If a very weak IPO attempt from algae company PetroAlgae doesn’t muddy the waters for greentech IPOs, I don’t know what will. PetroAlgae, a company that makes technology for the production of algae, filed an S-1 on Wednesday to raise up to $200 million in an IPO.
I’ve been pretty skeptical of the company — which currently trades on the OTC Bulletin Board under the symbol PALG — given its very aggressive announcements and predilection for machine-gun-fire press releases. After reading through their S-1, I’m still skeptical. Very skeptical.
The company has no revenues, and when I say no revenues, I mean there’s an actual line slashed through the revenues for the years 2007, 2008, 2009 and the 2010 quarters-to-date. The company has steadily lost money, (given the no revenues thing) but not a huge amount. The loss attributable to PetroAlgae itself (I have to clarify it that way because its company structure is so bizarre; see below) was $8.35 million in 2007, $19.99 million in 2008, and $30.27 million in 2009.
PetroAlgae explains its technology in its S-1 as the development of light and environmental management systems that enable algae to grow at four times its natural growth rates. PetroAlgae says its “secret sauce” is in its software, which can manage algae harvesting density and sunlight exposure, as well as its remote sensing system that can measure the algae crop density. The company says that while its hardware is largely off the shelf, its innovation is in its proprietary software and sensing management system.
The company plans to license its technology to customers like oil companies, independent refiners and power companies to produce both algae-based protein and algae-based biofuel. But while the company refers to customers throughout its S-1, it fails to name any. What PetroAlgae actually does have is five memoranda of understanding (MOUs) with partners, which are not binding, and from which partners can pull out. PetroAlgae doesn’t name those five MOU partners in its S-1.
One reason customers might be unwilling to sign up with PetroAlgae is its business model. The company’s business model (conveniently for them) is to have their customers pay “all upfront infrastructure costs as well as continued maintenance for their licensed facilities,” in addition to licensing fees for the first three years of a 20-year license, plus a royalty stream during the life of the license.
The company’s major achievement to date is the building of a 2-hectare demonstration facility in Florida. Algae fuel competitors like Solazyme and Synthetic Genomics are also producing algae on similar scales.
PetroAlgae says unlike its competitors that tweak their algae strains to make them the most productive, the company uses native species because those species have been “pre-selected by nature to thrive in the region of interest as they are accustomed to local flora, fauna and pathogens.” Either that, or they haven’t invested in any genetic technology.
PetroAlgae also has a bizarre company structure. It was set up as a holding company, and the company’s subsidiary PA LLC, is the operating company. PetroTech is another holding company controlled by PetroAlgae’s principal stockholder, which assumed the debt and equity from PA, and which previously went public on the OTC by buying a shell company and then renaming itself PetroAlgae.
If the company completes its IPO, all these companies will merge back together into one company (I kid you not) called NewCo. The name gives the impression that they thought of it 5 minutes before filing the S-1. The structure of the company is so odd that they offer readers a diagram for a “simplified version” on page 7 of the S-1.
To top it all off, PetroAlgae has also had accounting issues, and has had to restate financial statements, it says in the S-1.
Who’s behind this weird company? The principal stock holders are New York investors Laurus Capital Management, Valens Capital Management, and their affiliates.
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