plan.
2011 Long-Term Incentive Plan
In May 2011, our Board of Directors adopted, and our stockholders subsequently approved, our
2011 Long-Term Incentive Plan (the 2011 Plan), which became effective upon the completion of our
initial public offering. The 2011 Plan provides for a maximum of approximately 10.2 million Class
A common shares to be granted to eligible employees, consultants, and directors. Under the 2011
Plan, the compensation committee of our Board of Directors may grant awards in the form of stock
options, stock appreciation rights, restricted or unrestricted shares of Class A common stock,
units denominated in Class A common stock, cash and performance units representing the right to
receive Class A common stock upon the attainment of certain performance goals. Any of the above
awards
may be subject to the attainment of one or more performance goals. As of June 30, 2011, no
awards had been granted under the 2011 Plan.
14. Subsequent Events
In connection with our initial public offering that closed on June 29, 2011, the Company
granted the underwriters a 30-day option to purchase up to 1.5 million additional shares of Class A
common stock at the initial public offering price to cover over-allotments, if any. Subsequent to
June 30, 2011, the underwriters exercised their option in part and purchased 800,000 additional
shares, which resulted in additional proceeds to the Company of approximately $11.2 million, net of
underwriting discounts and commissions.
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Table of Contents
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a next-generation renewable fuels company. We have developed a proprietary technology
platform to convert low-cost, abundant and sustainable non-food biomass into hydrocarbon-based oil.
We process our renewable crude oil using standard refinery equipment into gasoline and diesel
blendstocks that can be transported using the existing fuels distribution system for use in
vehicles on the road today. Our gasoline and diesel blendstocks are projected to reduce direct
lifecycle greenhouse gas emissions by over 80% compared to the petroleum-based fuels they displace.
We were incorporated and commenced operations in July 2007. Since our inception, we have
operated as a development stage company, performing extensive research and development to develop,
enhance, refine and commercialize our biomass-to-renewable fuel technology platform. During this
time, we have demonstrated the efficacy and scalability of our biomass fluid catalytic cracking, or
BFCC, process, attaining progressive technology milestones through laboratory, pilot unit and
demonstration unit environments.
We have entered our commercialization phase and commenced construction of our initial-scale
commercial production facility in Columbus, Mississippi in the first quarter of 2011. Going
forward, we intend to construct our larger standard commercial production facilities, beginning in
the second half of 2012 with our first planned facility in Newton, Mississippi.
Until recently, we have focused our efforts on research and development, and we have yet to
generate revenue. As a result, we had generated $79.0 million of operating losses and an
accumulated deficit of $100.7 million from our inception through June 30, 2011. We expect to
continue to incur operating losses through at least 2013 as we continue into the commercialization
stage of our business.
Fundamentals of Our Business
Our biomass-to-renewable fuel technology platform converts biomass into hydrocarbon-based oil
by combining our proprietary catalyst systems with well-established fluid catalytic cracking, or
FCC, processes. Expanding on FCC processes routinely employed in the petroleum refining industry,
our biomass fluid catalytic cracking, or BFCC, process allows us to introduce solid biomass into a
modified FCC system where it contacts our proprietary catalyst. The result is a hydrocarbon-based
oil that can be upgraded through standard hydrotreating equipment into transportation fuels,
including gasoline and diesel blendstocks, that are fungible with petroleum blendstocks.
Although we have not generated any revenue to date, we expect to generate revenue from sales
of our gasoline and diesel blendstocks from our planned commercial production facilities. We may
also generate revenue from the sale of renewable identification numbers, or RINs, that we will
retain if we sell our fuel blendstocks to customers who are not obligated parties under the
Renewable Fuel Standard program, or RFS2. We expect that our gasoline and diesel blendstocks will
have an equivalence value of between 1.5 to 1.7. Equivalence value equates to the number of RIN
credits per gallon.
We expect that our cost of goods sold will consist of the following:
| Feedstock. The largest component of our cost of goods sold will be
the cost of procuring and preparing the biomass we feed into our BFCC
process. Our BFCC process can convert a variety of biomass feedstock,
including woody biomass, such as whole tree chips, logging residues,
branches and bark, agricultural residues, such as sugarcane bagasse,
and energy crops, such as switchgrass and miscanthus. Our feedstock
prices are a function of feedstock acquisition, harvesting,
transportation and processing costs. |
||
| Facility-related fixed costs. As an industrial process, our
facilities will require a baseline level of staffing consisting of
process engineering, monitoring staff, testing personnel, health
safety and environmental personnel and maintenance personnel. Other
fixed costs include maintenance materials and casualty and liability
insurance, as well as ad valorem and property taxes. |
||
| Other variable costs.
We expect to use natural gas and nitrogen in our BFCC
process. We also expect to incur other variable costs for our
catalysts for our biomass conversion and hydrotreating processes. |
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Our largest expenditures are the capital costs associated with the construction of our initial
commercial production facilities and planned facility turnarounds. These costs are comprised of
land acquisition, site preparation, utilities, permitting, facility construction, start-up and
contingency costs and related financing costs. We expect that the depreciation of these facilities
costs will be included in cost of goods sold.
Our operating expenses currently consist primarily of research and development expenses and
general and administrative expenses.
Financial Operations Overview
Revenue and Cost of Goods Sold. To date, we have not generated any revenue or incurred any
cost of goods sold, and we do not expect to do so until at least the second half of 2012.
Research and Development Expenses. Research and development expenses consist primarily of
expenses for personnel focused on increasing the scale of our operations and the yield of our
blendstocks. These expenses also consist of facilities costs and other related overhead and lab
materials. We expense all of our research and development costs as they are incurred. In the near
term, we expect to hire additional employees, as well as incur contract-related expenses, as we
continue to invest in the development of our proprietary biomass-to-renewable fuel technology
platform.
General and Administrative Expenses. General and administrative expenses consist primarily of
personnel-related expenses related to our executive, legal, finance, human resource and information
technology functions, as well as fees for professional services and allocated facility overhead
expenses. These expenses also include costs related to our sales function, including marketing
programs and other allocated costs. Professional services consist principally of external legal,
accounting, tax, audit and other consulting services. We expect general and administrative expenses
to increase as we incur additional costs related to operating as a public company, including
increased legal and accounting fees, costs of compliance with securities, corporate governance and
other regulations, investor relations expenses and higher insurance premiums,
particularly those related to director and officer insurance. In addition, we expect to incur
additional costs as we
hire personnel and enhance our infrastructure to support the anticipated growth of our business.
Depreciation and Amortization Expense. Depreciation and amortization expense consists of
depreciation of our property, plant and equipment over their estimated useful lives and
amortization of our intangible assets, consisting primarily of purchased biomass conversion
technology and technology licenses, which are amortized using the straight-line method over their
estimated useful lives.
Interest Income. Interest income consists primarily of interest income earned on investments
and cash balances. We expect our interest income to fluctuate in the future with changes in average
investment balances and market interest rates.
Beneficial Conversion Feature Expense Related to Convertible Promissory Note. In August 2009,
we entered into a $15.0 million non-interest bearing convertible promissory note, or the Note,
which included a beneficial conversion feature, with our principal stockholder, Khosla Ventures.
The value of the beneficial conversion feature was not readily determinable upon issuance of the
Note because the conversion feature was contingent upon the occurrence of an undetermined future
financing transaction and neither the timing nor value of such transaction could be estimated at
the time the Note was issued. In April 2010, we executed a financing transaction that required the
Note to be converted into 2.6 million shares of our Series B convertible preferred stock. We
recorded a $10.0 million expense at the time of that conversion to reflect the beneficial
conversion feature associated with the conversion of the Note to convertible preferred stock.
Interest Expense, Net of Amounts Capitalized. We incur interest expense in connection with
our outstanding equipment and business loans. We capitalize interest on long-term construction
projects relating to operating assets with a total expected expenditure generally in excess of
$10.0 million. We capitalized interest relating to the construction of our initial-scale commercial
production
facility in Columbus, Mississippi of approximately $1.0 million as of June 30, 2011. For the
three-month period ended June 30, 2011 and 2010 we capitalized interest of $586,000 and $0,
respectively, and for the six-month period ended June 30, 2011 and 2010, $911,000 and $0,
respectively. To the extent our planned commercial production facilities are funded with debt, we
anticipate capitalizing most of the interest costs that we incur.
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Foreign Currency Loss. All of our foreign currency gains and losses were incurred in relation
to our subsidiary KiOR B.V. (in liquidation). The functional currency of KiOR B.V. (in liquidation)
is the euro. As of December 31, 2010, all of the operations of KiOR B.V. were combined with the
operations of KiOR, Inc., and KiOR B.V. is in the process of liquidation. At this time, we have no
other foreign operations.
Loss from Change in Fair Value of Warrant Liability. Our outstanding warrants to purchase
shares of our convertible preferred stock are required to be classified as current liabilities and
to be adjusted to their fair value at the end of each reporting period. Any changes in the fair
value of these warrant liabilities are required to be recorded as income or expense, as applicable,
in the period that the change in value occurs. We performed our final mark-to-market adjustment on
the warrant liabilities on June 29, 2011, the date our initial public offering closed and the
warrant liabilities became warrants to purchase equity instruments; we reclassified the fair value
to additional paid-in capital.
Income Tax Expense. Since inception, we have incurred net losses and have not recorded any
U.S. federal and state income tax provisions. We have a full valuation allowance for our net
deferred tax assets because we have incurred losses since inception. Our income tax provision
relates to current taxes payable in the Netherlands with respect to KiOR B.V. (in liquidation).
Deemed Dividend Related to the Beneficial Conversion Feature of Series C Convertible Preferred
Stock. At the date of issuance, the proceeds received for the Series C convertible preferred stock
was less than the fair value of the Class A common stock that was issuable upon conversion at the
effective conversion price of $4.902 per share, with such fair value as determined by management
and the Board of Directors. As a result, the Series C convertible preferred stock contained a
beneficial conversion feature which was required to be recognized as a reduction in net income
attributable to common stockholders ratable over the conversion period. The conversion period was
the period from the date of issuance until the earlier of the conversion of the Series C
convertible preferred shares into Class A common shares, or October 31, 2011. Upon completion of
our initial public offering, the Series C convertible preferred stock was automatically
converted to Class A common stock at 80% of the IPO price, or $12. During the period from April 21,
2011 to June 29, 2011, we recognized a deemed dividend related to the beneficial conversion feature
of Series C convertible preferred stock of $19.7 million. Since the adjusted conversion price of
80% of the IPO price resulted in the Series C convertible preferred stock being converted into
common stock with a fair value that was less than the proceeds received for the Series C
convertible preferred stock, no additional deemed dividends related to the beneficial conversion
feature of Series C convertible preferred stock was required.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon
our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these
consolidated financial statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, expenses and related disclosures. We base our estimates
and assumptions on historical experience and on various other factors that we believe to be
reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis.
The results of our analysis form the basis for making assumptions about the carrying values of
assets and liabilities that are not readily apparent from other sources. Our actual results may
differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies involve significant areas of
managements judgments and estimates in the preparation of our financial statements.
Impairment of Long-Lived Assets and Intangible Assets
We assess impairment of long-lived assets, including intangible assets, on at least an annual
basis and test long-lived assets for recoverability when events or changes in circumstances
indicate that their carrying amount may not be recoverable. Circumstances which could trigger a
review include, but are not limited to, significant decreases in the market price of the asset;
significant adverse
changes in the business climate or legal factors; accumulation of costs significantly in
excess of the amount originally expected for the acquisition or construction of the asset; a
forecast of continuing losses associated with the use of the asset; or expectations that the asset
will more likely than not be sold or disposed of significantly before the end of its estimated
useful life.
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Recoverability is assessed by using undiscounted future net cash flows of assets grouped at
the lowest level for which there are identifiable cash flows independent of the cash flows of other
groups of assets. If the undiscounted future net cash flows are less than the carrying amount of
the asset, the asset is deemed impaired. The amount of the impairment is measured as the difference
between carrying value and the fair value of the asset.
The majority of our long-lived assets, other than intangible assets, consist of our pilot unit
and demonstration unit. Both of these units are variations of common refinery equipment used in
technology development and scale-up of processes that have been scaled and modified for our
research and development purposes. Our intangible assets consist of purchased biomass conversion
technology and technology licenses. Given our history of operating losses, we evaluated the
recoverability of the book value of our property, plant and intangible assets by performing an
undiscounted forecasted cash flow analysis. Based on our analysis, the sum of the undiscounted cash
flows is in excess of the book value of the property, plant and equipment and intangible assets.
Accordingly, no impairment charges have been recorded during the period from July 23, 2007 (date of
inception) through June 30, 2011.
Our undiscounted cash flow analysis involves significant estimates and judgments. Although our
cash flow forecasts are based on assumptions that are consistent with our plans, there is
significant exercise of judgment involved in determining the cash flow attributable to a long-lived
asset over its estimated remaining useful life. Our estimates of anticipated cash flows could be
reduced significantly in the future. As a result, the carrying amounts of our long-lived assets
could be reduced through impairment charges in the future. Changes in estimated future cash flows
could also result in a shortening of the estimated useful life of long-lived assets, including
intangibles, for depreciation and amortization purposes.
Stock Based Compensation
Compensation cost for grants of all share-based payments is based on the estimated grant date
fair value. We attribute the value of share-based compensation to expense using the straight-line
method. We estimate the fair value of our share-based payment awards using the Black-Scholes
option-pricing model (the Black-Scholes model). The Black-Scholes model was developed for use in
estimating the fair value of traded options that have no vesting restrictions and are fully
transferable. The Black-Scholes model requires the input of certain assumptions, including
assumptions relating to risk-free interest rate, the expected term and expected volatility which
materially affect the fair value estimates. The risk-free interest rate was based on the market
yield currently available on United States Treasury securities with maturities approximately equal
to the options expected term. Expected term represents the period that our stock-based awards are
expected to be outstanding. The simplified method was used to calculate the expected term.
Historical share option exercise experience does not provide a reasonable basis upon which to
estimate expected term as we are a development stage company and fair market value of shares
granted changed from our historical grants as a result of our initial public offering in June 2011.
The expected volatility was based on the historical stock volatilities of several comparable
publicly-traded companies over a period equal to the expected terms of the options, as we do not
have a long trading history to use to estimate the volatility of our own common stock.
Results of Operations
The following table sets forth our consolidated results of operations for the periods shown:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Operating expenses: |
||||||||||||||||
Research and development expenses |
$ | (7,723 | ) | $ | (4,240 | ) | $ | (14,994 | ) | $ | (8,621 | ) | ||||
General and administrative expenses |
(7,161 | ) | (2,122 | ) | (11,350 | ) | (3,348 | ) | ||||||||
Depreciation and amortization expenses |
(563 | ) | (406 | ) | (1,085 | ) | (685 | ) | ||||||||
Loss from operations |
(15,447 | ) | (6,768 | ) | (27,429 | ) | (12,654 | ) | ||||||||
Other income (expense), net: |
||||||||||||||||
Interest income |
| 2 | | 2 | ||||||||||||
Beneficial conversion feature expense |
| (10,000 | ) | | (10,000 | ) | ||||||||||
Interest expense, net of amounts capitalized |
| (356 | ) | | (722 | ) | ||||||||||
Foreign currency gain (loss) |
| 16 | | 24 | ||||||||||||
Loss from change in fair value of warrant liability |
(5,504 | ) | (2,290 | ) | (6,914 | ) | (2,290 | ) | ||||||||
Other expense, net |
(5,504 | ) | (12,628 | ) | (6,914 | ) | (12,986 | ) | ||||||||
Net loss |
(20,951 | ) | (19,396 | ) | (34,343 | ) | (25,640 | ) | ||||||||
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Three months ended June 30, 2011 compared to the three months ended June 30, 2010
Operating Expenses
Three Months Ended | Increase/ | |||||||||||||||
June 30, | (decrease) | |||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Operating expenses: |
||||||||||||||||
Research and development expenses |
$ | (7,723 | ) | (4,240 | ) | $ | 3,483 | 82 | % | |||||||
General and administrative expenses |
(7,161 | ) | (2,122 | ) | 5,039 | 237 | % | |||||||||
Depreciation and amortization expense |
(563 | ) | (406 | ) | 157 | 39 | % | |||||||||
Total operating expenses |
$ | (15,447 | ) | $ | (6,768 | ) | $ | 8,679 | ||||||||
Research and Development Expenses. Our research and development expenses increased by $3.5
million, or 82%, for the three months ended June 30, 2011 as compared to the same period in 2010.
This increase was primarily the result of a $1.5 million increase in payroll and related expenses
due to an increase in headcount. During 2011, we continued to expand our research and development
efforts as we focused more on commercialization of our technology. Our expenses related to
laboratory testing, supplies, and chemicals increased by $1.4 million to $1.6 million for the three
months ended June 30, 2011, from $0.2 million for the same period in 2010 related to testing
biomass fuels for quality. Our demonstration unit is used for testing feedstocks, catalyst
formulations and other process variables under a simulated commercial production environment.
Operating costs associated with our demonstration unit, which include repairs, utilities, and
supplies, increased approximately $0.4 million to $1.5 million for the three months ended June 30,
2011 from $1.1 million in the same period in 2010.
General and Administrative Expenses. Our general and administrative expenses increased by
$5.0 million, or 237%, for the three months ended June 30, 2011 as compared to the same period in
2010. This increase was primarily the result of a $2.9 million increase payroll and related
expenses. Payroll and related expenses included stock-based compensation of $2.4 million compared
to $0.1 million for the three months ended June 30, 2011 and 2010, respectively. We also had an
increase in general and administrative expenses of $1.4 million to $1.7 million for the three
months ended June 30, 2011, from $0.3 million for the same period in 2010 for consultants primarily
driven by the hiring of consultants to assist with Sarbanes Oxley compliance implementation, the
implementation of a new accounting software, product stewardship studies, and marketing firms and
engineers engaged to assist with applying for grants and loan guarantees from the federal
government.
Depreciation and Amortization Expense. Our depreciation and amortization expense increased by
$0.2 million, or 39%, for the three months ended June 30, 2011 as compared to the same period in
2010 due to additional depreciation expense associated with our demonstration unit.
Other Income (Expense), Net
Interest Expense, Net of Amounts Capitalized. Interest expense decreased by approximately
$0.4 million, or 100%, for the three months ended June 30, 2011 as compared to the same period in
2010. All interest recorded in the second quarter of 2011 which was associated with construction
costs and equipment purchases for our initial-scale commercial production facility in Columbus,
Mississippi was capitalized as compared to zero in the second quarter of 2010.
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Foreign Currency Loss. Our foreign currency loss in 2010 was attributable to our wholly
owned subsidiary, KiOR B.V. (in liquidation), whose operations were combined with those of KiOR,
Inc. in 2010. During the three months ended June 30, 2011, we did not enter into any foreign
currency transactions.
Loss from Change in Fair Value of Warrant Liability. The loss from change in fair value of
warrant liability expense increased by $3.2 million, or 140%, for the three months ended June 30,
2011 as compared to the same period in 2010. The change is related to the change in fair value of
our convertible preferred stock warrants, which were recorded as derivatives and reflected on our
consolidated balance sheets as a current liability prior to the warrants converting into warrants
to purchase common stock upon conversion of our convertible preferred at the close of our initial
public offering.
Six months ended June 30, 2011 compared to the six months ended June 30, 2010
Operating Expenses
Six Months Ended | Increase/ | |||||||||||||||
June 30, | (decrease) | |||||||||||||||
2011 | 2010 | $ | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Operating expenses: |
||||||||||||||||
Research and development expenses |
$ | (14,994 | ) | $ | (8,621 | ) | $ | 6,373 | 74 | % | ||||||
General and administrative expenses |
(11,350 | ) | (3,348 | ) | 8,002 | 239 | % | |||||||||
Depreciation and amortization expense |
(1,085 | ) | (685 | ) | 400 | 58 | % | |||||||||
Total operating expenses |
$ | (27,429 | ) | $ | (12,654 | ) | $ | 14,775 | ||||||||
Research and Development Expenses. Our research and development expenses increased by $6.4
million, or 74%, for the six months ended June 30, 2011 as compared to the same period in 2010.
This increase was primarily the result of a $2.7 million increase in payroll and related expenses
due to an increase in headcount. During 2011, we continued to expand our research and development
efforts as we focused more on commercialization of our technology. Our expenses related to
laboratory testing, supplies, and chemicals increased by $2.8 million to $3.2 million for the six
months ended June 30, 2011, from $0.4 million for the same period in 2010 related to testing
biomass fuels for quality. Operating costs associated with our demonstration unit, which include
repairs, utilities, and supplies, increased approximately $1.0 million to $3.1 million for the six
months ended June 30, 2011 from $2.1 million in the same period in 2010.
General and Administrative Expenses. Our general and administrative expenses increased by
$8.0 million, or 239%, for the six months ended June 30, 2011 as compared to the same period in
2010. This increase was primarily the result of a $3.8 million increase in payroll and related
expenses. Payroll and related expenses included stock-based compensation of $3.0 million compared
to $0.1 million for the six months ended June 30, 2011 and 2010, respectively. We also had an
increase in general and administrative expenses of $2.6 million to $3.2 million for the six months
ended June 30, 2011, from $0.6 million for the same period in 2010 for consultants primarily driven
by the hiring of consultants to assist with Sarbanes Oxley compliance implementation, the
implementation of a new accounting software, product stewardship studies, and marketing firms and
engineers engaged to assist with applying for grants loan guarantees from the federal government.
We had an increase of $0.6 million in legal fees for the six months ended June 30, 2011 compared to
the same period in 2010 as we continued to file patent applications with respect to our technology
with a particular emphasis on protecting our core technologies. Travel related expenses increased
about $0.2 million primarily as a result of business development and visits to the Columbus,
Mississippi construction site.
Depreciation and Amortization Expense. Our depreciation and amortization expense increased by
$400,000, or 58%, for the six months ended June 30, 2011 as compared to the same period in 2010 due
to additional depreciation expense associated with our demonstration unit.
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Other Income (Expense), Net
Interest Expense, Net of Amounts Capitalized. Interest expense decreased by approximately
$0.7 million, or 100%, for the six months ended June 30, 2011 as compared to the same period in
2010. All interest recorded in the six months ended June 30, 2011, which was associated with
construction and equipment purchases for our initial-scale commercial production facility in
Columbus, Mississippi was capitalized as compared to zero in the six months ended June 30, 2010.
Foreign Currency Loss. Our foreign currency loss in 2010 was attributable to our wholly owned
subsidiary, KiOR B.V. (in liquidation), whose operations were combined with those of KiOR, Inc. in
2010. During the six months ended June 30, 2011, we did not enter into any foreign currency
transactions.
Loss from Change in Fair Value of Warrant Liability. The loss from change in fair value of
warrant liability expense increased by $4.6 million, or 202%, for the six months ended June 30,
2011 as compared to the same period in 2010. The change is related to the change in fair value of
our convertible preferred stock warrants, which are recorded as derivatives and reflected on our
consolidated balance sheets as a current liability prior to the warrants converting into warrants
to purchase common stock upon conversion of our convertible preferred at the close of our initial
public offering.
Liquidity and Capital Resources
Since inception, we have generated significant losses. As of June 30, 2011, we had an
accumulated deficit of approximately $100.7 million. We have never generated any revenue. We expect
to continue to incur operating losses through at least 2013 as we continue into the
commercialization stage of our business. Commercialization of our technology will require
significant capital expenditures.
We believe that our $207.7 million of cash and cash equivalents as of June 30, 2011, $35.6 million of remaining
available borrowings as of June 30, 2011 under our $75 million interest-free loan from the Mississippi Development
Authority and the net proceeds of $11.2 million from the partial exercise by the underwriters of our initial public
offering of their over-allotment option which we received in July 2012 will enable us to meet our liquidity needs for
at least the next 12 months. We anticipate that our material liquidity needs in the near and intermediate term will
consist of the following:
| Funding the construction and startup of our initial-scale commercial production facility
currently under construction in Columbus, Mississippi. We estimate that this project will
require additional cash capital expenditures of approximately $150 million through mechanical
completion expected in the first half of 2012 and also will require start-up expenditures that we
estimate to be approximately $20 million, all of which are anticipated to lead to commencement
of commercial production in the second half of 2012.
|
||
| Funding our overhead and other operating costs, which have averaged $12.3 million of cash per
quarter for the first half 2011, until we are able to generate sufficient revenue from the
commercial production and sale of our blendstocks to allow us to fund these costs from
internally generated cash flows, which is not expected to occur until at least 2013.
|
||
| Funding a portion of the front-end capital expenditures for our planned first commercial
production facility in Newton, Mississippi, including certain front-end engineering and
procurement services and long-lead equipment. The total cost of the Newton project is
estimated at $460 million, comprised of $350 million for the conversion plant and $110 million
for a centralized hydrotreating plant being designed with capacity for Newton and a second,
similar sized facility. In the near term, our plan is to continue leveraged, value engineering for
this project and to explore sourcing options for long-lead time procurement components. We
expect to begin construction of this facility in the second half of 2012, depending on the
availability of financing. We expect such financing will be contingent upon, among other
things, successful commissioning and start-up of our Columbus facility, entering into
satisfactory feedstock supply and offtake agreements for the facility, receipt of necessary
governmental and regulatory approvals and permits, any required equity financing, there being
no material adverse effect on the company or industry (including relevant commodity markets)
and general market conditions.
|
Longer term, we
also anticipate material liquidity needs for the construction of additional
commercial production facilities. If we are unable to obtain additional
financing, we will have to delay, scale back or eliminate our construction
plans for the Newton facility and other future facilities and may not be able
to fund our overhead and other operating costs, which could harm our business,
financial conditions and results of operations.
Initial Public Offering
On June 29, 2011, we closed our initial public offering of 10,000,000 shares of Class A common
stock at a price to the public of $15.00 per share. We received approximately $137.5 million of
proceeds from the offering, net of underwriting discounts and commissions and estimated expenses.
We granted the underwriters a 30-day option to purchase up to 1,500,000 additional shares of our
Class A common stock at the initial public offering price, which was partially exercised in July
2011 resulting in the issuance of an additional 800,000 shares for additional net proceeds of
approximately $11.2 million.
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Issuance of Series C Convertible Preferred Stock
In April 2011, we issued 11,219,908 shares of Series C convertible preferred stock for total
consideration of $55 million. Each share of Series C convertible preferred stock had the same
voting rights as our Series B convertible preferred stock. Each share of Series C convertible
preferred stock was convertible at the option of the holder at any time without payment of
additional
consideration into such number of fully paid and non-assessable shares of our Class A common
stock as would be determined by dividing the original issue price of the Series C convertible
preferred stock by the Series C convertible preferred stock conversion price, which was initially
$4.902. Pursuant to the terms of the Series C convertible preferred stock, the conversion price was
adjusted to 80% of the IPO price. Upon the closing of our initial public offering, all outstanding
shares of Series C convertible preferred stock were converted automatically into 4.6 million shares
of Class A common stock using a conversion price of $12 per share.
Liquidity
We believe that our current cash and cash equivalents, $35.6 million of remaining available
borrowings under our $75 million interest-free loan from the Mississippi Development Authority and
the net proceeds of $11.2 million from the partial exercise by the underwriters of our initial
public offering of their over-allotment option will be sufficient to fund our current operations
for the next 12 months, to fund completion of our initial-scale commercial production facility in
Columbus, Mississippi, and to fund a portion of the capital expenditures, including front-end
engineering and procurement services and long-lead, equipment for our first standard commercial
production facility in Newton, Mississippi. We will need substantial additional capital resources
to complete our subsequent standard commercial production facilities we plan to build in
Mississippi and other Southeastern states. We expect any such financing will be contingent upon, among
other things, successful commissioning and start-up of our Columbus facility, entering into
satisfactory feedstock supply and offtake agreements for the facility, receipt of necessary
governmental and regulatory approvals and permits, any required equity financing, there being no
material adverse effect on the Company or industry (including relevant commodity markets) and
general market conditions. If we are unable to obtain sufficient additional financing, we will
have to delay, scale back or eliminate construction plans for some or all of these facilities, any
of which could harm our business, financial condition and results of operations.
Mississippi Development Authority Loan
On March 17, 2011, our subsidiary, KiOR Columbus LLC, or KiOR Columbus, entered into a loan
agreement with the Mississippi Development Authority, or MDA, pursuant to which the MDA has agreed
to make disbursements to KiOR Columbus from time to time in a principal amount not to exceed $75
million in the aggregate to reimburse costs incurred by KiOR Columbus to purchase land, construct
buildings and to purchase and install equipment for use in the manufacturing of our renewable crude
oil from Mississippi-grown biomass. Principal payments on the loan are due semiannually on June 30
and December 31 of each year, commencing on the earlier of (a) December 31, 2012 and (b) the next
scheduled payment date that is at least six months after we commence commercial production of
renewable crude oil at our initial-scale commercial production facility for sale to customers in
the ordinary course of business. On each such payment date, we are required to pay an amount equal
to the lesser of an amount sufficient to repay the total loan within (a) a period of time
determined by the weighted-average life of the equipment being purchased with the proceeds thereof
or (b) 20 years. Under this loan, we committed to employing at least 30 employees, with aggregate
salaries of at least $1.0 million, once our initial-scale commercial production facility is fully
operational. In addition, we are required to pay the entire outstanding principal amount of the
loan, together with all other applicable costs, charges and expenses no later than the date 20
years from the date of our first payment on the loan. This loan is non-interest bearing.
The loan agreement contains no financial covenants, and events of default include a failure by
KiOR Columbus to make specified investments within Mississippi by December 31, 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. If an
event of default occurs and is continuing, the MDA may accelerate amounts due under the loan
agreement. The loan is secured by certain equipment, land and buildings of KiOR Columbus.
As of June 30, 2011, we received $39.4 million of the Mississippi Development Authority Loan
to reimburse us for expenses incurred on the construction of the commercial production facility
located in Columbus, Mississippi.
The non-interest bearing component of the Mississippi Development Authority Loan was intended
to incentivize us to design, construct and operate its first initial-scale commercial production
facility in Columbus, Mississippi. We imputed interest on the Mississippi Development Authority
Loan and determined the loan discount to be the difference between the face value of the loan and
the discounted present value of the loan using an estimated market rate of 5.5%, with such rate
based on interest bearing loans of a similar nature and terms. Of the $39.4 million in loan
initial proceeds received through June 30, 2011, we estimated approximately $17.2 million was
attributable to the non-interesting bearing component of the loan. Consequently, we recorded a
discount on the Mississippi Development Authority Loan of $17.2 million and a reduction of the
capitalized cost of the related assets for we were reimbursed in the same amount. The loan
discount will be recognized as interest expense, subject to interest capitalization during the
construction phase, using the effective interest method.
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Additional Financing Requirements
We will need substantial additional capital resources to fund our operations and to construct
our standard commercial production facilities, beginning with our first planned standard commercial
production facility in Newton, Mississippi in the second half of 2012.
We estimate that the construction costs for each of our standard commercial production
facilities will average approximately $350 million, depending on each facilitys unique design
requirements. Our two-train centralized hydrotreaters will be constructed in phases, with each
train expected to support up to two standard commercial production facilities. We estimate that
construction costs for our hydrotreaters will average approximately $110 million per train. By
staging the expansion of our standard commercial facilities in discrete facility-by-facility
projects that are independently viable, we believe that we will have flexibility to plan our growth
in response to capital availability and market conditions.
We intend to utilize proceeds from our initial public offering to fund our operations and a
portion of the capital expenditures for our first standard commercial production facility in
Newton. We plan to fund the remaining construction costs of the Newton facility with debt and
equity from one or more public or private sources. We expect any such financing will be
contingent upon, among other things, successful commissioning and start-up of our Columbus
facility, entering into satisfactory feedstock supply and offtake agreements for the facility,
receipt of necessary governmental and regulatory approvals and permits, any required equity
financing, there being no material adverse effect on the Company or industry (including
relevant commodity markets) and general market conditions.
Long-Term Debt
Long-term debt consists of the following:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Amounts in thousands) | ||||||||
Long-term debt: |
||||||||
Equipment loans |
$ | 3,438 | $ | 3,710 | ||||
Business loan |
6,252 | 6,327 | ||||||
Mississippi Development Authority Loan |
39,391 | | ||||||
Less: unamortized debt discounts |
(17,745 | ) | (520 | ) | ||||
Total debt, net of discount |
31,336 | 9,517 | ||||||
Less: current portion |
(1,629 | ) | (4,480 | ) | ||||
Long-term debt, net of discount |
$ | 29,707 | $ | 5,037 | ||||
Equipment Loans
Equipment Loan #1 On December 30, 2008, we entered into our equipment loan
agreement with Lighthouse Capital Partners VI, L.P. The loan agreement provides for advances at
$100,000 minimum increments up to $5.0 million in the aggregate for purchases of equipment. All
advances must have been funded no later than September 30, 2009. Each advance represents a separate
loan tranche that is payable monthly over a three-year period from the date of issuance of the
advance at an annual interest rate of 7.5%. In addition, at loan maturity, we are required to make
a payment equal to 7.5% of the total principal on the loan. The loans mature at dates from March
2012 to October 2012.
During 2009, we borrowed all $5.0 million available under the loan. The loan tranches are
collateralized by certain of our pilot unit, lab equipment and office equipment valued at
approximately $5.0 million.
Equipment Loan #2 On March 17, 2010, we entered into an equipment loan agreement
with Silicon Valley Bank with total availability of $1.0 million, limited to two advances of at
least $500,000 each. The full amount of the availability under the loan agreement was drawn down in
a single advance of $1 million. The loan is payable monthly over a three-year period at an annual
interest rate of 10%. The loan is collateralized by the equipment purchased with the advances
valued at approximately $1.3 million.
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Business Loan
On January 27, 2010, we entered into a business loan agreement with Lighthouse Capital
Partners VI, L.P. and Leader Lending, LLC for an amount of up to $7.0 million. Advances are payable
monthly over a three-year period at an annual interest rate of 12%
commencing on the date of the advance. In addition, at loan maturity, we are required to make
a payment equal to 7.5% of the total amount drawn on the loan.
During 2010, we borrowed the full $7.0 million under the loan agreement. The loan is
collateralized by our assets not previously pledged as collateral on the equipment loans described
above.
Amendments of Equipment and Business Loan
In February 2011 and April 2011, we amended Equipment Loan #1 and the Business Loan to waive
certain covenant restrictions to allow us to enter into the Mississippi Development Authority Loan
Agreement. In addition, the amendments provided for a deferral of principal payment for one year,
included prepayment penalties and extended the maturities of the loans to January 2014. All other
terms were unchanged. Interest during the principal deferral period is paid at 1% to 2.5% over the
original stated interest rate and reverts to the original interest rate upon expiration of the
deferral period. In connection with the amendments, we paid aggregate fees of $60,000 upon
execution of the amendments and agreed to pay $240,000 upon maturity. In addition, we agreed to
issue warrants to purchase $300,000 of securities issued in a next-round equity financing, if such
equity financing of at least $35 million is completed prior to May 15, 2011. If such financing was
not completed prior to May 15, 2011, we agreed to issue warrants to purchase 61,200 shares of
Series B Preferred Stock at an exercise price of $4.902 per share. The Series C convertible
preferred stock issued in April 2011 in the aggregate amount of $55.0 million met the next-round
equity financing requirement and, as a result, warrants to purchase 61,200 shares of Series C
convertible preferred stock at an exercise price of $4.902 per share were issued in connection with
the equipment and business loan amendments. The warrants to purchase 61,200 shares of Series C
convertible preferred stock automatically converted into warrants to purchase 25,000 shares of
Class A common shares using a conversion price of 80% of the IPO price.
Convertible Promissory Note to Stockholder
In April 2010, the Note, which was outstanding with one of our stockholders, was non-interest
bearing and due to mature on August 4, 2011, with no principal payments required prior to maturity.
Under the terms of the Note, if we were to sell on or before the maturity date at least $10.0
million of our convertible preferred stock in a sale or series of related sales, pursuant to which
we received gross proceeds of at least $10.0 million, excluding any amounts as a result of
conversion of the Note, the Note would be convertible into the same class and series of convertible
preferred stock just sold at a price per share equal to 60% of the price paid by the investors
participating in the sale. Our Series B convertible preferred stock issuance triggered this
conversion option, and the holder of the Note subsequently exercised the right to convert.
We recorded a $10.0 million expense to beneficial conversion feature expense associated with
the conversion of the Note into Series B convertible preferred stock. The $10.0 million reflects
the value assigned to the beneficial conversion feature. The value of the beneficial conversion
feature was not readily determinable upon issuance of the Note because the conversion feature was
contingent upon the occurrence of a qualified financing transaction. Neither the timing nor value
of such transaction could be estimated at the time the Note was issued. Therefore, we recorded the
entire amount of the beneficial conversion feature on the consolidated statements of operations at
the time the conversion occurred and value for the beneficial conversion feature could be
determined.
Cash Flows
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
(Amounts in thousands) | ||||||||
Net cash provided by (used in): |
||||||||
Operating activities |
$ | (24,577 | ) | $ | (12,991 | ) | ||
Investing activities |
$ | (50,738 | ) | $ | (8,021 | ) | ||
Financing activities |
$ | 231,542 | $ | 57,232 |
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Operating activities. Net cash used in operating activities for the six months ended June 30,
2011 was $24.6 million compared with $13.0 million in the same period in 2010. This increase in
cash used was attributable to running the demonstration unit and increased employee costs, as well
as increased costs for research and development.
Investing Activities. Net cash used in investing activities for the six months ended June 30,
2011 was $50.7 million compared to $8.0 million in the same period in 2010. This increase in cash
used is directly related to the construction of the production facility in Columbus, Mississippi.
Financing Activities. Net cash provided in financing activities was $231.5 million for the
six months ended June 30, 2011 as compared to cash provided by financing activities of $57.2
million in the same period in 2010. The increase was primarily attributable to proceeds in the
amount of $137.5 million from our initial public offering, $55.0 million from our Series C
financing, and $39.4 million from the Mississippi loan during the six months ended June 30, 2011.
Off-Balance Sheet Arrangements
During the periods presented, we did not, nor do we currently have, any off-balance sheet
arrangements, such as relationships with unconsolidated entities or financial partnerships, which
are often referred to as structured finance or special purpose entities, established for the
purpose of facilitating financing transactions that are not required to be reflected on our
consolidated balance sheets.
Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued a new accounting standard
update, which amends the fair value measurement guidance and includes some enhanced disclosure
requirements. The most significant change in disclosures is an expansion of the information
required for Level 3 measurements based on unobservable inputs. The standard is effective for
fiscal years beginning after December 15, 2011. We will adopt this standard in the first quarter of
2012 and are currently evaluating its impact on our financial statements and disclosures.
In June 2011, the FASB issued a new accounting standard, which eliminates the current option
to report other comprehensive income and its components in the statement of stockholders equity.
Instead, an entity will be required to present items of net income and other comprehensive income
in one continuous statement or in two separate, but consecutive, statements. The standard is
effective for fiscal years beginning after December 15, 2011. We will adopt this standard in the
first quarter of 2012.
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment
portfolio. We generally invest our cash in investments with short maturities or with frequent
interest reset terms. Accordingly, our interest income fluctuates with short-term market
conditions. As of June 30, 2011, our investment portfolio consisted primarily of money market
funds. Due to the short-term nature of our investment portfolio, our exposure to interest rate risk
is minimal.
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ITEM 4. | Controls and Procedures |
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we performed an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules
13a-15 and 15d-15 as of the end of the period covered by this Quarterly Report. Based on that
evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of June 30, 2011 to provide reasonable
assurance that the information required to be disclosed by us in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission, and such information is
accumulated and communicated to management, as appropriate to allow timely decisions regarding
required disclosure.
There was no change in our internal control over financial reporting during the quarter ended
June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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PART II. Other Information
ITEM 1. | Legal Proceedings |
We are not a party to any material litigation or proceeding and are not aware of any material
litigation or proceeding, pending or threatened against us.
ITEM 1A. | Risk Factors |
Investing in our securities involves a high degree of risk. You should carefully consider the
following risks and all other information contained in this Quarterly Report, including our
consolidated financial statements and the related notes, before investing in our securities. If any
of the following risks materialize, our business, prospects, financial condition and operating
results could be materially harmed.
Risks Related to Our Business and Industry
We are a development stage company and have not generated any revenue, and our business
will not succeed if we are unable to commercialize successfully our renewable transportation
fuels.
We are a development stage company with a limited operating history, and we have not yet
commercialized our renewable transportation fuels nor have we generated any revenue. We are subject
to the substantial risk of failure facing businesses seeking to develop new products. Certain
factors that could, alone or in combination, prevent us from successfully commercializing our
products include:
| technical challenges developing our commercial production processes that we are
unable to overcome; |
||
| our ability to finance the roll-out of our planned standard commercial production
facilities, including securing private or public debt and/or equity financing, project
financing and/or federal, state and local government incentives; |
||
| our ability to achieve commercial-scale production of renewable transportation fuels
on a cost-effective basis and in the time frame we anticipate; |
||
| our ability to secure and maintain customers to purchase any renewable transportation
fuels we produce from our planned commercial production facilities; |
||
| our ability to produce renewable transportation fuels that meet our potential customers specifications; |
||
| our ability to secure access to sufficient feedstock quantities at economic prices; |
||
| our ability to secure and maintain all necessary regulatory approvals for the
production, distribution and sale of our renewable transportation fuels and to comply
with applicable laws and regulations; and |
||
| actions of direct and indirect competitors that may seek to enter the renewable
transportation fuels markets in competition with us or that may seek to impose barriers
to one or more aspects of the renewable transportation fuels business that we are
pursuing. |
We have a history of net losses, and we expect significant increases in our costs and expenses
to result in continuing losses as we seek to commercialize our renewable transportation fuels.
We have incurred substantial net losses since our inception, including net losses of $34.3
million and $25.6 million for the six months ended June 30, 2011 and 2010, respectively. We expect
these losses to continue. As of June 30, 2011, we had an accumulated deficit of $100.7 million. We
expect to incur additional costs and expenses related to the continued development and expansion of
our business, including our research and development expenses, continued testing and development at
our pilot and demonstration units and engineering and design work and construction of our planned
commercial production facilities. We have not yet commercialized our renewable transportation fuels
nor have we generated any revenue. We cannot assure you that we will ever achieve or sustain
profitability on a quarterly or annual basis.
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We have no experience producing renewable transportation fuels at the scale needed for the
development of our business or in building the facilities necessary for such production, and we
will not succeed if we cannot effectively scale our proprietary technology platform and process
design.
We must demonstrate our ability to apply our proprietary technology platform and process
design at commercial scale to convert biomass into renewable crude oil and to produce renewable
transportation fuels on an economically viable basis. Such production will require that our
proprietary technology platform and process design be scalable from our demonstration unit to
commercial production facilities. We have not yet completed construction of or operated a
commercial-scale production facility, and our technology may not perform as expected when applied
at the scale that we plan or we may encounter operational challenges for which we are unable to
devise a workable solution. In particular, our initial-scale commercial production facility under
construction in Columbus, Mississippi is a first-of-kind project, and we cannot assure you that it
will be completed on the schedule that we intend or at all. If and when completed, our
initial-scale commercial production facility may not process biomass at designed levels or produce
our gasoline and diesel blendstocks at acceptable yields, and we may be unable to improve its
performance. As a result of these risks, we may be unable to achieve commercial-scale production in
a timely manner, or at all. If these risks materialize, our business and ability to commercialize
our renewable transportation fuels would be adversely affected.
The actual cost of constructing, operating and maintaining the facilities necessary to produce
our renewable transportation fuels in commercial volumes may be significantly higher than we
plan or anticipate.
The production of commercial volumes of our renewable transportation fuels will require the
construction of commercial-scale facilities. The construction of these new facilities will require
the expenditure of significant amounts of capital, which may exceed our estimates. We may be unable
to complete these facilities at the planned costs, on schedule or at all. The construction of new
facilities may be subject to construction cost overruns due to labor costs, labor shortages or
delays, costs of equipment and materials, weather delays, inflation or other factors, which could
be material. In addition, the construction of our facilities may be subject to the receipt of
approvals and permits from various regulatory agencies. Those agencies may not approve the projects
in a timely manner or may impose restrictions or conditions on a production facility that could
potentially prevent construction from proceeding, lengthen its expected completion schedule and/or
increase its anticipated cost.
If and when our facilities are constructed, our operating and maintenance costs may be
significantly higher than we anticipate. In addition, our facilities may not operate as efficiently
as we expect and may experience unplanned downtime, which may be significant. As a result, our
initial-scale commercial production facility under construction in Columbus, Mississippi or one or
more of the planned standard commercial production facilities may be unable to achieve our expected
investment return, which could adversely affect our business and results of operations.
We will need substantial additional capital in the future in order to expand our business.
We require substantial additional capital to grow our business, particularly as we continue to
design, engineer and construct our commercial production facilities. The extent of our need for
additional capital will depend on many factors, including our ability to obtain equity and debt
financing from various public or private sources and to meet any related equity contribution
requirements, whether we succeed in producing renewable transportation fuels at commercial scale,
our ability to control costs, the progress and scope of our research and development projects, the
effect of any acquisitions of other businesses or technologies that we may make in the future and
the filing, prosecution and enforcement of patent claims.
We will need to raise additional funds to build our planned standard commercial production
facilities and subsequent facilities, continue the development of our technology and products and
commercialize any products resulting from our research and development efforts. Future financings
that involve the issuance of equity securities would cause our existing stockholders to suffer
dilution. In addition, debt financing sources may be unavailable to us and any debt financing may
subject us to restrictive covenants that limit our ability to conduct our business. We may be
unable to raise sufficient additional funds on acceptable terms, or at all. If we are unable to
raise sufficient funds, our ability to fund our operations, take advantage of strategic
opportunities, develop products or technologies, or otherwise respond to competitive pressures
could be significantly limited. If this happens, we may be forced to delay the construction of
commercial production facilities, delay, scale back or terminate research or development programs
or the commercialization of products resulting from our technologies, curtail or cease operations
or obtain funds through collaborative and licensing arrangements that may require us to relinquish
commercial rights or grant licenses on terms that are unfavorable to us. If adequate funds are
unavailable, we will be unable to execute successfully our business plan or to continue our
business.
We may be unable to obtain regulatory approval for the registration of our products as
transportation fuels or as cellulosic biofuel under applicable regulatory requirements. The
denial or delay of any of such approvals could delay our commercialization efforts and adversely
impact our potential customer relationships, business and results of operations.
We are seeking to commence commercial sales of renewable transportation fuels from our
initial-scale commercial production facility in the second half of 2012. Our renewable
transportation fuels will be subject to government regulation in our target markets. The U.S.
Environmental Protection Agency, or EPA, administers the Clean Air Act, which regulates the
commercial registration, distribution and use of fuel products or fuel additives. Before an entity
can introduce a fuel or fuel additive into
commerce, it must register that fuel or fuel additive with the EPA. Our gasoline and diesel
blendstocks have not been registered with the EPA as a fuel.
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In addition, in order for our gasoline or diesel blendstocks to qualify as a renewable fuel,
advanced biofuel or cellulosic biofuel for the purpose of satisfying the mandates of the Renewable
Fuel Standard program, or RFS2, upon petition the EPA will conduct its own assessment of the
greenhouse gas emissions associated with the production and use of our gasoline or diesel
blendstocks and must verify that our feedstocks qualify as renewable cellulosic biomass. The EPA
may not complete this assessment in a timely manner, which could delay or increase the costs of the
commercialization of our products, or it may determine that our gasoline or diesel blendstocks do
not reduce greenhouse gas emissions in a sufficient amount to qualify as a renewable fuel, advanced
biofuel or cellulosic biofuel under RFS2. The EPA could also decide that our feedstocks do not meet
the definition of renewable biomass, and thus our products would be ineligible for RFS2 credits. A
decision by the EPA that our products do not qualify as a renewable fuel, advanced biofuel or
cellulosic biofuel for purposes of satisfying renewable fuel mandates would significantly reduce
demand for our product, which would materially and adversely affect our business.
Our offtake agreements for the sale and purchase of the gasoline, diesel and fuel oil
blendstocks from our initial-scale commercial production facility under construction are subject
to the satisfaction of certain technical, commercial and production requirements. If we fail to
meet these requirements, our commercialization plan could be delayed or harmed.
Currently, our offtake agreements for the sale and purchase of the gasoline, diesel and fuel
oil blendstocks to be produced at our initial-scale commercial production facility under
construction are subject to the satisfaction of certain technical, commercial and production
requirements. These agreements do not affirmatively obligate our counterparties to purchase
specific quantities of any products from us at this time, and these agreements contain important
conditions that must be satisfied before any such purchases are made. These conditions include that
we and our counterparties agree on product specifications for our gasoline, diesel and fuel oil
blendstocks and that our products conform to those specifications. If we do not satisfy these
contractual requirements and if we subsequently are unable to renegotiate those terms, our
counterparties may terminate the agreements and our commercialization plan could be delayed or
harmed if we need to find other counterparties.
We face challenges in obtaining market acceptance of our renewable transportation fuels, and our
business would be harmed if they are not accepted by prospective customers in the transportation
fuels market.
We intend to market our renewable transportation fuels as gasoline and diesel blendstocks to
refiners, terminal and rack owners and end users. These potential customers frequently impose
lengthy and complex product qualification procedures on new blendstocks, influenced by finished
product specifications, processing considerations, regulatory issues and other factors. Potential
customers may be reluctant to adopt new products due to a lack of familiarity with our blendstocks
even though our gasoline and diesel blendstocks meet industry specifications. In addition, our
renewable transportation fuels may need to satisfy product certification requirements of equipment
manufacturers. For example, fleet owners may need to certify that the use of our renewable
transportation fuels in their vehicles will not invalidate product warranties. If we are unable to
convince prospective customers that our gasoline and diesel blendstocks are compatible with their
existing processes or that the use of our products is otherwise to their benefit, our business will
be adversely affected.
We have limited experience in structuring arrangements with prospective customers for the
purchase of our renewable transportation fuels, including price mechanisms that allow us to
realize the benefit of any government incentives our renewable transportation fuels generate for
ourselves or our potential customers, and we may not succeed in this essential aspect of our
business.
We have not yet completed the commercial development of our renewable transportation fuels,
and we have limited experience structuring arrangements with potential customers that would allow
us to benefit from new government incentives for renewable fuels. Our pricing formula with these
potential customers must be designed to allow us to realize the benefits of cellulosic biofuel
renewable identification number, or RIN, credits, cellulosic biofuel tax credits and other
government incentives we generate for ourselves or our customers. Markets that value cellulosic
biofuel RIN credits and other government incentives may take a long period of time to develop or
may not materialize at all. These events could delay our ability to capitalize on the opportunities
presented to us by our technology, including preventing us from achieving commercialization of our
renewable transportation fuels.
Further, we plan to sell large amounts of our products to specific potential customers, and
this will require that we effectively negotiate contracts for these relationships. The companies
with which we expect to have customer arrangements generally are much larger and have substantially
greater bargaining power than us. As a result, we may be ineffective in negotiating the terms of
our relationships with these companies, which could adversely affect our future results of
operations.
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The price of renewable fuel credits may reduce demand for our products.
RFS2 allows additional RIN credits to be granted to obligated parties who blend into their
fuel more than the required percentage of renewable fuels in a given year. These credits may be
traded to other parties or may be used in subsequent years to satisfy RFS2 requirements. The
trading prices of renewable fuel and advanced biofuel RIN credits are influenced by, among other
factors, the transportation costs associated with renewable fuels, the mandated level of renewable
fuel use for a specific year, the possibility of waivers of renewable fuel mandates and the
expected supply of renewable fuel products. Any reduction in the cost of RIN credits could reduce
the demand for our renewable transportation fuels.
Our future success may depend on our ability to produce our renewable transportation fuels
without government incentives on a cost-competitive basis with petroleum-based fuels. If current or
anticipated government incentives are reduced significantly or eliminated and petroleum-based fuel
prices are lower or comparable to the cost of our renewable transportation fuels, demand for our
products may decline, which could adversely affect our future results of operations.
Changes in government regulations, including mandates, tax credits, subsidies and other
incentives, could have a material adverse effect upon our business and results of operations.
The market for renewable fuels is heavily influenced by foreign, federal, state and local
government regulations and policies. Changes to existing, or adoption of new foreign, federal,
state and local legislative and regulatory initiatives that impact the production, distribution or
sale of renewable fuels may harm our business. For example, RFS2 currently calls for 14 billion
gallons of liquid transportation fuels sold in 2011 to come from renewable fuels, a mandate that
grows to 36 billion gallons by 2022. Of this amount, 16 billion gallons of renewable fuels used
annually by 2022 must be cellulosic biofuel. In the United States and in a number of other
countries, regulations and policies like RFS2 have been modified in the past and may be modified
again in the future. In the United States, the Administrator of the EPA, in consultation with the
Secretary of Energy and the Secretary of Agriculture, may waive certain renewable fuels standards,
on his or her own motion or in response to a petition requesting such waiver, to avert economic
harm or in response to inadequate supply. The Administrator of the EPA is also required to reduce
the mandate for cellulosic biofuel use if projected supply for a given year falls below a minimum
threshold for that year. Any reduction in, or waiver of, mandated requirements for fuel
alternatives and additives to gasoline may cause demand for renewable biofuels to decline and deter
investment in the research and development of renewable fuels. The Administrator could also revise
qualification standards for renewable fuels in ways that increase our expenses by requiring
different feedstocks, imposing extensive tracking and sourcing requirements, or prevent our process
from qualifying as a renewable fuel under RFS2.
In addition, the U.S. Congress has passed legislation that extends tax credits for, among
other things, the production of certain renewable fuel products as contemplated by our current
process design. However, we cannot assure you that this or any other favorable legislation will
remain in place. Any reduction in or phasing out or elimination of existing tax credits, subsidies
and other incentives in the United States and foreign markets for renewable fuels, or any inability
of us or our prospective customers to access such credits, subsidies and other incentives, may
adversely affect demand for, and increase the overall cost of our renewable transportation fuels,
which would adversely affect our business. In addition, market uncertainty regarding future
policies may also affect our ability to develop new renewable products and to sell products to our
potential customers. Any inability to address these requirements and any regulatory or policy
changes could have a material adverse effect on our business, financial condition and results of
operations.
We may be unable to realize expected economies of scale, reduce our feedstock costs, increase
our overall yields and optimize the composition of our renewable transportation fuels, which
could limit our ability to sell our products at competitive prices and materially and adversely
affect our business and prospects.
We may be unable to realize expected economies of scale, reduce our feedstock costs, increase
our overall yields and optimize the composition of our renewable crude oil in order to produce our
renewable fuel products on a cost-competitive basis with existing petroleum-based fuel products
without government incentives. In particular, we may be unsuccessful in incorporating lower grade
woody biomass, such as logging residues, branches and bark, in our process to reduce our feedstock
costs or maintain our yields. In addition, our research and development efforts may fail to
increase the yield of our biomass fluid catalytic cracking (BFCC) process such that we may be
unable to produce renewable transportation fuels at the costs or in the quantities that we
anticipate. Our failure to achieve these efficiencies or improvements over time could limit our
ability to sell our products at competitive prices and materially and adversely affect our business
and prospects.
The production of our renewable transportation fuels will require significant amounts of
feedstock, and we may be unable to acquire sufficient amounts of feedstock to produce the amount
of our products that we commit to sell to potential customers, or we may experience difficulties
or incur costs obtaining such feedstock.
The successful commercialization of our renewable transportation fuels will require us to
acquire and process large amounts of feedstock, which primarily will be Southern Yellow Pine whole
tree chips. We may experience difficulties in obtaining access to feedstock and transporting
feedstock to our commercial production facilities. Our access to feedstock may be adversely
affected by
weather or actions by landowners, sellers or competing buyers of feedstock. In addition, fires
or other natural disasters in the vicinity of our commercial production facilities could affect the
availability of feedstock. We may be unable to secure access to feedstock or to secure the
transportation of feedstock to our planned commercial production facilities on terms acceptable to
us or at all. If we are unable to secure cost-effective access to feedstock, our ability to produce
our renewable transportation fuels would be adversely affected.
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The price of woody biomass and other renewable feedstock could increase or become volatile, or
their availability could be reduced, which would increase the production costs of our renewable
transportation fuels.
The price of woody biomass and other renewable feedstock may increase or become volatile due
to changes in demand, such as the increased use of such feedstock in the generation of renewable
electricity. Such changes would result in higher feedstock prices and/or a significant decrease in
the volume of woody biomass and other renewable feedstock available for the production of the
renewable transportation fuels we plan to sell, which could adversely affect our business and
results of operations.
We may be unable to locate facilities near low-cost, abundant and sustainable sources of biomass
and adequate infrastructure, which may affect our ability to produce cost-effective renewable
transportation fuels.
Our business model and the successful commercialization of our renewable transportation fuels
will depend on our ability to locate commercial production facilities near low-cost, abundant and
sustainable sources of renewable biomass and in proximity to adequate infrastructure. Our ability
to place facilities in locations where we can economically produce our renewable transportation
fuels from nearby feedstock and transport those fuels to potential customers will be subject to the
availability and cost of land, the availability of adequate infrastructure and skilled labor
resources in such areas, and to legal and regulatory risks related to land use, permitting and
environmental regulations. If we are unable to locate facilities at sites that allow economical
production and transport of our products, our ability to produce renewable transportation fuels
cost-effectively could be adversely affected.
A disruption in our supply chain for components of our proprietary catalyst system could
materially disrupt or impair our ability to produce renewable transportation fuels.
We rely on third parties to supply the components of our proprietary catalyst system and,
although we currently prepare finished catalyst ourselves, we may require third parties to provide
commercial supply of finished catalyst. Our operations could be materially disrupted if we lose any
of these suppliers or if any supplier experiences a significant interruption in its manufacturing
and is unable provide an adequate supply of these components to meet our demand. Any such
disruptions or delays could have a material adverse effect on our business and results of
operations.
Our business will be subject to fluctuations in commodity prices.
We believe that some of the present and projected demand for renewable fuels results from
relatively recent increases in the cost of petroleum. We intend to market our gasoline and diesel
blendstocks as alternatives to corresponding petroleum-based fuels. If the price of petroleum-based
fuels declines, we may be unable to produce gasoline and diesel blendstocks that are cost-effective
alternatives to their petroleum-based counterparts. Declining oil prices, or the perception of a
future decline in oil prices, would adversely affect the prices we can obtain from our potential
customers or prevent us from entering into agreements with potential customers for our products.
Petroleum prices have been extremely volatile. Lower petroleum prices over extended periods of
time may change the perceptions in government and the private sector that cheaper, more readily
available energy alternatives should be developed and produced. If petroleum prices were to decline
from present levels and remain at lower levels for extended periods of time, the demand for
renewable fuels could be reduced, and our results of operations and financial condition may be
adversely affected.
In addition, our commercial production facilities may use significant amounts of natural gas
to operate. Accordingly, our business depends on natural gas supplied by third parties. An increase
in the price of natural gas could adversely affect our results of operations and financial
condition.
Growth may place significant demands on our management and our infrastructure.
We have experienced, and may continue to experience, expansion of our business as we continue
to make efforts to develop and bring our products to market. Our growth and operations have placed,
and may continue to place, significant demands on our management and our operational and financial
infrastructure. Managing our growth will require significant expenditures and allocation of
valuable management resources. If we fail to achieve the necessary level of efficiency in our
organization as it grows, our business, results of operations and financial condition would be
harmed.
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We may incur significant costs complying with environmental laws and regulations, and failure to
comply with these laws and regulations could expose us to significant liabilities.
The production of renewable fuels involves the emission of various airborne pollutants. As a
result, we are subject to several different environmental laws, regulations and permitting
requirements administered by the EPA and the states where our facilities are and may be located,
including Clean Air Act, or CAA, requirements. These laws, regulations and permitting requirements
may restrict our emissions, affect our ability to make changes to our operations, and otherwise
impose limitations on or require controls on our operations. In addition to costs that we expect to
incur to achieve and maintain compliance with these laws, new or more stringent CAA standards or
other environmental requirements in the future also may limit our operating flexibility or require
the installation of new controls at our facilities.
We also use, transport and produce hazardous chemicals and materials in our business and are
subject to a variety of federal, state and local laws and regulations governing the use,
generation, manufacture, storage, handling and disposal of these materials. Our safety procedures
for handling, transporting and disposing of these materials and waste products may be incapable of
eliminating the risk of accidental injury or contamination from the use, storage, transporting,
handling or disposal of hazardous materials. In the event of contamination or injury, we could be
held liable for any resulting damages, and any liability could exceed our insurance coverage. We
may not be insured against all environmental accidents that might occur, some of which may result
in toxic tort claims. There can be no assurance that violations of environmental, health and safety
laws will not occur in the future as a result of human error, accident, equipment failure or other
causes. Compliance with applicable environmental laws and regulations may be expensive, and the
failure to comply with past, present or future laws could result in the imposition of fines, third
party property damage, product liability and personal injury claims, investigation and remediation
costs, the suspension of production or a cessation of operations, and our liability may exceed our
total assets. Liability under environmental laws can be joint and several and without regard to
comparative fault. Environmental laws could become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with violations, which could impair
our research, development or production efforts and harm our business. Later-enacted federal and
state governmental requirements may substantially increase our costs or delay or prevent the
construction and operation of our facilities, which could have a material adverse effect on our
business, financial condition and result of operations. Consequently, considerable resources may be
required to comply with future environmental regulations.
Climate change legislation, regulatory initiatives and litigation could result in increased
operating costs.
In recent years, the U.S. Congress has been considering legislation to restrict or regulate
emissions of greenhouse gases, or GHGs, such as carbon dioxide and methane, that are understood to
contribute to global warming. In addition, almost half of the states, either individually or
through multi-state regional initiatives, have begun to address GHG emissions. Independent of
Congress, the EPA has adopted regulations controlling GHG emissions under its existing CAA
authority. For example, on December 15, 2009, the EPA officially published its findings that
emissions of carbon dioxide, methane and other GHGs present an endangerment to human health and the
environment because emissions of such gases are, according to the EPA, contributing to warming of
the earths atmosphere and other climatic changes. In 2009, the EPA adopted rules regarding
regulation of GHG emissions from motor vehicles. In addition, on September 22, 2009, the EPA issued
a final rule requiring the reporting of greenhouse gas emissions from specified large greenhouse
gas emission sources in the United States beginning in 2011 for emissions occurring in 2010. In
June 2010, the EPA also issued a final rule, known as the Tailoring Rule, that makes certain
large stationary sources and modification projects subject to permitting requirements for
greenhouse gas emissions under the CAA. Furthermore, legislation to delay or reduce the EPAs
ability to proceed with the regulation of GHGs continues to be considered by Congress.
At this time, the projected GHG emissions from our facilities, including our initial-scale
commercial production facility under construction in Columbus, Mississippi, would not meet the
applicable thresholds for GHG permitting or reporting requirements. Although it is not possible at
this time to accurately estimate how potential future laws or regulations addressing GHG emissions
would impact our business, any future federal laws or implementing regulations that may be adopted
to address GHG emissions could require us to incur increased operating costs. The potential
increase in the costs of our operations resulting from any legislation or regulation to restrict
emissions of GHGs could include new or increased costs to operate and maintain our facilities,
install new emission controls on our facilities, acquire allowances to authorize our GHG emissions,
pay any taxes related to our GHG emissions and administer and manage a GHG emissions program. We
cannot predict with any certainty at this time how these possibilities may affect our operations.
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Loss of key personnel, including key management personnel and key technical personnel, or
failure to attract and retain additional personnel could delay our product development programs
and harm our research and development efforts and our ability to meet our business objectives.
Our business requires a management team and employee workforce that is knowledgeable in the
technological and commercial areas in which we operate. The loss of any key member of our
management or key technical and operational employees, or the failure to attract or retain such
employees could prevent us from developing and commercializing our products and executing
our business strategy. We may be unable to attract or retain qualified employees in the future
due to the intense competition for qualified personnel among catalyst, refining, alternative and
renewable fuel businesses, or due to the unavailability of personnel with the qualifications or
experience necessary for our business. In particular, our process development program depends on
our ability to attract and retain highly skilled technical and operational personnel with
particular experience and backgrounds. Competition for such personnel from numerous companies and
academic and other research institutions may limit our ability to hire individuals with the
necessary experience and skills on acceptable terms. In addition, we expect that the execution of
our strategy of constructing multiple commercial production facilities to bring our products to
market will require the expertise of individuals experienced and skilled in managing complex,
first-of-kind capital development projects.
All of our employees are at-will employees, which means that either the employee or we may
terminate their employment at any time. If we are unable to attract and retain the necessary
personnel to accomplish our business objectives, we may experience staffing constraints that will
adversely affect our ability to commercialize our products, meet the demands of our potential
customers in a timely fashion or to support our internal research and development programs, which
could impair our ability to meet our business objectives and adversely affect our results of
operations and financial condition.
Weather, natural disasters and accidents may significantly affect our results of operations and
financial condition.
Our corporate headquarters, pilot plant and demonstration unit are located outside of Houston,
Texas, which is an area exposed to and affected by hurricanes. Major hurricanes may cause
significant disruption in our operations on the U.S. Gulf Coast, logistics across the region and
the supply of feedstock, which could have an adverse impact on our operations. We do not have a
detailed disaster recovery plan. In addition, we may not carry sufficient business insurance to
compensate us for losses that may occur. We are not insured against environmental pollution
resulting from environmental accidents that occur on a sudden and accidental basis, some of which
may result in toxic tort claims. Any losses or damages could have a material adverse effect on our
cash flows and success as an overall business.
We may be subject to product liability claims and other claims of our potential customers.
The design, development, production and sale of our renewable transportation fuels involve an
inherent risk of product liability claims and the associated adverse publicity. We may be named in
product liability suits relating to our gasoline and diesel blendstocks or the finished gasoline
and diesel fuel containing our blendstocks, even for defects resulting from errors of our potential
customers. These claims could be brought by various parties, including potential customers who are
purchasing our products directly from us or other users who purchase our products from our
customers.
In addition, our potential customers may bring suits against us alleging damages for the
failure of our products to meet specifications or other requirements. Any such suits, even if
unsuccessful, could be costly and disrupt the attention of our management and damage our
negotiations with other potential customers.
Although we seek to limit our product liability in contracts with our potential customers,
including indemnification from customers for such product liability claims, such limits may not be
enforceable or may be subject to exceptions. Our insurance coverage may be inadequate to cover all
potential liability claims. Insurance coverage is expensive and may be difficult to obtain. Also,
insurance coverage may not be available in the future on acceptable terms and may not be sufficient
to cover potential claims. We cannot assure you that our potential customers will have adequate
insurance coverage to cover against potential claims. If we experience a large insured loss, it
might exceed our coverage limits, or our insurance carrier may decline to further cover us or may
raise our insurance rates to unacceptable levels, any of which could impair our financial position.
Our quarterly operating results may fluctuate in the future. As a result, we may fail to meet or
exceed the expectations of research analysts or investors, which could cause our stock price to
decline.
Our financial condition and operating results may vary significantly from quarter to quarter
and year to year due to a variety of factors, many of which are beyond our control. Factors
relating to our business that may contribute to these fluctuations include the following factors,
as well as other factors described else where in this Quarterly Report:
| our ability to achieve or maintain profitability; |
||
| the feasibility of producing our renewable transportation fuels on a commercial scale; |
||
| our ability to manage our growth; |
||
| fluctuations in the price of and demand for petroleum-based products; |
||
| the availability of cost-effective renewable feedstock sources; |
||
| the existence of government programs and incentives or regulation; |
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| potential issues related to our ability to report accurately our financial results in a timely manner; |
||
| our dependence on, and the need to attract and retain, key management and other personnel; |
||
| our ability to obtain, protect and enforce our intellectual property rights; |
||
| potential advantages that our competitors and potential competitors may have in
securing funding or developing projects; |
||
| our ability to obtain additional capital that may be necessary to expand our business; |
||
| business interruptions such as hurricanes, natural disasters and accidents; |
||
| our ability to comply with laws and regulations; |
||
| our ability to properly handle and dispose of hazardous materials used in our business; and |
||
| our ability to use our net operating loss carryforwards to offset future taxable income. |
Due to the various factors mentioned above, and other factors described in this Quarterly
Report, the results of any prior quarterly or annual periods should not be relied upon as
indications of our future operating performance.
Our ability to use our net operating loss carryforwards to offset future taxable income may be
subject to certain limitations.
In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, a
corporation that undergoes an ownership change is subject to limitations on its ability to
utilize its pre-change net operating loss carryforwards, or NOLs, to offset future taxable income.
We have not performed a detailed analysis to determine whether an ownership change under Section
382 of the Internal Revenue Code has occurred after each of our previous issuances of common stock,
preferred stock and convertible debt. If we have undergone an ownership change as a result of such
issuances or as a result of our initial public offering, our ability to utilize NOLs could be
limited by Section 382 of the Internal Revenue Code. Future changes in our stock ownership, some of
which are outside of our control, could result in an ownership change under Section 382 of the
Internal Revenue Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in
the future may be subject to limitations.
If we fail to maintain an effective system of internal controls, we might be unable to report
our financial results accurately or prevent fraud; in that case, our stockholders could lose
confidence in our financial reporting, which would harm our business and could negatively impact
the price of our stock.
Effective internal controls are necessary for us to provide reliable financial reports and
prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act,
will require us and our independent registered public accounting firm to evaluate and report on our
internal control over financial reporting beginning with our Annual Report on Form 10-K for the
year ending December 31, 2012. The process of implementing our internal controls and complying with
Section 404 will be expensive and time consuming, and will require significant attention of
management. We cannot be certain that these measures will ensure that we implement and maintain
adequate controls over our financial processes and reporting in the future. Even if we conclude,
and our independent registered public accounting firm concurs, that our internal control over
financial reporting provides reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles, because of its inherent limitations, internal control over
financial reporting may not prevent or detect fraud or misstatements. Failure to implement required
new or improved controls, or difficulties encountered in their implementation, could harm our
results of operations or cause us to fail to meet our reporting obligations. If we or our
independent registered public accounting firm discover a material weakness, the disclosure of that
fact, even if quickly remedied, could reduce the markets confidence in our financial statements
and harm our stock price. In addition, a delay in compliance with Section 404 could subject us to a
variety of administrative sanctions, including Securities and Exchange Commission, or SEC, action,
ineligibility for short form resale registration, the suspension or delisting of our Class A common
stock from The Nasdaq Global Select Market and the inability of registered broker-dealers to make a
market in our Class A common stock, which would further reduce our stock price and could harm our
business.
Implementing a new enterprise resource planning system could interfere with our business or
operations and could adversely impact our financial position, results of operations and cash
flows.
We are in the process of implementing a new enterprise resource planning, or ERP, system. This
project requires significant investment of capital and human resources, the re-engineering of many
processes of our business, and the attention of many employees who would otherwise be focused on
other aspects of our business. Any disruptions, delays or deficiencies in the design and
implementation of the new ERP system could result in potentially much higher costs than we had
anticipated and could adversely affect our ability to develop and commercialize products, provide
services, fulfill contractual obligations, file reports with the SEC in a
timely manner and/or otherwise operate our business, or otherwise impact our controls
environment. Any of these consequences could have an adverse effect on our results of operations
and financial condition.
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International expansion is one of our growth strategies, and international operations will
expose us to additional risks that we do not face in the United States, which could have an
adverse effect on our operating results.
We expect to focus our initial business and operations in the United States; however,
international expansion is one of our growth strategies. If and when we expand internationally, our
operations will be subject to a variety of risks that we do not face in the United States
including:
| building and managing experienced foreign workforces and overseeing and ensuring the
performance of foreign subcontractors; |
||
| increased travel, infrastructure and legal and compliance costs associated with
multiple international locations; |
||
| additional withholding taxes or other taxes on our foreign income, and tariffs or
other restrictions on foreign trade or investment; |
||
| imposition of, or unexpected adverse changes in, foreign laws or regulatory
requirements, many of which differ from those in the United States; |
||
| increased exposure to foreign currency exchange rate risk; |
||
| longer payment cycles for sales in some foreign countries and potential difficulties
in enforcing contracts and collecting accounts receivable; |
||
| difficulties in repatriating overseas earnings; |
||
| general economic conditions in the countries in which we operate; and |
||
| political unrest, war, incidents of terrorism or responses to such events. |
Our overall success in international markets will depend, in part, on our ability to succeed
in differing legal, regulatory, economic, social and political conditions. We may not be successful
in developing and implementing policies and strategies that will be effective in managing these
risks in each country where we do business. Our failure to manage these risks successfully could
harm our international operations, reduce our international sales and increase our costs, thus
adversely affecting our business, financial condition and operating results.
Risks Related to Our Intellectual Property
There are many companies developing technology in this area of business, and other parties may
have intellectual property rights which could limit our ability operate freely.
Our commercial success depends on our ability to operate without infringing the patents and
proprietary rights of other parties and without breaching any agreements we enter. We are aware of
other parties applying various technologies, including fluid catalytic cracking (FCC), to make
renewable transportation fuels from biomass. We cannot determine with certainty whether patents of
other parties may materially affect our ability to conduct our business. Because patent
applications can take several years to issue, there may currently be pending applications, unknown
to us, that may result in issued patents that cover our technologies or product candidates. We are
aware of a significant number of patents and patent applications relating to aspects of our
technologies filed by, and issued to, third parties. The existence of third-party patent
applications and patents could significantly reduce the scope of coverage of any patents granted to
us and limit our ability to obtain meaningful patent protection.
If a third party asserts that we infringe upon its patents or other proprietary rights, we may
need to obtain a license, if a license is available, or redesign our technology. We could otherwise
face a number of other issues that could seriously harm our competitive position, including:
| infringement and other intellectual property claims, which could be costly and time
consuming to litigate, whether or not the claims have merit, and which could delay
getting our products to market and divert management attention from our business; |
||
| substantial damages for past infringement, which we may have to pay if a court
determines that our products or technologies infringe upon a competitors patent or
other proprietary rights; |
||
| a court prohibition from selling or licensing our technologies or future products
unless the holder licenses the patent or other proprietary rights to us, which it would
not be required to do; and |
||
| if a license is available from a third party, an obligation to pay substantial
royalties or grant cross licenses to our patents or proprietary rights. |
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Many of our employees were previously employed at specialty chemical, oil and forest products
companies, including our competitors or potential competitors. We may be subject to claims that
these employees or we have inadvertently or otherwise used or disclosed trade secrets or other
proprietary information of their former employers. Litigation may be necessary to defend against
these claims. If we fail in defending such claims, in addition to paying monetary damages, we may
lose valuable intellectual property rights or personnel and be enjoined from certain activities. A
loss of key research personnel or their work product could hamper or prevent our ability to
commercialize our products, which could severely harm our business. Even if we are successful in
defending against these claims, litigation could result in substantial costs and demand on
management resources.
Our patent applications may not result in issued patents, which may allow competitors to more
easily exploit technology similar to ours.
Part of our expected market advantage depends in part on our ability to maintain adequate
protection of our intellectual property for our technologies and products and potential products in
the United States and other countries. We have adopted a strategy of seeking patent protection in
the United States and in foreign countries with respect to certain of the technologies used in or
relating to our products and processes. Our intellectual property claims cover different aspects of
our technology, and many of them have been or will be filed both in the United States and in
various foreign jurisdictions. These patent applications and granted patents are directed to
aspects of our technology and/or to our methods and products that support our business. However,
the issuance and enforcement of patents involves complex legal and factual questions. Accordingly,
we cannot be certain that the patent applications that we file will result in patents being issued,
or that our patent and any patents that may be issued to us will cover our technology or the
methods or products that support our business, or afford protection against competitors with
similar technology. Moreover, the issuance of a patent is not conclusive as to its validity, scope
or enforceability, and competitors might successfully challenge the validity, scope or
enforceability of any issued patents should we try to enforce them. In addition, patent
applications filed in foreign countries are subject to laws, rules and procedures that differ from
those of the United States, and thus we cannot be certain that foreign patent applications will be
granted even if U.S. patents are issued.
Our ability to compete may decline if we are required to enforce or defend our intellectual
property rights through costly litigation or administrative proceedings.
Unauthorized parties may attempt to copy or otherwise obtain and use our products or
technology. Identifying unauthorized use of our intellectual property is difficult, because we may
be unable to monitor the processes and materials employed by other parties, and the end products of
our proprietary technology may be commodities from which it would be difficult to ascertain the
methods or materials used in their manufacture. We cannot be certain that the steps we have taken
will prevent unauthorized use of our technology, particularly in foreign countries where
enforcement of intellectual property rights is more difficult than in the United States.
Proceedings to enforce or defend our intellectual property rights could result in substantial
costs, even if the eventual outcome were favorable to us, and would divert both funds and other of
our resources from our business objectives. If the outcome of any such proceedings is unfavorable
and competitors are able to use our technology without payment to us, our ability to compete
effectively could be harmed. Furthermore, the nature of any protection against foreign competition
that may be afforded by any patents we may have is often difficult to predict and varies
significantly from country to country. Moreover, others may independently develop and obtain
patents for technologies that are similar or superior to our technologies. If that happens, we may
need to license these technologies, and we may not be able to obtain licenses on reasonable terms,
if at all, which could cause harm to our business.
Confidentiality agreements with employees and others may not adequately prevent disclosures of
trade secrets and other proprietary information.
We rely in part on trade secret protection to protect our confidential and proprietary
information and processes. However, trade secrets are difficult to protect. We have taken measures
to protect our trade secrets and proprietary information, but these measures may not be effective.
We require new employees and consultants to execute confidentiality agreements upon the
commencement of an employment or consulting arrangement with us. These agreements generally require
that all confidential information developed by the individual or made known to the individual by us
during the course of the individuals relationship with us be kept confidential and not disclosed
to third parties. Nevertheless, our proprietary information may be disclosed, third parties could
reverse engineer our catalyst systems and others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade secrets. Costly and
time-consuming litigation could be necessary to enforce and determine the scope of our proprietary
rights, and failure to obtain or maintain trade secret protection could adversely affect our
competitive business position.
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Competitors and potential competitors who have greater resources and experience than we do may
develop products and technologies that compete with ours or may use their greater resources to
gain market share at our expense.
Our ability to compete successfully will depend on our ability to develop proprietary
technologies that produce interchangeable products in large volumes and at costs below the
prevailing market prices for our products. Many of our competitors have substantially greater
production, financial, research and development, personnel and marketing resources than we do. In
addition, certain of our competitors may also benefit from local government programs and incentives
that are not available to us. As a result, our competitors may be able to develop competing and/or
superior technologies and processes, and compete more aggressively and sustain that competition
over a longer period of time than we could. Our technologies and products may be rendered
uneconomical or otherwise obsolete by technological advances or entirely different approaches
developed by one or more of our competitors. As more companies develop new intellectual property in
our markets, the possibility of a competitor acquiring patent or other rights that may limit our
products or potential products increases, which could lead to litigation.
In addition, various governments have recently announced a number of spending programs focused
on the development of clean technology, including alternatives to petroleum-based fuels and the
reduction of carbon emissions. Such spending programs could lead to increased funding for our
competitors or the rapid increase in the number of competitors within those markets.
Our limited resources relative to many of our competitors may cause us to fail to anticipate
or respond adequately to new developments and other competitive pressures. This failure could
reduce our competitiveness and market share, adversely affect our results of operations and
financial position, and prevent us from achieving or maintaining profitability.
Risks Related to Ownership of Our Class A Common Stock
Our share price may be volatile and you may be unable to sell your shares at a price acceptable
to you.
The market price of shares of our Class A common stock could be subject to wide fluctuations
in response to many risk factors listed in this section, and others beyond our control, including:
| actual or anticipated fluctuations in our financial condition and operating results; |
||
| the position of our cash, cash equivalents and marketable securities; |
||
| actual or anticipated changes in our growth rate relative to our competitors; |
||
| actual or anticipated fluctuations in our competitors operating results or changes in their growth rate; |
||
| announcements of technological innovations by us, our collaborators or our competitors; |
||
| announcements by us, our customers or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments; |
||
| the entry into, modification or termination of customer contracts; |
||
| additions or losses of customers; |
||
| additions or departures of key management, scientific or other personnel; |
||
| competition from existing technologies and products or new technologies and products that may emerge; |
||
| issuance of new or updated research reports by securities or industry analysts; |
||
| fluctuations in the valuation of companies perceived by investors to be comparable to us; |
||
| disputes or other developments related to proprietary rights, including patents,
litigation matters and our ability to obtain patent protection for our technologies; |
||
| changes in existing laws, regulations and policies applicable to our business and
products, including RFS2, and the adoption or failure to adopt carbon emissions
regulation; |
||
| announcement or expectation of additional financing efforts; |
||
| sales of our common stock by us, our insiders or our other stockholders; |
||
| share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; |
||
| general market conditions in our industry; and |
||
| general economic and market conditions, including the recent financial crisis. |
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Furthermore, the stock markets have experienced extreme price and volume fluctuations that
have affected and continue to affect the market prices of equity securities of many companies.
These fluctuations often have been unrelated or disproportionate to
the operating performance of those companies. These broad market and industry fluctuations, as
well as general economic, political and market conditions such as recessions, interest rate changes
or international currency fluctuations, may negatively impact the market price of shares of our
Class A common stock. If the market price of shares of our Class A common decreases, you may not
realize any return on your investment in us and may lose some or all of your investment. In the
past, companies that have experienced volatility in the market price of their stock have been
subject to securities class action litigation. We may be the target of this type of litigation in
the future. Securities litigation against us could result in substantial costs and divert our
managements attention from other business concerns, which could harm our business.
Holders of our Class A common stock are entitled to one vote per share, and holders of our Class
B common stock are entitled to 10 votes per share. The lower voting power of our Class A common
stock may negatively affect the attractiveness of our Class A common stock to investors and, as
a result, its market value.
We have two classes of common stock: Class A common stock, which is the stock we sold in our
initial public offering and which is entitled to one vote per share, and Class B common stock,
which is entitled to 10 votes per share. The difference in the voting power of our Class A common
stock and Class B common stock may have the effect of delaying or preventing a change in control of
our company otherwise favored by stockholders otherwise holding a majority of our common stock and
could diminish the market value of our Class A common stock because of the superior voting rights
of our Class B common stock and the power those rights confer.
For the foreseeable future, Khosla Ventures will be able to control the selection of all members
of our Board of Directors, as well as virtually every other matter that requires stockholder
approval, which will severely limit the ability of other stockholders to influence corporate
matters.
Except in certain limited circumstances required by applicable law, holders of Class A common
stock and Class B common stock vote together as a single class on all matters to be voted on by our
stockholders. Khosla Ventures owns Class A common stock and Class B common stock that together
represent a majority of the combined voting power of our outstanding Class A common stock and Class
B common stock. Under our amended and restated certificate of incorporation, holders of shares of
Class B common stock may generally transfer those shares to affiliated entities, without having the
shares automatically convert into shares of Class A common stock. Therefore, Khosla Ventures will,
for the foreseeable future, be able to control the outcome of the voting on virtually all matters
requiring stockholder approval, including the election of directors and significant corporate
transactions such as an acquisition of our company, even if they come to own, in the aggregate, as
little as 10% of the economic interest of the outstanding shares of our Class A common stock and
Class B common stock. Moreover, Khosla Ventures may take actions in their own interests that you or
our other stockholders do not view as beneficial.
As an example of how Khosla Ventures interests may differ from other stockholders, Khosla
Ventures has advised us as follows: Khosla Ventures believes that promoting energy independence and
a sustainable environment are the most important issues facing society today. Khosla Ventures goal
is to invest in products and services that will better the lives of as many people as possible by
fundamentally altering the way the world produces and consumes energy. In pursuing that goal,
Khosla Ventures makes investments and decisions that may give priority to long-term financial
returns over short-term financial returns. Khosla Ventures believes that considering environmental,
social and other consequences are important in maximizing stockholder value over the long term and
that high risk projects may generate the highest long term returns. Further, the objectives and
goals of Khosla Ventures relating to its investments may change over time. As a result of the
foregoing, you should be aware that Khosla Ventures may vote its shares of common stock in a way
our other stockholders do not view as beneficial.
Investors in our Class A common stock do not have the same protections generally available to
stockholders of other Nasdaq-listed companies because we are a controlled company within the
meaning of the Nasdaq Listing Rules.
Khosla Ventures controls a majority of our outstanding common stock. As a result, we are a
controlled company within the meaning of Nasdaq Listing Rule 5615(c). As a controlled company, we
qualify for, and our Board of Directors may and intends to rely upon, exemptions from several
corporate governance requirements, including requirements that:
| a majority of the Board of Directors consist of independent directors; |
||
| compensation of officers be determined or recommended to the Board of Directors by a
majority of the Boards independent directors or by a compensation committee comprised
solely of independent directors; and |
||
| director nominees be selected or recommended to the Board of Directors by a majority
of the Boards independent directors or by a nominating committee that is composed
entirely of independent directors. |
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Additionally, Khosla Ventures will be able to have its nominees represented on our
compensation committee and our corporate governance and nominating committee. Accordingly,
investors in our Class A common stock will not be afforded the same
protections generally as stockholders of other Nasdaq-listed companies for so long as Khosla
Ventures designees to our Board of Directors represent a majority of our board and determine to
rely upon such exemptions. Please read For the foreseeable future, Khosla Ventures will be able
to control the selection of all members of our Board of Directors, as well as virtually every other
matter that requires stockholder approval, which will severely limit the ability of other
stockholders to influence corporate matters for more information on the risks we face in
connection with our initial investors ability to control the outcome of virtually all stockholder
votes.
A significant portion of our total outstanding shares of common stock is restricted from
immediate resale but may be sold into the market in the near future. This could cause the market
price of our Class A common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur
at any time. These sales, or the perception in the market that the holders of a large number of
shares of common stock intend to sell shares, could reduce the market price of our Class A common
stock. As of June 30, 2011, entities affiliated with Khosla Ventures, entities affiliated with
Artis Capital Management, L.P., entities affiliated with Alberta Investment Management Corporation
and BIOeCON B.V. beneficially own, collectively, approximately 86% of our outstanding common stock.
If one or more of them were to sell a substantial portion of the shares they hold, it could cause
our stock price to decline. As a result of the underwriting arrangements for our initial public
offering, approximately 96 million shares of common stock are subject to a 180-day contractual
lock-up with the underwriters and approximately 46 million shares of common stock are subject to a
360-day contractual lock-up with the underwriters, as measured from the pricing date of our initial
public offering (June 23, 2011). Of the shares subject to a contractual lock-up with the
underwriters, approximately 44 million shares of common stock are also subject to a 180-day
contractual lock-up with us.
Holders of an aggregate of approximately 73 million shares of our common stock have rights,
subject to some conditions, to require us to file registration statements covering their shares or
to include their shares in registration statements that we may file for ourselves or other
stockholders.
In addition, as of June 30, 2011, there were 15.4 million shares subject to outstanding
options and 1.6 million restricted shares granted under our amended and restated 2007 Stock
Option/Stock Issuance Plan that will become eligible for sale in the public market to the extent
permitted by any applicable vesting requirements, the lock-up agreements and Rules 144 and 701
under the Securities Act of 1933. These shares can be freely sold in the public market upon
issuance and once vested, subject to the 180-day lock-up periods under the lock-up agreements
described above.
If securities or industry analysts do not publish research or reports about our business, or
publish negative reports about our business, our stock price and trading volume could decline.
The trading market for our Class A common stock will be influenced by the research and reports
that industry or securities analysts may publish about us, our business, our market or our
competitors. If any of the analysts who may cover us change their recommendation regarding our
stock adversely, or provide more favorable relative recommendations about our competitors, our
stock price would likely decline. If any analyst who may cover us were to cease coverage of our
company or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline.
We have broad discretion in the use of net proceeds from our initial public offering and may not
use them effectively.
Although we currently intend to use the remaining unused net proceeds from our initial public
offering in the manner described in Item 2 of Part II of this Quarterly Report, we will have broad
discretion in the application of the remaining unused net proceeds. Our failure to apply these net
proceeds effectively could affect our ability to continue to develop and sell our products and grow
our business, which could cause the value of your investment to decline.
We will incur significant increased costs as a result of operating as a public company, and our
management will be required to devote substantial time to new compliance initiatives.
As a public company following our initial public offering, we will incur significant legal,
accounting and other expenses that we did not incur as a private company. In addition, the
Sarbanes-Oxley Act, as well as related rules implemented by the SEC and The Nasdaq Global Select
Market, imposes various requirements on public companies. Our management and other personnel will
need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules
and regulations will increase our legal and financial compliance costs and will make some
activities more time-consuming and costly. For example, we expect these rules and regulations to
make it more expensive for us to maintain director and officer liability insurance.
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We do not anticipate paying any cash dividends in the foreseeable future, and accordingly,
stockholders must rely on stock appreciation for any return on their investment.
After the completion of this offering, we do not anticipate declaring any cash dividends to
holders of our common stock in the foreseeable future. Consequently, investors must rely on sales
of their Class A common stock after price appreciation, which may never occur, as the only way to
realize any future gains on their investment. Investors seeking cash dividends should not invest
our Class A common stock.
Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as
provisions of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation and our amended and restated bylaws
contain provisions that could delay or prevent a change in control of our company. These provisions
could also make it more difficult for stockholders to elect directors and take other corporate
actions. These provisions include:
| dual class of common stock with each share of Class B common stock entitled to 10
votes while each share of Class A common stock is entitled only to one vote; |
||
| authorizing the Board of Directors to issue, without stockholder approval, preferred
stock with rights senior to those of our common stock; |
||
| authorizing the Board of Directors to amend our bylaws and to fill board vacancies
until the next annual meeting of the stockholders; |
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| prohibiting stockholder action by written consent; |
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| limiting the liability of, and providing indemnification to, our directors and officers; |
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| not authorizing our stockholders to call a special stockholder meeting; and |
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| requiring advance notification of stockholder nominations and proposals. |
As a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation
Law, which, subject to some exceptions, prohibits business combinations between a Delaware
corporation and an interested stockholder, which is generally defined as a stockholder who
becomes a beneficial owner of 15% or more of a Delaware corporations voting stock, for a
three-year period following the date that the stockholder became an interested stockholder.
These and other provisions in our amended and restated certificate of incorporation and our amended
and restated bylaws and under Delaware law could discourage potential takeover attempts, reduce the
price that investors might be willing to pay in the future for shares of our common stock and
result in the market price of our common stock being lower than it would be without these
provisions.
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the three months ended June 30, 2011, we have issued unregistered securities to a
number of persons, as described below (after giving effect to a 2-for-1 stock split in June 2011):
(a) Equity Issuances
| In April 2011, we issued and sold an aggregate of 11,219,908 shares of
our Series C convertible preferred stock at $4.902 per share for an
aggregate purchase price of approximately $55.0 million to eight
accredited investors that were existing investors in our company. |
(b) Warrant Issuances
| In June 2011, we issued warrants to purchase an aggregate of 10,198
shares of our Series C preferred stock at an exercise price of $4.902
per share to Lighthouse Capital Partners VI, L.P. in connection with
an amendment to the December 2008 $5 million equipment loan. |
||
| In June 2011, we issued warrants to purchase an aggregate of 50,996
shares of our Series C preferred stock at an exercise price of $4.902
per share to Lighthouse Capital Partners VI, L.P. (35,698 shares) and
Leader Lending, LLC (15,298 shares) in connection with an amendment to
a $7 million business loan. |
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(c) Options under Amended and Restated 2007 Stock Option/Stock Issuance Plan
| As of June 30, 2011, there were 16.2 million shares of our
Class A common stock and Class B common stock issuable to
employees, directors and consultants issuable upon the
exercise of options to purchase under our amended and restated
2007 Stock Option/Stock Issuance Plan, with exercise prices
ranging from $0.08375 to $15 per share. |
||
| In June 2011, we granted 1.6 million shares of our Class A
common stock to employees, directors and consultants
issuable upon employees having satisfied the necessary service
conditions to earn the rights to the shares. |
None of the foregoing transactions involved any underwriters, underwriting discounts or
commissions, or any public offering, and the registrant believes the transactions were exempt from
the registration requirements of the Securities Act of 1933 in reliance on Section 4(2) thereof,
and the rules and regulations promulgated thereunder, or Rule 701 thereunder, as transactions by an
issuer not involving a public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701.
Use of Proceeds from Public Offering of Class A Common Stock
Our initial public offering of Class A common stock was effected through a Registration
Statement on Form S-1 (File No. 333-173440) that was declared effective by the SEC on June 23,
2011. The net offering proceeds to us, after deducting underwriting discounts and commissions of
approximately $9.8 million and offering costs of approximately $2.7 million, were approximately
$137.5 million. At June 30, 2011, the net proceeds were invested in short-term, interest-bearing
investment grade securities. We granted the underwriters a 30-day option to purchase up to 1,500,000 additional
shares of our Class A common stock at the initial public offering prices, which was exercised in
July 2011 resulting in the issuance of an additional 800,000 shares for additional net proceeds of
approximately $11.2 million, net of underwriting discounts and commissions of approximately $0.8
million.
No offering costs were paid directly or indirectly to any of our directors or officers (or
their associates) or persons owning ten percent or more of any class of our equity securities or to
any other affiliates. Credit Suisse (USA) LLC, UBS Securities LLC, Goldman, Sachs & Co., Piper
Jaffray & Co., Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. were the managing
underwriters for the offering.
ITEM 5. | Other Information |
Condoleezza Rice, Ph.D.s election to the Board of Directors of the Company became effective
on August 9, 2011. In connection with her election, Dr. Rice was granted 230,000 restricted stock
units, which vest in 20 equal quarterly installments over five years. The Company will pay Dr.
Rice a cash retainer of $2,500 per month as a non-employee director and reimburse reasonable
expenses incurred in connection with her attendance of meetings.
ITEM 6. | Exhibits |
See the Exhibit Index accompanying this Quarterly Report.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
KiOR, Inc. |
||||
By: | /s/ John H. Karnes | |||
John H. Karnes | ||||
Chief Financial Officer (Principal Financial Officer) |
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Date: August 15, 2011
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EXHIBIT INDEX
Incorporated by Reference | ||||||||||||||||
Exhibit | SEC | Filed | ||||||||||||||
No. | Exhibit Description | Form | File No. | Exhibit | Filing Date | Herewith | ||||||||||
3.1 | Amended and Restated Certificate of Incorporation of KiOR, Inc.
|
S-8 | 333-175220 | 4.1 | June 29, 2011 | |||||||||||
3.2 | Amended and Restated Bylaws of KiOR, Inc.
|
S-8 | 333-175220 | 4.2 | June 29, 2011 | |||||||||||
4.1 | Preferred Stock Purchase Warrant issued June 6, 2011 to Lighthouse Capital Partners VI, L.P.
|
S-1 | 333-173440 | 4.15 | June 10, 2011 | |||||||||||
4.2 | Preferred Stock Purchase Warrant issued June 6, 2011 to Lighthouse Capital Partners VI, L.P.
|
S-1 | 333-173440 | 4.16 | June 10, 2011 | |||||||||||
4.3 | Preferred Stock Purchase Warrant issued June 6, 2011 to Leader Lending, LLC.
|
S-1 | 333-173440 | 4.17 | June 10, 2011 | |||||||||||
10.1 | Feedstock Supply Agreement, dated as of May 27, 2011, between Catchlight Energy LLC and KiOR Columbus LLC.
|
S-1 | 333-173440 | 10.11 | June 10, 2011 | |||||||||||
10.2 | | 2011 Long-Term Incentive Plan.
|
X | |||||||||||||
10.3 | | Form of Indemnification Agreement.
|
S-1 | 333-173440 | 10.8 | May 18, 2011 | ||||||||||
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Fred Cannon (Principal Executive Officer)
|
X | ||||||||||||||
31.2 | Rule 13a-14(a)/15d-14(a) Certification of John Karnes (Principal Financial Officer)
|
X | ||||||||||||||
32.1 | Section 1350 Certification of Fred Cannon (Principal Executive Officer) and John Karnes (Principal Financial Officer)
|
X |
| Management contracts or compensatory plans or arrangements. |
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