Both the wider cellulosic industry and U.S. EPA have been keeping a keen eye on KiOR, which began last year with rosy projections for its future and was set to be the first U.S. company to break into the commercial cellulosic biofuel market. Cellulosic biofuels are fuels made from plant-based materials such as agricultural residues, grasses, trees and municipal solid waste.

KiOR formed in 2007 and began producing the nation’s first commercial quantities of cellulosic gasoline and diesel last year at the 13-million-gallon-a-year Mississippi plant. The company uses Southern yellow pine as a feedstock and feeds it into a proprietary catalyst system based on oil refineries.

KiOR began last year optimistic, but it has not yet come close to reaching full capacity at the $225 million plant. Plagued by structural design bottlenecks, reliability issues and mechanical problems, the company produced 894,000 gallons of cellulosic biofuel last year.

In January, the company acknowledged that the plant was not making enough money to justify its operation and announced it would temporarily idle while making improvements (Greenwire, Jan. 14).

But KiOR said yesterday that funding for all the improvements never materialized and that the facility will be idled indefinitely.

“We have elected to suspend further optimization work and bring the Columbus facility to a safe, idle state,” KiOR said, “which we believe will enable us to restart the facility upon the achievement of additional research and development milestones.”

The company’s only remaining source of money is a $25 million commitment made Sunday by venture capitalist Vinod Khosla, who helped found KiOR and who owns a majority of the company’s common stock. But that amount is contingent on the company meeting certain production targets by the beginning of next month and only will allow it to continue operations until Aug. 31.

KiOR, which reported a net loss of $347.5 million as of Dec. 31, 2013, said it does not expect any other sources of financing to come available if it cannot meet the terms in the Khosla agreement.

“This will likely cause us to default under our existing debt and we could be forced to seek relief under the U.S. Bankruptcy Code,” KiOR said.

As it struggles to secure financing, KiOR said it could also face “significant legal, accounting and other costs” in connection with the SEC investigation on top of the costs associated with two lawsuits filed last year by shareholders.

The cellulosic producer said it also faces delisting from Nasdaq if its stock price continues to fall. KiOR stocks were trading at more than $6.50 a year ago but have traded at less than $2 a share since December. The news yesterday has caused the company’s stock to plummet another 40 percent.

KiOR did not say that it would lay off any employees. But it worried that the problems at the facility and drop in the stock price could make it difficult to attract and retain members of its 183-person staff.

While the cellulosic producer has not relied on federal funding, it has served as the basis for EPA’s annual cellulosic biofuel target under the renewable fuel standard. Using KiOR data, EPA last year required refiners to blend 6 million ethanol-equivalent gallons of cellulosic biofuel into petroleum-based fuel. The problems at KiOR have forced the agency to reconsider the target (Greenwire, Jan. 23).

KiOR is still planning to build a second cellulosic plant adjacent to its first facility in Columbus. Last year, the company received a funding boost from Bill Gates and Khosla for the project. But the project will not occur until the second half of 2015 at the earliest, KiOR said in its filing yesterday.