Xethanol's X-Factor

Meet the company that doesn't really care what the analysts are saying.
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The only sell-side analyst who follows



finds himself in a less generous mood lately.

Ian Horowitz, the alternative energy expert at Soleil Securities, set out to be fair this spring as he prepared to start coverage of the Amex-listed micro-cap stock. He works a mere three blocks from Xethanol's new corporate headquarters in midtown Manhattan. He could certainly spare the time to visit with leaders of a company that planned to be the first to profitably convert waste into ethanol.

Horowitz ran into trouble from the beginning, however. He says that Xethanol originally claimed that its top executives could not meet with him until well after his deadline. Then, he says, even after the company changed its mind, Christopher d'Arnaud-Taylor -- ousted this week as CEO -- failed to show up for the scheduled appointment.

Horowitz apparently got nowhere with other company representatives, either before or after he started coverage of Xethanol June 6 with a price target of $10.

"They said, 'You don't get it. You just don't get it,' " Horowitz recalls. "Now I'm thinking, 'You're right. I should have had you at sell.' "

He does now. Howowitz cut his rating to sell and his price target to $1.35 late Wednesday.

But at one point, as Horowitz pressed the company for information, Xethanol actually suggested a more extreme call, he says.

"The guy said, 'We don't care what you write,' " Horowitz marvels. " 'We don't care if you rate this a screaming short.' "

Like many, Horowitz recognized that Xethanol could hit the jackpot if the company keeps its promises and actually achieves its goals. At the same time, however, he sensed enough risks to stop short of pushing new investors into the stock.

Xethanol has lost more than 40% of its value since Horowitz started covering the company in June. The shares rose 7 cents Wednesday to $5.20.

In a nutshell, Horowitz has two major questions about the company.

First, does its technology really work? And second, is its management really as "evil" as short-sellers like to claim?

Xethanol's regulatory filings offer some troubling clues about the first. Notably, Xethanol has by now written off $3.64 million worth of technologies acquired under four different licensing agreements.

"Although the company anticipates further development and testing of the technologies, as well as new technologies and opportunities that may evolve from these relationships," Xethanol's second-quarter report states, "given the pre-commercial stage of these technologies and the uncertainties surrounding both the ultimate commercial deployment of the technologies and the timing and amounts of any cash flows related to such deployment, the company determined an impairment loss should be recognized."

To be fair, Xethanol could have written off one of its prospects too soon. The company lists its license agreement with Xylose Technologies among its impaired assets. But as recently as last week, the scientist behind that project assumed it was still on track.

Thomas Jeffries, a government inventor with university ties, recently sent an email to


offering to discuss his work for Xethanol. Within days, however, he had withdrawn his offer because he was advised not to talk.

Even in the high-stakes game of ethanol development, Horowitz portrays Xethanol as more secretive than most, including Canadian biomass-to-ethanol rival Iogen.

"Iogen has a demonstration plant," he points out. "They're not going to show you their secret sauce. But they'll at least answer some questions."

No Answers

Xethanol failed to answer questions about its founding CEO as well. Rather than offering concrete proof of Taylor's credentials, the company suddenly fired him this week instead.

After that shake-up, interim CEO Louis Bernstein told


that the company has in fact verified some disputed claims in Taylor's resume. He also suggested that the company would be more forthcoming in the future.

"If my small gesture of returning your phone call is a mark of progress, then we're happy to keep it up," Bernstein told


on Wednesday. "We absolutely want to be responsive to our investors and the people who cover that community. ... It's the right thing to do, and we think that we have a good story to tell."

Meanwhile, says Bernstein, Xethanol continues to weigh whether Taylor should retain his seat on the board -- a group that's allegedly dominated by friends with dark secrets of their own. Sharesleuth.com, a Web site financed by billionaire investor and short-seller Mark Cuban, has by now raised plenty of questions about that lot.

Of course, celebrity stock-picker Tobin Smith seems to love the company regardless. He dismissed the sharesleuth.com report entirely and seemed to question a follow-up by


as well.

Indeed, Smith's latest update provided no explanations from management -- as he had promised -- but criticisms of those who have questioned the company instead.

"Nothing has changed on the Xethanol story since we last updated you, but the hate-fest stories continue," Smith wrote on his ChangeWave Investing site a day after


first story on the company. "Don't listen to the nattering nabobs of negativity who want to demonize XNL and me, for some reason. They are trying to start a war of words that I, for one, will not participate in."

Still, Smith's own comments have taken on a more cautious tone these days. Notably, Smith now classifies Xethanol as a "late-stage venture capital" investment that's no ordinary stock. He further warns investors against spending a penny on the shares that they cannot afford to lose.


previously noted by


, Smith seems to own none of the stock himself.

Meanwhile, Taylor dumped some of his own shares before he got the boot. Following some smaller sales earlier in the year, Taylor sold 100,000 shares at $12.23 apiece in a transaction that turned him into an instant millionaire (if he wasn't one already) back in mid-April. He still controls a huge chunk of shares that, for now at least, are worth nearly $8.5 million on paper.

Horowitz, for one, has been paying attention.

"I'm not saying this will happen," he says. "But if this whole thing goes to zero, he's still made more money than he would have made if he were working at a real job."