Willie Nelson sings the blues is what they're calling the performer's New York City concert in mid-January. It's a pretty good title, too, for the outlaw country singer's latest do-good effort: lending his name, along with those of Hollywood stars Morgan Freeman and Julia Roberts, to a tiny Dallas outfit called Earth Biofuels, which intends to build a national chain of filling stations dispensing a brand of enviro-friendly diesel it calls "Bio Willie."
But there's a chance that Willie's 6.5 million shares, recently valued at $11 million, won't even be worth their weight in canola oil. Reason: Earth Biofuels missed a Dec. 4 deadline for coming up with $80 million in financing to restart a long-shuttered ethanol plant south of New Orleans, the company's largest investment to date. At the very least it stands to lose its $5 million deposit, to say nothing of an additional $22 million it has put into the project. With just $41,609 in cash on the books as of Sept. 30, that's a pretty big hit. Chief Executive Dennis G. McLaughlin III, 41, insists that the project "remains an ongoing business opportunity" and that "no funds have been forfeited." But Earth director William O. Luckett says the company and its partners in the plant are in dispute over higher-than-expected construction costs. So far none of this has appeared in press releases or U.S. Securities & Exchange Commission filings.
Nor has McLaughlin's colorful background. He presided over the $100 million bankruptcy of the company he formed in 1993, Aurora Natural Gas. Duke Energy Trading sued him for fraud, saying he used shell companies to double-bill Duke to the tune of $26 million. Duke ultimately settled and gave McLaughlin a release. McLaughlin blames the bankruptcy on one of his employees and on Duke itself, for inflating gas prices in late 2000; as for his not disclosing it in Earth's SEC filings, he says he has "never been employed by a company when it filed [for bankruptcy]." Right. According to Earth's most recent 10-K, he was Aurora's chief from 1993 to 2001, the year it filed for bankruptcy.
After that meltdown McLaughlin made a brief stop at Ocean Resources, a penny stock outfit in the undersea salvage business, which he left in January 2005 over allegations he'd overcharged the company through his consultancy. (McLaughlin says the claims are unfounded and that Ocean owes him money.) Then he took over Powerball International, a dormant shell once in the hydrogen business, renamed it Apollo Resources and wound up back in court. He was sued by New Mexico oilman Donnie Hill, who claimed Apollo's main assets had been stolen from him. Hill, too, has since settled for an undisclosed amount.
Earth Biofuels was formed out of a clutter of shell companies that started with a Meridian, Miss. biodiesel refinery bought from the brother of director R. Bruce Blackwell for $7 million. It took on Willie Nelson as a director when it licensed his name for "Bio Willie" (he gets a royalty of a penny a gallon). Aided by a flood of press releases, Earth's market value rose from next to nothing in 2005 to a recent $344 million.
If you care to find them, 18 pages into Earth's financials are insider transactions, including $16,000 a month in rent for a truck stop and convenience store in Mississippi owned by director Blackwell, a series of trades between Earth Biodiesel and Apollo and a $160,000 investment in Blue Wireless, a penny stock venture McLaughlin controls. McLaughlin insists all transactions have been fair to Earth. But they aren't necessarily helping it reach its goal of opening ethanol refineries in North Carolina, Louisiana, Texas and Illinois.
Earth earned a slim 4.2% gross margin on $10.3 million in sales in the third quarter of 2006, spending almost half its revenue on administrative expenses. Business must pick up fast: Under terms with lenders who provided $53 million in financing last summer, Earth has to hit $30 million in earnings before interest, taxes and depreciation by year-end or come up with cash--or face a conversion of debt into stock that would dilute existing owners.
Tune up your guitar, Willie. But will it be "Once More With Feeling"--or "The Party's Over"?