Friday, September 11, 2009

Home Brew

The idea of investing in the upstream supplier is enchanting. However, some waste stream owners may find forward integration into biofuel production is a more compelling proposition. After all, why let someone else reap the profits from the waste commodity? The economics may favor using the waste stream at home in a closed-loop system that supplies energy back into the owners own plant.

This presents a market opportunity for suppliers of turnkey biofuel solutions - or the more pragmatic biofuel companies willing to partner with waste stream owners. New Generation Biofuels, Inc. (NGBF: Nasdaq) has a renewable fuel solution that they can install and operate on-site. That fact that New Generations’s biofuel technology will process both vegetable oils and animal fats as well as virgin or waste oils/fats, puts the company in a good position to market their solution throughout the world.

New Generation just announced a license of its technology to Eden Renewable Energy of New York for certain marketing territories in Canada. New Generation will get $0.10 for each gallon of fuel produced. The hybrid licensing business model takes considerable pressure off the balance sheet and promises to boost margins when sales start rolling in.

New Generation has not recorded sales, but its technology has been proven and customers are cuing up. That the company reported $540,000 in cash on its balance sheet at the end of June 2009, might give some investors some pause. A private placement of stock in July brought $2.7 million in to the bank. A delisting notice from Nasdaq is also on management list of things to fix. While those might seem like vexing issues, science and the market appear to be in New Generation’s favor.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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