Xethanol

Xethanol AMEX: XNL produces ethanol from corn, and is commercializing breakthrough technology for the production of ethanol. Proprietary technology licensed by Xethanol would allow the company to use cellulosic biomass feedstock to produce ethanol and co-products such as xylitol. Feed stocks currently under development include agricultural residues, pulp mill wastes and corn processing byproducts. Ethanol is currently used as a fuel or fuel additive and governmental policies will increase its production from a current level of about 5 billion gallons per year (almost exclusively from corn) to over 20 billion gallons annually (mainly from cellulosic materials). Potentially 60 to 100 billion gallons of ethanol could be produced annually in a sustainable manner from domestic biomass resources. To achieve these goals it will be necessary to develop and commercialize technology for the production of ethanol from cellulose and hemicellulose.

Xethanol's has licensed proprietary technology from the the United States Department of Energy National Renewable Energy Lab (NREL)[1] and from the Wisconsin Alumni Research Foundation (WARF). [2] NREL is the nation's premier laboratory for biomass energy research. Its staff includes many eminent scientists and engineers in biomass and other renewable energy technologies. WARF handles the licensing for inventions at the University of Wisconsin such as the anticoagulant, Warfarin and the base patent for producing stem cells. The technologies licensed by Xethanol included a highly effective pretreatment to release hemicellulose from corn residues, and a novel, genetically modified yeast for the fermentation of hemicelluosic sugars to ethanol. Technologies for both of these processes are essential for the commercial production of ethanol from cellulose.

In August 2006, senior Xethanol executives, investors and scientists following Xethanol's progress were shocked by a series of accusations brought against Xethanol by a start-up website called ShareSleuth.com. The founding of this website has an interesting history. The flamboyant billionaire Mark Cuban shorted 100,000 shares of Xethanol at $12/share after it had run up from a low of $2.30 per share to over $16 per share in only four months. [3] He then underwrote the founding of the ShareSleuth web site, [4] and commissioned an article that appeared approximately three months later - after Xethanol's share price had declined to about $6/share.

Follow-up articles appearing theStreet.com website [5] mainly reiterated the original ShareSleuth story without adding anything of substance. In response to these attacks, a Soleil Securities institutional alternative energy analyst cut Xethanol's rating to "Sell-target $1.53" from "Hold-target $10" after he became disillusioned by the response from Xethanol. Notably, in the month following the original ShareSleuth article, no additional short-sale stories appeared on the ShareSleuth web site which led many to believe that the original story was part of a scheme to drive down the Xethanol stock price.

The ShareSleuth article revealed that people connected with the Xethanol's secondary stock offering had been sanctioned by the SEC and that the resume of Xethanol's chief executive officer, Christopher D'Arnaud Taylor had been inflated. In response Xethanol's chief executive officer, Christopher D'Arnaud Taylor, as well as several of his associates who dominated the company's board of directors, resigned or took less prominent roles. Additionally the ShareSleuth article pointed out that one of the company's smaller facilities was shuttered. In a response from the company, they noted that it had not been operational when they purchased it, and that it was intended for use in pilot development operations.

This rapid increase in Xethanol's stock price could be attributed largely to President Bush's 2006 State of the Union Address on January 31 in which he announced that the administration was undertaking a major new effort to develop technology for the production of "cellulosic ethanol" from agricultural materials such as switchgrass. This speech was followed the next day by a major announcemnt from the Department of Energy that it would be funding 40% of the capital costs of two large (700 ton per day) cellulosic ethanol demonstration plants. Even though there are about five companies currently working on production of ethanol from cellulose, Xethanol was virtually the only company public at the time. Within days, its stock price shot up to $6 per share. Even though the vast majority of the population had never heard of swith grass and many had never used ethanol as a fuel, the idea of a renewable source of energy sparked their interest. Xethanol's small capitalization combined with a public anxious about rising petroleum costs and global warming drove Xethanol's run-up in price. The decrease in share price - along with falling share prices of other companies associated with ethanol production - followed as investors began to realize the technological differences between making ethanol from corn starch or sugar cane and making it from cellulose.

In a Securities and Exchange Commission filing in September 2006, Xethanol acknowledged that it was not as close to the breakthrough technology as previously represented. [6] The value of the technologies it had purchased were written off the books as a way to account for the expenses, and Xethanol also warned that it did not have the financing to complete its previously announced plans.

Xethanol continues to support research and development of hemicellulose utilization technologies. In addition to supporting proprietary research at the USDA Forest Products Laboratory, [7] it is also a participant in a recently announced USDA/DOE contract of $2.6 million dollars over three years to develop novel technology that will add value to pulping processes.

History

Xethanol was formed as a Delaware corporation in 2000 through a reverse merger with Zen Pottery Equipment. It is based in New York and has operated two production facilities in Iowa since 2003. It began with the acquisition of Permeate Refining, Inc., and in 2004, Xethanol purchased a second plant which operates as Xethanol Biofuels, LLC. In early 2005 it acquired Superior Separation Technologies, Inc. from UTEK Corporation. It has announced plans to build new ethanol plants in Florida, Georgia and South Carolina through a newly-formed subsidiary known as CoastalXethanol LLC.

Xylose Technologies, Inc. (XTI), a subsidiary of Xethanol, is conducting collaborative research through a Cooperative Research and Development Agreement (CRADA) with the USDA Forest Service, Forest Products Laboratory (FPL) located on the campus of the University of Wisconsin in Madison, Wisconsin. The work focuses on genetically engineering proprietary yeast strains for the efficient production of xylitol from xylose. Xylose, an abundant five carbon sugar found predominantly in hemicellulose of angiosperms, can be converted to xylitol through biochemical or chemical reduction.

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