Ecology Coatings said it has signed a letter of intent to go public via a reverse merger with OCIS.

OCIS, which previously bought and sold used warehouse equipment—including storage systems, lift trucks, and office components—ceased operations in December but continued full SEC reporting, making it an ideal “shell” for a reverse merger, said Ecology Chairman Richard Stromback, the former CEO, in an interview Tuesday.

Ecology, which makes environmentally friendly protective coatings for metals, plastics, paper, and more, will legally be acquired by OCIS, which will then change its name to Ecology Coatings.

Ecology is paying an undisclosed sum for the transaction and will own a “significant majority” portion of OCIS, said Mr. Stromback, who bought a controlling interest in Ecology in December 2005 after it went through 15 years of research and development (see Tech Pioneer: R. Stromback).

On Tuesday, Ecology also announced it has a new CEO, F. Thomas Krotine. Mr. Stromback said Mr. Krotine has 35 years of experience in the coatings industry and was previously the head of research and development at paint and coatings company Sherwin Williams.

“He’s a person who’s better qualified to really transition us into the commercial stage,” said Mr. Stromback.

Why Go Alternative?

Ecology didn’t choose an APO (alternative public offering) because of a lack of VC interest, Mr. Stromback said. Ecology got plenty of interest, but he was wary of an IPO because he hadn’t seen much success among nanotech companies taking that route.

At the same time, new technologies addressing mature markets—such as nanotech—are very capital intensive, so Ecology needed access to large sources of capital, he said.

“It’s no secret that hedge funds have been the most dynamic finance source of the last few years, and hedge funds only invest in public companies,” he said.

So he evaluated strategies that other nanotech and biotech companies were taking, and decided that the APO (alternative public offering) strategy had been the most successful in the last three years.

Take Altair Nanotechnologies, which did a reverse merger in February 2005 (see Altair Means Business.) And Arrowhead Research, which did one in May 2003.

“Other nanotech companies had used this process to access the public markets—and primarily the hedge-fund capital—in order to finance growth, and I think the success of this model is going to continue in the near future.”

It’s not only nanotech companies choosing this route, either. In March, fuel cell company Neah Power did a reverse merger with Growth Merger, a former adult entertainment company, to go public (see Neah Power to Trade on OTC).

At the time, Neah CEO David Dorheim said the company chose an APO because it’s less expensive than making its own initial public offering and has less-stringent requirements.

Other successful reverse mergers include Blockbuster Entertainment, Allied Waste Industries, Turner Broadcasting, Occidental Petroleum, Waste Management, and RadioShack.

Ecology Technology

Ecology says it has more than 200 nanotech-based coatings that protect products from abrasion and humidity, yet won’t damage delicate electronic parts (see 10 Cleantech Companies to Watch: Ecology Coatings).

Roughly 10 of the coatings are receiving “tremendous interest” so far, Mr. Stromback said.

That interest is coming mainly from medical devices such as heart catheters, where the coatings can also bond metal and plastic components together, and from bottle cylinders for barbecue propane tanks, via an agreement with Red Spot Paint & Varnish.

DuPont has also licensed Ecology’s metal coating for automotive applications, but isn’t contributing much to the company’s revenue yet because the automotive sales cycle takes about five years, Mr. Stromback said.

The company also hopes its paper coating could be a big seller in the future. The coating can make paper waterproof and resistant to bacteria and mold, but still writable. Ecology has seen interest in applications including packaging, office supplies, shipping labels, and building materials such as wallboard, Mr. Stromback said.

What makes the coatings green? Traditional coatings use solvents to break them down into liquids so they can be applied, and then hazardous chemicals get released when the coating is “cured” to become a solid again. Ecology’s coatings are made of nanomaterials, such as nanosilica and nanoaluminum, that don’t pollute.

“Every liquid component ends up on the final film belt,” Mr. Stromback said. “And we use no carbon nanotubes or any other substances that are under suspicion of having adverse effects in humans or the environment.”

The company also claims its coatings can be applied 99 percent faster and cured by ultraviolet light instead of heat. In addition, it takes 80 percent less energy to produce its coatings than competitors’ coatings, cutting costs 70 to 90 percent on metal finishings, said Mr. Stromback.

While the company’s revenue was less than $100,000 last year, all of it based on royalties from licensing its technology, Mr. Stromback expects revenue and profit will be substantial by the time Ecology begins reporting those numbers. The company estimates that manufacturer product coatings make up a $20-billion industry.

It’s unclear when earnings reports will begin reflecting Ecology’s finances, but Ecology and OCIS plan to close the transaction within 90 to 120 days, according to a press statement.

Mr. Stromback said Ecology will apply for a new ticker symbol, allocate more shares in an additional offering (OCIS currently has roughly 1 million shares outstanding, and can offer up to 10 million), and will aim for the Nasdaq as soon as it can sustain a price of $4 per share for 90 days.

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