Some red flags & numbers in Mascoma’s IPO filing

Updated: Cellulosic ethanol company Mascoma is the latest biofuel company planning for an IPO. On Friday the company filed an S-1, indicating it plans to raise up to $100 million from the public markets, and also showing off some of its financials for the first time. After reading over the company’s S-1, here’s both some red flags and also some other numbers you should know:

For anyone that’s watched Solyndra lose over $500 million in government loans this year, here’s some disturbing figures:

Government grants make up 86 percent of Mascoma’s revenue: Instead of making most of its money off of selling product, Mascoma says for its revenues in 2010, government grants constituted “86 percent of our revenue” while “product sales and other service agreements constituted 14 percent of our revenue.” The Department of Energy is providing Mascoma with $20 million to build its plant in Kinross, and as of June 30, 2011, Mascoma says it received $16.5 million of that award. Mascoma also has a grant of $20 million from the Michigan Strategic Fund, for Kinross, and Mascoma says it has so far received $12.1 million from MSF. Mascoma also has received grants from the Province of Alberta, Canada and from the BioEnergy Science Center, or BESC.

I like this quote on that topic from the S-1 below:

We consider these government funded programs an effective means of funding and advancing our own research and development efforts. We expect that revenue from research and development grants with the government will continue to be a significant portion of our revenues for at least the next twelve months, and we expect to continue to avail ourselves of these revenue arrangements to the extent that the government continues to fund such programs.

Corn ethanol not cellulosic yet: Like Gevo, Mascoma has decided to target selling its yeast to first-gen corn ethanol companies. But interestingly enough, Mascoma isn’t selling yeast to help corn ethanol companies move to cellulosic ethanol production, it’s actually selling a yeast that helps corn ethanol companies cut the costs of making more corn ethanol. Mascoma says its MGT product will reduce the cost of producing corn ethanol by approximately $0.01 to $0.02 per gallon.

Update: A going concern: “Our stockholders’ deficit, recurring net losses and history of negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2010 with respect to this uncertainty. We have limited current sources of revenue to sustain our present activities, and we do not expect to generate significant revenue until, and unless, we increase revenue from pretreatment equipment or CVM approves MGT 1.0 and we successfully commercialize MGT 1.0. Accordingly, to continue as a going concern, we will need to obtain additional financing to fund our operations. Any perceived doubts about our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by current and potential collaborators or customers.

Where’s Valero? Back in January of 2011, Mascoma announced that Valero plans to invest $50 million into building Kinross, and could potentially enter into an off-take agreement for the plant’s cellulosic ethanol. In addition, Mascoma said that Valero has made an equity investment into Mascoma. Well, in the S-1, Mascoma only mentions Valero as buying a $5 million equity in Series D financing. But doesn’t mention Valero as a company that it has commercial agreements with. Mascoma instead says: “we have not finalized commercial arrangements.” I thought the Valero deal was such a big deal for Mascoma back in January that I entitled my post on it “Oil to the Rescue: Valero Backs Mascoma.” The Valero deal could still be in the works, but doesn’t seem to be solidified enough to mention (or it’s fallen through).

Other numbers you should know:

Price to make cellulosic ethanol: Mascoma says at its Kinross plant it expects to produce ethanol from wood with operating costs of about $1.77 per gallon. The company says it can reduce those to $1.00 per gallon factoring in bigger factories and by selling byproducts from the production like electricity.

Financials: For the year 2010, revenues were $15.49 million, up slightly from $8.44 million in 2009, and $3.90 million in 2008. The company lost $25.93 million in 2010, $35.47 million in 2009, and $30.46 million in 2008. As of June 30, 2011, Mascoma had accumulated a deficit of $138 million.

Mascoma has raised: An aggregate of $135.3 million “from private placements of equity securities and debt financing, including $105.3 million in proceeds from the sale of preferred equity securities, $10.0 million in proceeds from the sale of convertible notes, and $20.0 million in borrowings under our secured debt financing arrangements.”

Kinross: Mascoma says it intends to build Kinross via a partnership with Michigan’s J.M. Longyear, and together the two formed Frontier Renewable Resources. Mascoma says “We expect that Frontier, in conjunction with a leading industry participant that will hold a majority ownership interest, will own and operate our hardwood CBP facility in Kinross, Michigan.”

Shareholders: SunOpta (a company Mascoma acquired) owns 11.34 million shares before the offering or 20.6 percent. Khosla Ventures owns 9.51 million shares before the offering, or 17.5 percent. Flagship Ventures owns 4.70 million shares before the offering or 8.7 percent. General Catalyst owns 4.51 million shares before the offering or 8.3 percent, Kleiner Perkins Caufield & Byers owns3.89 million shares before the offering or 7.2 percent. Blackrock owns 3.59 million shares before the offering or 6.7 percent, and VantagePoint Capital Partners owns 3.04 million shares before the offering or 5.6 percent.

Image courtesy of Argonne National Labs.