Tuesday, November 30, 2010

Green Yule Logs

Each year for the last nine years the most-watched television program on Christmas Day is a video loop of a burning fireplace or “yule log” accompanied by a sound track of holiday music. The Yule Log was originated back in the 1960s by New York City television station WPIX. A number of variations have been broadcast since by other stations and someone has launched a Yule Lug Website for those who watch TV on their computers.

This bit of trivia demonstrates the visceral reaction people have to the hearth fire. People love all manner of fire places, whether real logs are burning or not.

That is why I think upstart ViaSpace, Inc. (VSPC: OTC/BB) is coming to the market at the right time with eco-friendly fireplace and campfire logs made from Giant King grass. The logs are available in limited supplies on Amazon.com and Ebay.com.

The GreenLog brand is touted as low-carbon and renewable since Giant King grass grows to maturity in a relatively short four-month cycle. ViaSpace even goes so far as to suggest that the next grass crop absorbs an equivalent amount of carbon as is emitted from the fireplace where they are burned. A more appropriate comparison might be to carbon emissions from regular wood logs, but logic suggests four crops a year in Giant King grass versus years to grow a tree could yield some kind of advantage for the grass-based logs.

ViaSpace is newly public through a reverse merger into a shell company. Its business portfolio is diverse if nothing else. The company’s Giant King grass crop is marketed to ethanol and biofuel producers using processes that can accept various feedstocks. The company also produces disposable methanol fuel cartridges for fuel cells that support portable devices such as laptop computers and cell phones. In a third segment, ViaSpace’s subsidiary Ionfinity is developing monitoring and detection systems to identify hazardous materials such as explosives and toxic gases.

Despite the large market opportunities posed by disposable fuel cells for portable electronics, not to mention the market for security technology, the Giant King grass may still be ViaSpace’s most interesting product offering. The company acquired land use rights in China for the cultivation of Giant King grass in a 280 acres nursery and demonstration plot. There is a strong market for renewable fuels feedstock and apparently the Giant King grass can be used as animal feed.

The current holiday season may be an important test for ViaSpace’s GreenLogs. The company has less than half a million in cash on its balance sheet. The only other revenue sources are small government development contracts related to the detection systems and sales of framed art work left over from the public shell company. Its cash burn to support operations is approximately $150,000 per quarter.

An ominous going concern note is attached to the company’s financial reports. ViaSpace owes $5.3 million to one of its China-based partners. The accumulated deficit is an impressive $34.9 million. Ownership interests in its various China-based subsidiaries and affiliates are complex.

All in all we think investors would be best off buying the Yule Logs for their fire pit this holiday season and wait for the revenue to hit the P&L before putting capital at risk in VSPC.

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. ViaSpace has been added to our Beach Boy Index in the Cellulosic Ethanol group.

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