Since 2013, NoHedge has assisted investors to navigate U.S. Traded Canadian company space (OTCBB) that has proven to be full of companies actively engaged in deceiving investors. As investors read our exposé on Algae Dynamics (formerly Carbon Converted Technologies) today they need to realize that our due diligence process employed similar tools, such as background checks, court records, transcripts, and SEDAR and EDGAR filing analysis that led to the halt and trading of numerous frauds. Today's report on Algae Dynamics combines these approaches and allows us to make our strongest impact of fraud to date: limit public investor losses before it can trade. The choice investors are left to make is very simple: Do I buy Algae Dynamics and wait for the rhetoric that its management and its fee collectors will spout or do I sell out prior to what we believe is the inevitable bankruptcy, trusting in our due diligence and track record? The choice is yours and yours alone to make. We have made ours.
Algae Dynamics is controlled by Richard Rusiniak and Paul Ramsay, former Cymat Technologies (TSX: CYM) founders, management and directors. Sandra Elsley, an Officer of Algae Dynamics and a marriage and family therapist, heads financing and investor communications. All three have colorful histories further discussed in this exposé.
ALGAE DYNAMICS RED FLAGS
⦁Algae Dynamics is controlled by former founders and management of Cymat Technologies (TSX: CYM), who ran the company into the ground for over $13,000,000 ($13 million) in accumulated losses by 2002. Over 4 years, they decreased annual sales of less than $300,000 per year to $0 in 2002 when Mr Ramsay and Mr Rusiniak were retired from the company.
⦁In the final year of employment at Cymat, these two Algae Dynamics Directors lost $7 million in just one year before they were retired.
⦁86% of Algae Dynamics is owned by insiders who paid a total of $100 for all of their shares.
⦁No independent technology review.
⦁Only management is paid - no staff.
⦁Capital raised and grants exceeding $2M - most of which is accounted for as "expenses" as of March 2014 (per S1 filings).
⦁There are no employees or operations in the United States.
⦁Money is not spent on technology.
⦁Nominal equipment : $27,000 (as per 2014 S1)
⦁There are no operations, their focus is on shares sales and future share price.
⦁Offering documents in 2013 state future value at $250 million; however, the registration S1 statement proves no revenue, assets or profit.
⦁Primarily funded by a small group of unsophisticated Ontario-based investors.
⦁No registration, offering, prospectus or exemptions filed with the Ontario Securities Commission.
⦁The company has pushed for accelerated registration despite serious operating concerns and material omissions.
⦁No Canadian listing sought.
⦁Future securities litigation likely from regulators and Ontario investors relating to the Company's prior private financing offerings.
⦁No independent engineering reports from a major recognized engineering firm.
⦁Classic pump-and-dump statements from their investor relations/financier.
⦁Reverse split prior to S1, masking numerous prior raises at different prices.
⦁Algae Dynamics goes to a new low in boiler-room share sales: Hire a family therapist to manipulate unsophisticated investors into parting with retirement funds with the promise of high returns. Details of this is covered later in this report.
S1 REGISTRATION STATEMENT
The Securities and Exchange Commission is tasked to protect future investors, with limited resources, by determining whether a prospective company is real or not. In this case, Algae Dynamics filed a registration statement with the SEC under private cover pressing to accelerate the going public process without public view. Eventually in the fall of 2014, Algae Dynamics filed its public S1 statement which requires full disclosure of operations and audited financials. The audited financial statements share a new light on the "multi-million dollar company" with some audited numbers:
⦁86% of the company is owned by insiders and they too are already seeking to sell shares.
⦁Insiders paid $100 total for 8.6 million shares.
⦁Executives were compensated in excess of $120,000 in 2014.
⦁The remaining shares for registration were purchased by a small group of unsophisticated Ontario investors.
⦁No revenue now or in the foreseeable future.
⦁Low/no cash (shows $63,000 in the bank as of March 2014).
⦁Shareholder agreement terminated with Waterloo University researchers (the technology and bacteria source).
⦁No money to sustain operations or build a plant.
⦁No operations people, employees, plant staff on payroll.
⦁Massive yearly losses.
⦁In 2014, $3,000 spent in Research and Development - hardly substantial R&D into new technology
⦁The S1 includes an employment agreement for Sandra Elsley, a family therapist in Niagara Falls, Ontario, who was paid to raise capital for the company and handle investor communications.
⦁No operational plant.
⦁No Form 4s or Form 3s from insiders.
TROUBLING EXECUTIVE BIOGRAPHIES
The S1 statement contains glowing biographies for the executive team but fails to disclose material information:
Paul Ramsay, CEO and Chairman and Richard Rusiniak, Director
Management claims in their S1 that Paul Ramsay is "Co-founder and former CEO and VP Business Development of Cymat Corp, (TSX: CYM) with a market valuation over $150 million upon his resignation in 2002" and Mr Rusiniak's is similar.
Fact Check: Cymat Technologies 1998-2002 Annual Reports prove the executives ran the company into the ground and the company lost over $13 million, no sales, and significant year-after-year losses:
Year (source: annual reports)Net ProfitYTD accumulated lossesSales
1998$490,000 loss(omitted from AS)$78,000
1999$1,400,000 loss(omitted from AS)$265,000
2000$3.13 million loss
2001$2.9 million loss$6 million loss$264,000
2002$7 million loss$13 million loss$0 (Ramsay leaves here)
2003$2.3 million loss (Algae Dynamic Execs no longer employed)
The year 2000 financial statement could not be located for this exposé; however, 1998,1999,2001,2002,2003-2005 were available to fill in the gaps - you get the idea: huge losses. The inflated share value came from the Internet bubble. The stock became a penny share with massive losses shortly thereafter. Yearly losses were cut significantly when Algae Dynamics management "retired". The
Cymat 2002 Annual Report states:
"Paul B. Ramsay* A director since June 1998, Mr. Ramsay was a co-founder of the company and retired as Vice President of Cymat in March 2002. Richard J. Rusiniak* Mr. Rusiniak has served Cymat as a director since June 1998, and was a co-founder of the company. He retired as Vice President in March 2002."
Sandra Elsley, VP Communications
Sandra Elsley S1 Biography: "Over 25 years of experience in human relations and the organizational development field as a communications and relationship expert, working in government, corporate and private sectors. Extensive experience developing, marketing and managing peak - performance programs to enhance individual and company dynamics in Canada and internationally. Was involved in the start up of an Ontario based company, was instrumental in raising funds and working as VP Corporate Communications/Investor Relations - share price went from $0.50 to $7.70. Has privately owned and managed a successful psychotherapy and consulting practice since 1991."
Fact Check: SEDAR and EDGAR do not reveal Ms Elsley working for any public company that had a share price that went from $0.50 to $7.70. There is one public filing from a non-public company that states Ms Elsley's employment with the company was terminated with cause. There are also numerous judgments and court orders against
In SPAM emails to new potential investors, Ms Elsley claimed the Mr Ramsey and Mr Rusiniak were "smart business men who made $50,000,000 Million about ten years ago and retired" and she goes onto say they "Spent alot of money, got bored, and decided to find the next best product to market." Ms Elsley failed to disclose to investors material information like the two men enjoyed high compensation, share sales to unsuspecting investors, while driving Cymat to a $13,000,000 loss, never achieving a profit, and little to no revenue in less than 5 years.
Ms Elsley will be further discussed in the capital raising detail of this exposé.
SEC S1 CORRESPONDENCE
The Securities and Exchange Commission has now published comments from SEC staff and answers from Algae Dynamic company executives. Highlights of the communications include:
⦁Get company public now, without quality disclosures.
⦁The S1 amendments are rife with material omissions and errors.
⦁The SEC required a material 424B3 filing immediately after the "automatic" Effect statement to ensure the company cannot go public or trade at this time.
⦁The SECs request and Algae's management refusal to upload the material shareholders agreement with Waterloo University researchers.
⦁Numerous deficiencies in the S1.
⦁Brute-force immediate responses from the Company to the SEC comment letters and a demand for an accelerated effect statement without normal review.
OFFERING DOCUMENTS AND PRIOR FINANCING RAISES
(Figure 1 - financials used in prior financing rounds in 2013)
Fact Checking Highlights of Offering Materials vs. Audited Financials in S1
False ClaimOffering DocumentActual audit from S1 statement
Revenue 2014$5.5 million$0 nothing
Gross Profit 2014$3.6 million$0 nothing
Plant Equipment 2014$2.6 million$27,000 + 1 computer
Net earnings YTD$2.5 million profitIn excess of $722,000 lost
EBITDA (page 8 of document)$247 million value$0 profit x 15 = $0 value
SEED MONEY IN S1 IPO
Most troubling in this company is the lack of investment bank underwriting or financing. Offering documents and materials found on the internet paint a troubling pump-and-dump story. A family therapist, Sandra Elsley, is an officer of Algae Dynamics titled as "VP Corporate Communications". In an unusual role for a family therapist, Ms Elsley's job is to find money for Algae Dynamics and handle investor communications. Pacer court records and other public court filings detail numerous prior and current litigations over the past ten years involving Ms Elsley detailing a history of fraud and misrepresentations. A quick search of the names listed in the S1 reveal related numerous litigations, including a transcript from a Nevada lawsuit naming Sandra Elsley as an interested party.
In Pacer, case cv-01463 document 14-1 filed 11/25/13, contains a transcript of of one of many of Ms Elsley's depositions. In the first 50 paragraphs, Ms Elsley reluctantly admits, after first denying, that the largest private placement investor in Algae Dynamics is a mental-health therapy client of Ms Elsley's and that Ms Elsley borrowed significant money from her. Ms Elsley refused to disclose the amount she borrowed; however, she did indicate that she had not repaid the loan. This raises a serious concern of "nominee shareholders" whereby Directors and Officers of Algae Dynamics would benefit directly from an S1 investor selling into the market if the company became public. These monies could be disguised as loans to the insiders as they are in most OTCBB scams.
There are numerous SPAM emails by Ms Elsley seeking investors in Algae Dynamics, contrary to securities law. Prospective investors were promised the company would be public in 6 months, have a substantial share price, and that Ms Elsley had a lot of news to announce to pump the share price.
MATERIAL NEWS NOT REPORTED IN 8K FILINGS
Press Releases by Algae Dynamics are NOT filed with the Securities and Exchange Commission.
Algae Dynamics issued a press release dated November 25, 2014 that the SEC declared their S1 Effective after hours on Friday November 21,2014 however they failed to disclose they had to file a material 424B3 filing the following trading day, Monday November 24, 2014, thereby nullifying the Effect Statement. The press release included contact information to receive a prospectus for investment to seek MORE investors.
The S1 on page 12 states: " Each time we file a post-effective amendment to our registration statement with the SEC, it must first become effective prior to the offer or sale of shares of our Common Stock by the selling shareholders."
424B3: A form of prospectus that reflects facts or events that constitute a substantive change from or addition to the information set forth in the last form of prospectus filed with the SEC.
NO CURRENT 10Q or INSIDER FILINGS
Algae Dynamics has not filed quarterly financial statements since its year-end of March 2014.
None of the Directors, Officers or insiders of the company have filed mandatory Form 3 and Form 4s with the Securities and Exchange Commission reporting the shares they own and how much they paid for them.
LIKELY RECISSION OF INVESTMENT BY ONTARIO INVESTORS
The Ontario Securities Commission overseas investment and market regulation much like the Securities and Exchange Commission in the United States does. Ontario's RIGHTS OF ACTION FOR DAMAGES OR RESCISSION mean shareholders who purchased shares in Ontario can demand a refund or file an action against the company and individual who sold them the shares illegally or by misrepresenting facts. Due to time limitations, we expect the Ontario S1 investors will soon commence actions against Algae Dynamics or the Officer who handled their share purchase to recover their money. The Ontario Securities Commission can be very helpful in this regard.
Boiler-room emails from IR blindly seeking fresh investors and press releases publicly seeking investors will likely draw the intervention of the Ontario Securities Commission.
SECURITIES AND EXCHANGE COMMISSION STATUS
At this time, the SEC is not permitting Algae Dynamics to trade on the OTCBB market. Future litigation and likely rescission of investment by Ontario investors will pepper Algae Dynamic's filings for years to come.
In the unlikely event the company does go public, the only shares registered for sale are the S1 investors - the company did NOT file a shelf registration to sell its own registered shares in the future. If Algae Dynamics trades, the only shares available on the market would be the S1 investors looking to exit as quickly as possible. Presently, the Company is not publicly traded. It has not sought registration for any of its treasury shares for future financing.
Algae Dynamics is following the same pattern of business management as Cymat Technologies and we would not be surprised if the SEC chooses to deny its registration as a public company. Algae Dynamics does not even deserve to trade on the Pink Sheets in our view.
Disclosure: I will short Algae Dynamics if it becomes public. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I will short Algae Dynamics if it becomes public. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.