by Debra Fiakas CFA
After ethanol producers figured out that pricey feedstock could rapidly erode profits, the renewable energy industry began casting about for alternative feedstock. What is cheaper than ‘free?’ Waste of all kinds – sewage, mixed municipal trash, animal manure, food and agriculture waste, wood pulp, exhaust gases, steam – can be virtually free. Sometimes waste generators are even willing to pay a fee to anyone willing to accept their nasty stuff.
N-Viro International (NVIC: OTC/PK) is one of those renewable fuel producers with its arms wide open. The company has lengthy experience in treating wastewater using its proprietary conversion process. The waste streams are subjected to mineral by-products that have an alkaline reagent that stabilizes and pasteurizes. The process generates an odor-free ‘soil’ that improves harvests. N-Viro has been producing this agricultural and gardening product for over twenty years.
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More recently N-Viro has jumped into the alternative energy race with a patented biomass fuel that hashe characteristics of coal. The production process accepts all sorts of feedstock from livestock manure to food waste to paper sludge to municipal waste. The pelletized fuel can be blended with coal to achieve better energy results than coal alone. N-Viro’s fuel is also environmentally-friendly with a lower sulfur emissions profile.
The company has quite a bit to offer the coal-fired power plant owner. N-Viro’s fuel production process gives off ammonia, which can be used by the power plant for removal of nitrogen oxides from the plant’s exhaust gases.
With apparently excellent products investors could expect N-Viro to find rapid traction in the market. Unfortunately, market penetration appears to be woefully weak. The company recorded $1.3 million in total sales in the most recently reported twelve months ending September 2015. Worse yet still is that the net loss was $2.0 million. Revenue has been higher. The company reported $3.6 million in total sales in 2012, but the top-line has been slipping downward ever since. There have been no profits.
Operations have used $1.6 million in cash over the past four years to keep the doors open. That is not a significant sum and it is clear the company has been operated with a frugal hand. However, there was only $25,000 left in the bank at the end of September 2015.
That is why the company’s recent announcement to work with the Zhejian Jiangxing Sewage Treatment Facility in the City of Jiaxing, China might be of vital importance. The treatment facility produces 550 metric tons of wet sludge every day and there are plans to triple capacity. N-Viro has agreed to construct and operating a processing facility to turn the sludge of Jiaxing into N-Viro fuel.
Nothing ever happens quickly in China, but N-Viro may have stumbled on a gem in Jiaxing City. Since the announcement in late September 2015, the company has been silent on plans for working and investment capital. Shareholders are likely keeping their fingers crossed that its ‘Jiaxing gem’ can be used as collateral.
NVIC is quoted on the Over-the-Counter Pink Sheets, which likely presents a problem for many investors. On the plus side, N-Viro files financial reports with the SEC just like any listed company. The stock trades well below a dollar per share and that might seem tempting to some more adventurous investors. Even so, the bid and ask spread is wide. That means a long position will be met with immediate loss of value in their account just on the spread. What is more trading volume is shallow and getting out of the position in a hurry is not likely possible.
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. AMRS is included in Crystal Equity Research’s Beach Boys Index of companies developing alternative energy using the power of the sun.