Son of Xethanol Goes Bankrupt

I have written several essays on Xethanol over the past few years. If you recall, they were a poster child for the theme of “overpromise, boost your stock price, and get rich quick” on biofuels.

For me, this story dates back to 2006, when an investigative journalist working for Dallas Mavericks’ owner Mark Cuban e-mailed me and asked about the company’s claims. They had announced that thy would “be the first to commercialize cellulosic ethanol” (if I had a nickel for every time I have heard that), and they issued press releases at every opportunity. It worked for a while – at one point their market cap was something like half a billion dollars – despite the fact that there was very little of real value within the company.

Anyway, the investigative journalist published his story (which seems to be offline at the moment), Mark Cuban shorted the stock just before the story was released, and I wrote up something on the company, which I considered to be essentially a scam:

Xethanol Story

Anyway, if you looked into their financials, they were spending money on everything but R&D, while claiming they would be the first to commercialize cellulosic ethanol – which would require a lot of R&D. I continued to follow the story, and predicted in February 2007 that they would eventually go bankrupt:

Xethanol Can’t Deliver on its Promises

Well, about this time last year they went bankrupt – more or less:

Xethanol Now Defunct

I say more or less, because what they did was stop operations as Xethanol, changed their direction, and relaunched as Global Energy Holdings Group Inc. At that point I said I wouldn’t write about Xethanol any more, but there is a final chapter to this saga:

Global Energy Holdings Group Files Chapter 11

Global Energy, formerly known as Xethanol Corp., warned in a recent securities filing that it needed substantial additional capital, but that the credit crunch has made it difficult to sell assets or obtain financing.

Global has had no operating revenue this year and said its sole source of revenue last year was an Iowa ethanol plant that ceased production because of high corn and natural gas prices. The company sold the Iowa plant last week and is also looking for a buyer or partner for a landfill gas project in Georgia.

I do want to make it clear, though, that when Global Energy Holdings Group Inc. was created from the ashes of Xethanol, they did so under new management. Therefore, I don’t attribute the same shenanigans to them as I did Xethanol. As far as I know they were making a legitimate attempt to make a go of it, whereas it appeared to me that Xethanol was just trying to make a fast buck off of very gullible investors. But they were handicapped by previous Xethanol decisions, and the current credit crisis was enough to push them over the edge.

I think that officially closes the book on the Xethanol saga – unless a grandson of Xethanol is born. But with the baggage that comes along with it, I wouldn’t bother reorganizing. If you still want to do business, get a fresh start.

Xethanol Now Defunct

This will be my last ever story on Xethanol. I have written a number of stories on them in the past. I wrote that their claims that they would be the first to produce commercial cellulosic ethanol were ludicrous. That was the gist of the interview I gave to Sharesleuth when they were writing their Xethanol exposé. I predicted that Xethanol would “offer up a litany of excuses and delaying tactics for why their cellulosic ethanol plant is not up and running.” I explained to several reporters that the technology agreements they touted to investors could be had for next to nothing, and in February of 2007 I predicted that Xethanol would eventually go bankrupt. I was sounding these warnings when the share price was $12. It eventually fell to well under $1.

You know where this is going, don’t you? I had failed to check in on Xethanol for a while, but today I did a search for the stock symbol, and got this: “No quote found for that symbol.” Hmm. So I searched Google News, and found this:

Xethanol changes name, energy focus

The self-proclaimed discredited cellulosic ethanol company Xethanol Corp. relaunched itself on Aug. 28 on the New York Stock Exchange as Global Energy Holdings Group Inc. and is ushering in what company executives hope will be new life for the company.

“We’re moving on from ethanol and the reason is – the business model doesn’t work,” Ames said. “With the price of corn and energy…we’ve lost a lot of money doing that. We’ve spent a lot of money in cellulosic research and nothing out there is really fruitful and will make a major economic impact on producing ethanol.”

And in another article, former Xethanol CEO David Ames made a very profound statement:

Ames is skeptical that cellulosic will change the U.S. energy system. He said difficulties associated with making the fuel will not be eased by making it in bigger batches.

“You can scale widgets, but you can’t scale chemistry,” he said.

This is exactly what I keep trying to tell people who insist that cellulosic ethanol is going to proceed along a Moore’s Law path and scale up to displace significant quantities of gasoline. It’s not going to happen. The chemistry and physics are working against you.

I truly feel bad for Xethanol investors, but this is what can happen with overhyped technology. The investor who is out of their field of expertise can’t easily distinguish an overhyped company from a company with true potential. But that’s one reason I write this blog: To sniff out and expose the hypesters, while promoting the diamonds in the rough.

On a more positive note, their new direction (into methane) is a much more promising field. Biomass can be fermented to methane at a fraction of the expense and complexity that it takes to make cellulosic ethanol. This doesn’t mean they will be a commercial success, but their odds have gone from one in a million to one in a hundred.