Wednesday, November 30, 2011

Panicky Central Banks Juice Markets To Save Bad Eurobanks

Today brought more wonderful news for investors who think a rising stock market is their birthright regardless of poor macroeconomic fundamentals.  Central banks decided European banks need indefinite cheap dollar funding.  U.S. equity markets levitated once again in a knee-jerk escape from reality.

Unforutnately for the legions of day trading fools and hedge fund idiots who bought into this nonsense, reality always comes back with a smack in the face.  The reality of Europe is that the PIIGS can't pay their sovereign debts, European banks will become insolvent when these losses are realized, and U.S. banks will become insolvent when the melt value of their European exposure drops through the cellar.  I'm not dumb enough to buy into this market. 

Monday, November 28, 2011

Rare Earth Metal Prices Going . . . Which Way?

The age old debates still rage . . . inflation vs. deflation . . . tax increases vs. spending cuts . . . less filling vs. tastes great.  Don't worry about that last line from an old lite beer commercial.  Here's a new debate to keep finance professionals busy:  Will rare earth metals prices rise or fall in the future?

Prices of those precious seventeen elements on the periodic table have dropped recently.  They had quite a ride for a while from at least late 2010 thanks to fears of supply chain disruptions driven by Chinese export quotas.  Those fears have driven investors to seek out junior mining companies that claim to be developing rare earth deposits.  These same miners were previously digging for uranium, cobalt, gold, and other more prosaic metals until they discovered that rebranding themselves as "rare earth" explorers gave them added cache with nervous investors. 

Finding trace amounts of rare earth elements in a larger ore body does not make an exploration company viable as a rare earth producer.  High concentrations of rare earth ores do not make an explorer into a producer without logistical prerequisites - water, power, and road connections to national infrastructure - in place. 

I hope to develop these lines of thinking at tomorrow's Hard Assets Rare Earths Investment Summit, where I'll be a panelist for one session.  Watch this blog for summary comments later this week. 

Sunday, November 27, 2011

The Limerick of Finance for 11/27/11

Hard assets are there to invest
So you decide which one is best
There's coal, oil, and gold
Metals of types untold
Asset theory is put to the test

Friday, November 25, 2011

Constitution Mining (CMIN) Is Now Goldsands Development (GSDC)

Oh boy, here's another one.  I've been sitting on a teaser brochure from Scott Smith's Swiss Confidential (where's his website?) urging me to go long Constitution Mining (CMIN).  That company is now known as Goldsands Development Company (GSDC).  Prepare yourselves.  Here it comes. 

Yahoo Finance only gives us three years of financial statements.  Readers are welcome to read the company's SEC filings if they wish to go back farther.  Three years of data is all I need to see for this one.  Three years of progressively worse net losses.  Three years of progressively declining retained earnings.  Three years of negative free cash flow.  The CEO, Dr. Michael Stocker, is not a geologist and has never worked in mining.  The stock is at $0.04 today.

It's funny how companies with no financial success can change names.  It's also funny how newsletter touters can disappear. 

Full disclosure:  No position in CMIN or GSDC, ever.

Brand Neue (BRNZ) Became Culture Medium Holdings (CLTRE)

Hello, old mailbag.  What do you have for me today?  Why, it's an old teaser brochure from Carpenter Global Stock Advisory for something that used to be called Brand Neue (BRNZ).  It changed its name earlier this year to Culture Medium Holdings (CLTRE).  What's in a name?  Nothing, compared to what's in financial statements.

Checking Culture Medium's corporate website today reveals a domain placeholder page.  Uh-oh.  We'd be better off checking Brand Neue's old site, now re-branded for Culture Medium.  Wow, these guys changed their name months ago and can't even do a proper domain migration.  The 10-K report for August 2011 is a wonderful read.  It says that their LED subsidiary had no sales and was discontinued.  That LED project was the main reason for Carpenter's glowing praise.  This company started life as a natural resource company and is now doing . . . well, not much of anything.  The stock trades at $0.03.

Andy Carpenter, I advise you not to send your resume to Alfidi Capital. 

Full disclosure:  No position in BRNZ or CLTRE, ever.

Thursday, November 24, 2011

Alfidi Capital Gives Thanks On Thanksgiving Day 2011

Publicly giving thanks on Thanksgiving Day is a tradition in the United States.  Many Americans give thanks to their parents, a supreme being, their alma mater, and whatever other forces and entities they feel have helped them become prosperous and happy.  I see no reason not to join in the holiday fun here at Alfidi Capital.

I am thankful to live in a country governed by the rule of law and not a monarch's whim or a mob's passion.  The rule of law is sometimes called into question when crony capitalists play questionable games with their clients' money, but I still believe justice prevails in even the most privileged cases.  America is still a country that convicts billionaires for insider trading.  No one is above the law.  The wheels of justice may turn slowly sometimes but they turn nonetheless.

I am thankful to live in a country that allows me to start and run my very own business without having to pay a bribe to a corrupt government official.  I pay my taxes on whatever revenue I earn without fear that some bureaucrat will surprise me with hidden fees out of spite.  This would be impossible in a socialist or Communist country where there is no such thing as private property. 

I am thankful for intelligent, thoughtful followers on the web who link to my site, read my blog, and follow my social media feeds.  Many people want financial analysis that is honest, independent, transparent, and entertaining.  My website management tools and traffic counters tell me that people from all around the world can't get enough of what they find here. 

I am thankful to be financially independent.  I have enough money to pay my expenses and live in comfort without fear of bankruptcy or a decline in my standard of living.  Being frugal and debt-free helps, but I could not have achieved this status without years of living well below my means. 

I am thankful to live in San Francisco, California, the greatest city in human history.  I have lived in Europe, Asia, the Middle East, and the South and Midwest of the United States.  Nothing compares to The City's quality of life.  The physical beauty, economic prosperity, and cultural treats here are unmatched.  There's no place like home. 

I am even thankful for the existence of stupid people who don't like me personally.  They're not intelligent enough to understand anything I have to say.  They make me look good by comparison.  I enjoy their hatred and relish every chance I have to defeat them. 

Finally, I am thankful to be extraordinarily handsome, supremely intelligent, and undeniably witty.  Those qualities set me apart from the stupid people referenced above.  I'd rather live this way than be sentenced to a miserable life of ignorance. 

Thanksgiving is a pretty cool holiday.  It's the perfect excuse to overindulge an appetite for the agricultural abundance of America, the most productive economy in history.  I enjoyed a buffet meal at The Cliff House, one of The City's oldest and best restaurants.  It was a great time to sample plenty of dishes and watch the world's commerce sail through the Golden Gate.  America is awesome. 

Wednesday, November 23, 2011

The Haiku of Finance for 11/23/11

German bond auction
No buyers push debt cost up
Contagion spreading

American Paramount Gold (APGA) Is Now Anything But Paramount

Trinity Investment Research is the sender of yet another teaser brochure near the bottom of my mailbag.  Last year their analyst Tim Fields wanted me to know about American Paramount Gold (APGA) because it was trading at $1 and was supposedly projected to go to $3 in the short term and $10 over the long term.  Of course, the newsletter gave no firm timelines for these projections, so "short" and "long" terms could have meant "a century" and "a millennium" respectively.  Anyway, the stock did trade around $1 in June and July 2010 and promptly began to slide to $0.30 by the end of 2010.  Today it closed at $0.03.  Anybody who went to Tim Fields' site at Untapped Wealth to read about this stock should have looked at its publicly available information instead. 

First, allow me to quote directly from the company's Profile page on Yahoo Finance:

American Paramount Gold Corp. does not have significant operations. The company intends to seek, investigate, and consummate a merger or other business combination, purchase of assets, or other strategic transaction with a corporation, partnership, limited liability company, or other operating business entity. Previously, it was engaged in the acquisition, exploration, and development of natural resource properties. The company was formerly known as Zebra Resources, Inc. and changed its name to American Paramount Gold Corp. in March 2010. American Paramount Gold Corp. was founded in 2006 and is based in Laguna Niguel, California.

Investors need to pay attention to things like this.  No significant operations . . . intends to seek something or other . . . with just about anyone or anything.  Well, at least no one can say they're not ambitious. 

This is supposed to be a gold mining company but only one of its senior leaders has ever had anything to do with mining.  That one person, whose bio has since apparently been deleted from Wikipedia, appears to have consulted with mining firms and is now semi-retired. 

They currently have negative shareholder equity, and they have had negative net income and negative free cash flow for several years.  I'll let their most recent 10-Q report (July 2011) explain why, in the company's own words:

Since we are an exploration stage company, there is no assurance that a commercially viable mineral reserve exists on any of our current or future properties, To date, we do not know if an economically viable mineral reserve exists on our property and there is no assurance that we will discover one. Even if we do eventually discover a mineral reserve on our property, there can be no assurance that we will be able to develop our property into a producing mine and extract those resources.

I have no idea how to make money from a stock like this one, nor would I ever wish to find out.  Have a nice day, Trinity Investment Research.  You must be very proud of the analysis you perform on stocks. 

Full disclosure:  No position in APGA, ever.

Adventrx Pharmaceuticals (ANX) Moving New Drugs Along

I do look at pharmaceutical companies once in a while even though they don't really fit my portfolio.  I like the challenge of analyzing something new because it forces me to expand my horizons.  Adventrx Pharmaceuticals (ANX) is today's pharma candidate. 

Adventrx has had persistent problems getting the FDA to consider one of its flagship drugs, ANX-530, aka Exelbine.  The FDA cast doubt on Adventrx's ability to produce the drug at its intended manufacturing site in a "refuse to file letter" from March 2010.  The FDA's response letter of August 2011 cast doubt on the authenticity of ANX's most recent trials.  FDA approval for a drug is the single most important factor that makes it commercially viable.  I say that for the benefit of amateur investors and analysts who confuse PR with documentation.  The company's other main products, ANX-188 and ANX-514, appear to be on track with the FDA

Getting those last two drugs through a 24-month Phase 3 trial takes money.  Adventrx held $32.8M in cash as of Sept. 30, 2011 and had only $3.1M in total liabilities.  I'll estimate their monthly burn rate by adding up their four most recent quarterly net losses (sums to $13.172M as of Sept. 30) and dividing by 12 to get about $1.1M.  Dividing that into the company's cash reserves (netted against the liabilities will leave them with $29.7 in cash reserves) means the company has enough cash to last 27 months.  This is reassuring provided the company does not assume any new debt.  It should survive until Phase 3 results are on hand. 

The company has had negative net income, negative retained earnings, and negative free cash flow for three years.  New drugs are a high risk, high reward opportunity.  Adventrx has yet to hit its stride due to problems with ANX-530 but other drugs are in the pipeline. 

Full disclosure:  No position in ANX at this time.

First Liberty Power (FLPC) Is Powerless To Earn Money

Oh boy, here's another great story from my newsletter mailbag.  Please note that I mean "great" in a sarcastic sense.  First Liberty Power (FLPC) explores for lithium and other minerals.  Eric Dickson of Breakaway Stocks and Trinity Investment Research once sent out a twelve-page mailer (probably some time in 2010) saying this stock was a bargain at $0.80/share because it was poised for explosive growth.  Folks, the stock hasn't seen that price since June 2010 and it has been on a steady slide down ever since.  It now trades in the single digit pennies.

Read Item 7, MD&A, from their 10-K dated November 2011.  The company has had zero revenue since inception in 2007.  Their accountants raised substantial doubt about the company's ability to continue as a going concern.  The company's management team admits that it has no arrangements in place to raise financing in the future. 

I find it amazing that the company's website contains no mention whatsoever of the management team at this time.  That just blows my mind.  I have no idea why a mining company has a name like "Power," which makes it sound like an energy company to me.  I don't think I need to go any farther.  I really hope the boys at Trinity Investment Research have a nice day.  They will need it after throwing their corporate name behind this stock.

Full disclosure:  No position in FLPC, ever.

Tuesday, November 22, 2011

Quest Rare Minerals (QRM) Goes Heavy Into HREEs

It's time to check out a rare earth stock.  Quest Rare Minerals (QRM) mines heavy rare earths in Canada.  They were formerly known as Quest Uranium (QUC) until they rebranded themselves for the rare earths sector.  The rebranding made some kind of sense in that Quest was originally spun off from Freewest Resources Canada (which in turn became part of Cliffs Natural Resources) so the parent company could focus on finding precious and base metals.  Quest inherited Freewest's uranium exploration projects in 2008.  Let's consider how they performed before they switched gears to hunt REEs.

Net Income (from annual reports):
2007:  ($23.9K)
2008:  ($419K)
2009:  ($1.62M)
2010:  ($4.6M)
Nine months ended July 31, 2011: ($9.5M)

This company excels at losing money.  Maybe that's what prompted them to switch from uranium to rare earths.  Maybe they realized their rare earth deposits were more valuable than their uranium.  Maybe they got caught up in all of the excitement generated these past few years over China's export quotas on REEs.  I can't read management's minds, but I can read their financial statements and pitchbooks

Their October 2011 pitchbook is the one I decided to mark up with notes.  Pages 7-14 have a lot to say about the global rare earths market and nothing to say about the company.  Page 15 reveals that the entire Strange Lake deposit is far enough north on the Quebec-Labrador border that inclement weather may close off access during winter months.  Since I've never lived that far up north, maybe a local could tell me how long roads are closed due to snowdrifts.  Page 17 indicates that the Main Zone of their historical discoveries is over 2.5km from the nearest body of water (Lac Brisson) at its closest point.  Water for leaching operations must be pumped that distance, leading to higher production costs for any producer who wants to join the party.  The newly discovered B-Zone is much closer to the lake, so perhaps extraction costs will prove to be lower there.  Page 19 indicates a rudimentary road network runs through the B-Zone property.  That's potentially good news if it can handle daily truck volume, although the sloped elevation and lack of nearby ground cover make me wonder about the effects of erosion.  Page 25 has a bullet referencing a proposed air strip and a potential access road; it's easy to read between the lines to determine that logistical access from the outside world to the entire deposit is extremely poor.  A passing mention of Plan Nord does not indicate whether the Quebec government will spend money to improve infrastructure in the Strange Lake area. 

Quest should consider emphasizing its LREE deposits as much as it touts its HREE deposits.  If the LREE mineralization is closer to the surface then the HREE, as some of the data indicates, it will be extracted first and thus have a more immediate impact on Quest's bottom line.  Hey, Quest, investors will want to see some progress on that bottom line at some point. 

In fairness, Quest has always been an exploration company.  It does not extract or refine ore but must have drill results of sufficiently heavy grades to convince larger partners to pay for working interests in its properties.  Only recently has Quest discovered such promising deposits in the B-Zone.  The next step is for Quest to convince larger miners to sign up for development. 

Full disclosure:  No position in QRM (or other companies mentioned) at this time. 

American Petro-Hunter (AAPH) Hunts In Vain For Earnings

Let's scrape the bottom of my old mailbag once again to see if newsletter publishers have found any winning stocks.  Jonathan Kolber, who variously promotes himself as an energy analyst, futurist, and such, sent out a teaser brochure for "The Kolber Report."  It's not the same as the Comedy Network show with a similar-sounding name, but some readers may find it entertaining.  My entertainment came from the stock touted this time: American Petro-Hunter (AAPH), yet another oil penny stock searching for earnings and investors. 

I got the teaser a few months ago when the stock was trading about where it is now.  Why hasn't the stock jumped in price, as Mr. Kolber suggested it would in big bold letters?  Probably because it's been losing money for three years straight.  It has been public since 1999 and has almost never been worth more than a few cents with the exception of nice run in 2000. 

Reading about their Poston oil project in Kansas is funny.  Basic math really helps here.  If their most optimistic engineering prediction holds true and the property can eventually produce 110 bbls/day, then we can expect it to produce 40,150 bbls/year.  Check out the most optimistic estimate of recoverable reserves on that page:  240,000 bbls.  This means that full production will exhaust the entire property in only six years.  Properties like this are better off as part of a an oil and gas royalty trust, where their recoverable lifespans can be amalgamated with many other wells. 

I won't waste my time or my readers' time looking any deeper for value.  Wildcatters are welcome to pay as much as they like for investment newsletters that will pump their stock. I'm not interested in that way of doing business.

Full disclosure:  No position in AAPH, ever. 

Occupy Movement Declares War On West Coast Economy

Shutting down the Port of Oakland wasn't a big enough show of force for the Occupy movement.  Feeling their oats, they've declared their intent to shut down all West Coast ports on Dec. 12.  Their expression of solidarity with Longshoremen is an overstretch, as the Longshoremen's union is now clearly distancing itself from Occupy's call.  The ILWU believes in the rule of law, which requires it to cooperate with the dispute arbitrator's instructions.  Labor and management are perfectly capable of working things out on their own without outside agitators.  Occupy's outreach will only serve to put other potential union supporters on the spot and force them to choose between complying with labor rules or joining Occupy's disruptive actions. 

The Occupy movement lost its focus on financial corruption almost as soon as it first gained notice.  The ports of Oakland, Long Beach, Seattle/Tacoma, and Portland are America's lifeline to the Pacific Rim.  Shutting them causes more than a mild inconvenience.  Occupy is about to do measurable economic harm to independent truck owner-operators, California farmers, and countless businesses that earn a living from Asian trade.  A home-grown insurgency is declaring war on the West Coast's economy.  We will all be poorer if the Occupiers have their way. 

Monday, November 21, 2011

Coronado Biosciences (CNDO) And Its Hygiene Hypothesis

Coronado Biosciences (CNDO) is staking its value proposition on two potential drug treatments that apply the Hygiene Hypothesis.  This theory argues that the industrialized world's advances in personal and public hygiene have suppressed the natural development of bacteria (specifically intestinal helminths) whose presence would otherwise prevent excessive T-cell activation.  Coronado's CNDO-201 drug treatment is a biosimilar compound that replicates Trichuris suis ova (TSO).  Its other drug, CNDO-109, uses "natural killers" to attack cancer cells. 

The most compelling thing about this company at this time is the strength of its management team. The CEO, Dr. Bobby Sandage, was with Indevus Pharmaceuticals when Endo Pharmaceuticals acquired it for $370M.  Investors should know that the single best risk-mitigation technique for a startup company is the presence of serial entrepreneurs among its senior management.

Early-stage companies rely on the strength of their IP to attract early capital.  Biologic drug patents currently have a 12-year life but that is a contentious political issue. The Administration tried to shorten this patent length in its health care reform legislation. Any future reform efforts that weaken patents on biosimilar drugs will open the door to generic versions earlier. 

The company thinks its early data is encouraging, but the drugs need to complete FDA Phase II testing. The stock recently debuted at $10.00/share.  I personally believe that is quite high for a company that does not yet have an FDA-approved product and will probably not see revenue for several years.  The company's private equity investments were priced much lower.  It is difficult to say at this point what a realistic valuation would be without comparing Coronado's prospects to other drug makers that have been acquired prior to completing Phase III trials. 

There are mature companies that compare to Coronado's approach, but Coronado will have an uphill battle taking market share. Biopharma maker Onyx Pharmaceuticals (ONXX) has a market cap of $2.4B today. Coronado would have to compete head-to-head with Onyx with its cancer treatments, also delivered orally. Pharmasset (VRUS) is another oral drug maker worth over $10B right now. Onyx and Pharmasset have something very important in common: They've had negative net income for three years running. These drug companies achieve high valuations on the promise of Phase III completion and full adoption by the medical community. I personally prefer to put my money into companies with solid earnings histories.

Full disclosure:  No position in CNDO or other companies mentioned at this time. 

Alpha-D Updates for 11/21/11

This month was easy and boring.  All of my covered calls on GDX and FXI expired unexercised.  I renewed them for another month and made no other changes to my portfolio.  I still have small holdings in California muni bonds. 

I'm tempted to buy more California muni bonds but in a seriously inflationary economy new ones will quickly lose value.  I'd rather not take the risk right now.  I'll admit that it gets boring sitting on lots of cash and staring at small exposures to China, gold stocks, and muni bonds.  My thing is that I've convinced myself that the massive risks of buying now are too great for me to take.  We face a likely crash in Europe that may have incredibly destructive effects on U.S. banks holding European sovereign debt.  The inability of the U.S. Congress to agree to deficit cuts means austerity will probably come fast and furious, hitting GDP hard and restarting Great Depression 2.0.

Sorry folks, but what I do with my own money isn't going to be very exciting until trans-Atlantic economic annihilation puts everything on sale. 

Occupy Movement Clueless About Infrastructure

The Occupy movement's local offshoots are alienating their local neighbors with incoherent tactics.  A case in point is the DC movement's seemingly spontaneous decision to march on the Francis Scott Key Bridge in a call to fix America's infrastructure.  The only optics this march can generate are sights of angry commuters fuming at Occupy protesters who won't let them go home.  Occupy protesters like shutting down valuable infrastructure just to annoy productive people who have to make a living.  They set a precedent when Occupy Oakland symbolically shut down the Port of Oakland, sending an unfriendly message to businesses that need to ship goods through the port. 

I'd like to know how the Occupiers plan to pay for infrastructure upgrades once they transform America into a socialist workers' paradise.  They need to check out Soviet-made bridges for examples of workmanship.  Okay, maybe that's a bit unfair. 

The main structural deficiency here isn't the Key Bridge; it's the inability of the leaderless Occupy movement to differentiate between the original targets of their anger (Wall Street cronies) and the physical infrastructure a capitalist economy provides for the public commons.  I believe this new emphasis on infrastructure signifies the support of a living system that now provides the bulk of the Occupy movement's support.  That living system is the labor union movement.  Unions stand to benefit from federal spending on construction and stand to gain in potential negotiations with port employers if they can muster outside support for a work stoppage. 

Occupy is morphing into a dozen different things, none of which will pose any threat to corruption on Wall Street. 

Sunday, November 20, 2011

The Limerick of Finance for 11/20/11

Foreign banks bring deposits to Fed
Europe swaps have gone into the red
There is no safe place
In a currency race
Off a cliff is where this will all head

The Haiku of Finance for 11/20/11

Austerity comes
Deficit deadline this week
Cannot muddle through

Impressions From VEDC Access To Capital Business Expo In SF

I can't resist free conferences on financial topics.  I saw an ad for the third annual Where's The Money? Access to Capital Business Expo in one of San Francisco's weekly magazines.  I signed up for a free pass out of curiosity, wondering what the Valley Economic Development Center from SoCal was doing holding an event so far up north on Nov. 19, 2011.  Don't they have enough SBA lenders in SoCal?  It was worth attending for the free lunch (thanks Chase Bank for sponsoring) and yours truly even learned a couple of new things. 

The winner for me was the panel discussion on "Sources of Unconventional Financing."  The stars of the show were Greg Salomon of Capital Partners, Dave Kocharhook from Riviera Finance, and Alan Tratner of Green2Gold and the California Coast Venture Forum.  Thanks to moderation from Antonio Pizano of Pacoima Development FCU, Dave and Greg were able to explain the nuances of asset-based finance (primarily factoring accounts receivable and merchant cash advances) and vendor finance (primarily purchase order financing).  Fully utilizing asset-based finance is a must for businesses moving physical goods.  Entrepreneurs need to check out ABF Journal for tips.  Retailers need to know that factoring breaks down into recourse and non-recourse factoring, where recourse factoring leaves the company liable for unpaid receivables.  I'm not a retailer, so I enjoyed hearing for the first time that a factoring transaction is priced according to sales volume, average invoice size, payment timing, and other elements. 

Alan wowed the crowd with awesome tips, as follows . . .
   - Forming a C-corp structure provides flexibility when you need to grant sweat equity to minority investors or get funding from VCs or angels.  VCs don't like to invest in LLCs or partnerships. 
   - The financial food chain for entrepreneurs includes both debt and equity funding.  It runs from the 3Fs (friends, family, fools) through crowd funding, VC/angel backing, and even licensing and co-ventures.  I had always considered licensing to be a form of revenue for a mature product rather than a financing option for something unproven, but some startups can apparently make a go of things by inventing stuff just to license out production.
   - The success rate for businesses that spring from a formal business incubator is 90%.  That got my attention.  You can find an incubator focused on your business's sector at the National Business Incubation Association
   - Doing a patent search before you file for a patent of your own will help determine whether you'll end up reinventing the wheel.

I did hear one other comment during the panel discussion that I had never heard before.  Alan said a business's brand identity counts as intellectual property.  This is a twist on the old definition of a brand as an intangible asset.  Apparently academic thinking on the subject of brand identity and ways to protect it has matured since I got my MBA nine years ago.  Copyrights, trademarks, and service marks can now constitute a brand portfolio.  How about that. 

I needed to talk to a few of the banks who staffed expo booths here because I'm wargaming whether I'll need a small loan to fund a business project I have in mind.  Please note that this project is super top secret and I will reveal it when the time is right.  Let's just say it's a practical application of the resilient community paradigm.  Anyway, Wells Fargo and TMC Financing were particularly informative.  Wells Fargo offers cash-secured commercial and consumer loans that are useful for equipment purchases, and TMC Financing offers SBA 504 loans for purchasing real estate.  I asked specifically if the SBA 504's requirement that a business facility be 51% occupied referred to the human proprietor's physical presence or merely the presence of continual business activity.  It appears that mere activity is sufficient; if correct, that will be key to execution of the 24/7 presence my remotely-monitored project will involve.  Hey reader, please don't take this as legal advice.  Check with your own banker and lawyer when you start investigating loan terms and requirements. 

I mentioned the free lunch already, but I will state for the record that the Hyatt Regency San Francisco prepares a decent chicken with risotto.  I went nuts for the cheese biscuits and I would have scored a second apple tart if some latecomer hadn't sat down at the last minute.  The keynote speaker, Dane Boryta of Bottle Cap restaurant, implored us to respect the cooking by cleaning our plates.  Entrepreneurs know good stuff when they see it.  VEDC needs to invite me to be a panelist next time so I can score some more free food. 

Nota bene:  None of the companies or institutions mentioned have given me any compensation or consideration for this blog post.  My recollection of this conference is provided as a public service. 

PositiveID (PSID) Does Not Have Positive Earnings

This is one of those blog posts where the title tells you all you need to know.  Fortunately for my readers, I go above and beyond the minimum explanation because I'm in love with the sound of my own voice (even when it's typed out in digits). 

PositiveID (PSID) is a penny stock.  It may or may not remain a penny stock depending on the market's eventual reaction to FDA approval for its technology.  With an EPS of -$0.50, it's currently losing more money than the worth of a single share (which was $0.19 as of Friday).  I always laugh when I see a stock like that.  One of my favorite whipping post stocks, YRCW, is in the same boat. 

Look at the current management team. The CEO's background is in security technology, telecommunications, and accounting - not medical devices.  I find it absolutely indispensable for a CEO to have a long operating background in a company's industry. 

The company formerly marketed the VeriChip application before its merger with a corporation called Steel Vault.  That product went absolutely nowhere due to concerns over its lack of security and the possibility that it emitted cancer-causing radiation.  In case you missed it, there's still a VeriMed site with references to that technology, and the address on the contact page is identical to PositiveID's current location in Delray Beach, FL.  PositiveID now offers another implantable product called GlucoChip that does the same thing as VeriChip, with the explanation that it measures blood glucose.  Wait a minute, that competes with their other glucose measurement product called Easy Check.  Why make two devices that do the same thing?

If this story hasn't confused you enough, just relax.  Read the headline one more time. 

Full disclosure:  No position in PSID or any of its predecessor or affiliated companies, ever.  Oh yeah, no position in YRCW either. 

Friday, November 18, 2011

Clenergen (CRGE) Has Not Cleaned Up For Investors

It's time for another dive into my dusty old mailbag of slick promotional brochures from investment newsletter publishers.  A few months ago Shawn Ambrosino at Trinity Investment Research sent me a mailer touting Clenergen (CRGE), processor of plant-based biofuel.  The pitch is that this company's Indian-sourced feedstocks make it a winner.  Let's examine the track record. 

CRGE debuted on Sept. 30, 2011 at $0.84/share.  Today it trades barely above four cents per share.  Investors who bought this stock at any time in 2010 or the first half of 2011 are now so far underwater they may never see the light of day. 

Figuring out why this stock has suffered isn't difficult.  Accounts payable have been roughly twice as large as current assets for the past four quarters.  Clenergen has apparently never seen a bill it didn't like.  With negative free cash flow and only $160K cash on hand as of April 2011, it won't be long before the company is completely unable to pay its bills. 

Clenergen's business model up to the present quarter has been flawed.  Their efforts to simultaneously build stand-alone biomass power plants in several emerging markets have no synergy.  Try running multiple, non-integrated supply chains under multiple regulatory regimes in countries where you have little on-gound presence and see if you'll make any money.  No wonder their costs are out of control.  A look at their senior management team reveals limited bench strength in the energy sector, with a CEO who's had some experience in biofuels and other people who never seem to have touched the stuff before coming to Clenergen.  Clenergen's decision this year to change its business model from owning and operating power plants to licensing its technology for use by local power companies is probably the best move it could make under the circumstances.  This is the only business model they ever should have pursued given management's lack of experience in energy project execution. 

Full disclosure:  No position in CRGE, ever.

Thursday, November 17, 2011

Alamo Energy (ALME) Down Significantly Since June 2010

On days like this, when the broad market is down due to the slow-motion implosion of the Eurozone, I like to amuse myself by reaching into the pile of glossy mailers I've accumulated since last year to see how well some low-priced stock promotions have fared.  Many of them have not fared well at all.  Today's case study is Alamo Energy (ALME), featured in a four-page teaser brochure dated June 2010 from Scott S. Fraser's The Natural Contrarian.  The glossy claimed that ALME was on track for two major U.S. oil discoveries and that long interest from unnamed small-cap energy mutual funds were waiting to buy the stock if it broke above $5/share.

Check the share price history yourself on Yahoo Finance.  ALME dropped from $1.17 on June 30, 2010 to $0.33 today.  Net income has been increasingly negative since 2008.  Free cash flow is also negative; the company's recent sale of low-producing wells to raise cash is notable once we do some basic math. Netting $160K for well interests that produced 1600 bbls in a year values the recoverable resources at $100/bbl, a fair value given the current WTI spot price near $100.   The bad news is that, given the burn rate implied by their quarterly cash flow from operating activities, that $160K will last about three or four months.  The company only had $86K cash on hand at the end of July 2011 (according to their 10-Q for Sept. 14, 2011), so they will need to sell more non-core assets by February 2012, go further into debt (not good given their long-term debt load of $1.16M), or dilute shareholders by issuing more stock.

The Natural Contrarian ignores this very unflattering picture.  It reaffirmed a Strong Buy rating for ALME this past summer.  I have access to the exact same publicly available information as that newsletter but I cannot be so confident in Alamo Energy's chances for success.  I'm trying really hard to be nice here. 

Full disclosure:  No position in ALME, ever.

Wednesday, November 16, 2011

Observations From Enterprise 2.0 Conference 2011 Santa Clara

I have long had an interest in the intersection of knowledge management and business intelligence.  I attended the Enterprise 2.0 Conference in Santa Clara this week to find out what, if anything, those two areas had to do with social media.  I went for the free Expo-only pass because I'm far too cheap to pay for special access programs.  I'll be speaking at those seminars anyway someday.  It is my destiny. 

The Tuesday keynotes were full of practical tips from people who walk the enterprise collaboration talk in the real world.  Paige Finkelman introduced two themes with imagery borrowed from Dr. Seuss: unlocking internal value that can be expressed in business metrics, and technical aspects of software and infrastructure that would appeal to a geek IT architect.

Adam Graff and Andy Wang of Genentech talked about how difficult it is to see technology vendors' plans more than a few months out because the speed of innovation simply destroys any long range enterprise IT strategy.  I take that as a warning to product developers at these 2.0-type conferences not to burden their corporate customers with bulky legacy systems.  These guys mentioned how off-the-shelf applications from Ning and Yammer eventually displaced the blogs and wikis developed in-house.  Their Genentech IT developers had built those initial platforms and walked away without considering the lifecycle of the technology.  I surmise that the off-the-shelf solutions added value when the original custom stuff couldn't adapt to changes.  I also learned about a new career field called "enterprise anthropologist."  This must be a fancy term for the Groupaya consultants who mapped out Genentech's social dynamics to figure out why some groups excelled at collaborating.  I wonder how an enterprise anthropologist spends their days . . . deciphering Dilbert cartoons posted in cubicles . . . digging through piles of year-old meeting announcements . . . ah, what an enriched life.  Their final admonition against treating cute new tech solutions as a field of dreams is worth remembering.  If you build it (a platform), they (users) won't necessarily come without a strategy and the dedicated attention of change agents.  It also means that ghost baseball players won't understand IT. 

Rachel Happe of The Community Roundtable said continuing adaptation is required just to stay in place.  That made me think of the old adage that a shark always has to keep swimming or it will die.  That in turn made me think about YouTube clips from cheesy shark horror movies so I had to snap my brain back to the lecture hall before I missed something else important.  Ms. Happe said people are the weakest link because they (and the culture they create) change more slowly than tech, so gap analysis should figure out how people can be strategic differentiators.  You said it.  Some of the people I've worked with at large investment firms must have fallen through those gaps, so gap analysis may not find those fools unless it looks all the way to the volcanic vents on the ocean floor. 

Ms. Happe's other insights came in rapid fire.  Customer forgiveness is a "Web PR disaster avoidance" phenomenon that raises margins (and all this time I thought it was just the result of customers not paying attention to extra fees a sales force is charging).  Strong relationships with internal peers and external customers give rise to their offers of help (which I think is preferable to screaming "I've fallen and I can't get up!").  "Competitive lockout" adds revenue . . . uh, pardon me, what is that?  Is that when you get first mover advantage?  Or is that something that happens when you rush to the restroom stall before everyone else after the coffee break at Enterprise 2.0?  I guess that's another newfangled term but I have no idea what it means.  She finished by saying that social media can sustain a relationship but building one requires direct engagement.  I can only think of one way that a remote relationship can be initiated without meeting someone physically:  prison pen pals.  Anything else means you have to shake hands first. 

Next up on Tuesday's keynote lineup was Tim Young, who sold his firm to VMware and became their VP for Social Enterprise.  Good for you, Tim!  Guys like him tend to get restless at a big company, so I'll be interested in hearing about any future startup he has planned.  Mr. Young's insight was that a single-page hi-res photo was a simple way to communicate personal identity.  His message of simplicity will be lost on Facebook.  I've noticed the increasing frequency of changes Facebook's engineers make to the ways people tag, like, and share stuff.  All of those bells and whistles require constant engineering attention, and constant tinkering will eventually frustrate users.  Tim's grew its user base much faster than Facebook because it was so much simpler to use.  Twitter works the same way.  Tim's lesson is that all of the additional investment that firms put into tools for larger communities will lead to decreasing marginal returns because more complex tools are less attractive to users. 

Tim's latest work adheres to the simplicity meme.  He creates simple metrics about how employees feel about their day so managers can be better coaches; they can compare this data across work groups for insights into groups' relative health.  In the U.S. Army, we call this a Command Climate Survey but all the Army units I've served in only measured this metric once every year.  I truly believe the Army could benefit from a simple metric, measured daily, that commanders could use to evaluate how effective a unit is performing under the stress of combat.  Yes, folks, the Army does knowledge management too.  The Army is also trying to find ways to field smartphones with apps tailored to combat operations.  Hmm . . . a soldier logs on to his squad's smartphone in Kandahar province . . . launches the app tracking his patrol's effectiveness . . . rates it plus or minus (a Six Sigma method) for that day . . . the battalion TOC collates the data and the S-3 briefs the commander on the unit's daily self-assessment.  Now the commander finally has some situational awareness on how quickly he's moving along a logical line of operation toward an objective.  Folks, I think I'm on to something here.  Tim Young, your lecture may save American lives someday. 

Kevin Jones, a consultant, was another keynote speaker.  In case you're wondering, I really did take notes on all of them because I take knowledge acquisition pretty seriously.  According to Kevin, failures can be pandemic, catastrophic, or intrinsic.  The intrinsic failures are the ones you want to have because they enable growth.  I'll remember that the next time I lose at poker in Las Vegas; my failure wasn't pandemic (Las Vegas odds favor the house) or catastrophic (I bet my life savings and lost my shirt) but intrinsic (I need to develop a poker face instead of grinning like an idiot when I pull a royal flush). 

The end of the Tuesday keynote series was heralded by a panel moderated by Sameer Patel with guests Tom Kelly and Jonathan Schwartz.  I don't know any of those dudes but they must be pretty renowned in tech to be on this panel.  Stream of consciousness highlights follow . . . social media content isn't limited to a traditional audience . . . CEOs are slow to participate but those who do can become rock stars . . . a big pharma maker drove down its supply chain costs by using social tools to rapidly discover and broadcast solutions.  Good job, guys.  Put that stuff into an e-book and sell it. 

I made a beeline for the expo floor after I ate a sandwich that was too expensive but readily available.  One of the first people I met was a Benedictine priest.  What was he doing at a tech conference?  God only knows.  I should also mention that attractive women were typical staffers at the well-attended booths.  Vendors absolutely must have a stable of attractive-looking employees staffing their booths at trade shows, along with copious amounts of free pens and candy, to have any hope of getting attendees to stop by long enough to hear a sales pitch.  The only booth that had none of those things was a booth for the human resource community staffed by two frumpy old maids with no candy, pens, electronic displays, or even personality.  It was times like these that reminded me just how my utterly worthless bachelor's degree in HR from Notre Dame was the single biggest mistake I had ever made in my life.  I'm only grateful that I made this mistake early in my career so that I never had the misfortune to work with frumpy old maids in HR.  I gravitated to finance, where the women are much hotter.

Speaking of hot, the hottest booth at the show belonged to Spigit.  These guys went nuts with a mascot dressed like a giant green eraser and a display case full of cold, hard cash (my favorite thing in the world besides booze and chicks).  Photographic proof is below.

In case you need a reminder, the remarkably handsome fellow giving the thumbs up with the Spigit mascot is yours truly, Tony Alfidi.  I know how to party.  I party like a rock star with giant green erasers. 

The vendors I liked most were ionGrid for their Nexus secure document access platform, Actiance for their apps that enable financial services compliance departments to review social media content, Bunchball for their gamefication (another new term to learn!) of social media usage, and NationalField for their recap of how social media plugged into KM played a role in the 2008 presidential election.  The seminar (okay, it was really a disguised product pitch session) from Bunchball's Steve Patrizi revealed that tapping basic human motivators for achievement, status, and rewards can incentivize social media users.  I had no idea that LinkedIn's profile completion progress bar was the single most important factor driving users to adopt that platform.  I came away convinced that simple blog widgets that incorporate game mechanics can help build a blog following.  I'm going to test that theory ASAP. 

I noticed that many of the vendors' platforms looked a whole lot like some melding of Facebook and Microsoft SharePoint.  That's the whole point.  Collaboration tools like Facebook's walls and news feeds motivate people to find and share the work products displayed in SharePoint.  How about that.  The products all seemed to be plug-and-play solutions that could easily be grafted onto an existing enterprise-wide IT architecture, irrespective of whether the host is an all-encompassing behemoth like SAP or a mix of smaller tools. 

Thanks Enterprise 2.0!  I couldn't make it back for the Wednesday sessions but what I learned Tuesday made it worth my while.  I want UBM TechWeb to invite me to be a keynote speaker next year.  I promise I'll make the experience memorable.  ;-) 

Full disclosure, 08/11/2015:  I edited this article to remove several sentences and one photo that were irrelevant to the content of the event.  The removed content did not add value to my discussion.  My editing streamlined the paragraph that mentioned the priest and the HR community.

Visualant (VSUL) Sees Something I Can't See

I received a brochure quite some time ago (months?) from John Person's Bottom-Line Newsletter touting Visualant (VSUL) and its purported ability to massively grow its revenue through acquisitions.  How has that worked out? 

The topline results are easy enough to find in the 10-K.  VSUL earned about $2.5M in its year ending Sept. 2010 and nothing prior to that.  Its most recent acquisition of Eagle Technologies USA expects to add $1M in revenue immediately.  The strategy behind this acquisition escapes me.  Eagle Technologies makes blank PVC identification cards - a commoditized product.  Visualant needs to explain how this business fits with its core strategy of selling spectral pattern detection devices - a unique product.  Will its scanners somehow come bundled with the cards for existing Eagle customers?  They need to stand out quickly in a market crowded with suppliers of barcode readers.

I will give the management team and directors a thumbs up for their depth of experience.  The problem with taking a company like this public before its business model has matured is that its share price will languish as a penny stock until the bottom line catches up to the technology's potential.  In this case, the horse hasn't quite caught up to the jockeys yet. 

Full disclosure:  No position in VSUL.

Tuesday, November 15, 2011

NYC Cleared of OccupyWS Detritus, Hopefully SF Next

Public authorities have fulfilled their responsibilities by finally clearing the trash from Zuccotti Park in New York City.  They took the tents and plywood away too, after the real trash (bums and rapists masquerading as protesters) departed.  Seriously, this enforcement of public health codes was long overdue.  The First Amendment protects freedom of speech and assembly but it does not provide for the "right" to create a public health hazard.  Protesters are welcome to speak their minds provided they obey laws, don't obstruct traffic or commerce, and respect the rights of other citizens.  The Occupy Wall Street movement is unable to conduct itself in accord with American norms. 

My first-hand observations of the OccupySF encampment here in The City have confirmed that this movement has zero chance of solving financial corruption or relieving stress on the middle class.  The movement as presently constituted has attracted all stripes of civilization's malcontents.  No way are America's entrepreneurs and educated professionals going to find common cause with the Marxists, anarchists, and professional vagrants presently encamped at Justin Herman Plaza. 

OccupySF, you've had your fun.  I got your message loud and clear:  You don't like money, capitalism, clean running water, working for a living, personal responsibility, or the comforts of modern civilization.  Now please pack up and go home before you attract more disease to San Francisco.  Wall Street's problems will be solved in the free market, with entrepreneurs launching new banks and customers moving business away from systemically unstable institutions. 

Monday, November 14, 2011

Buffett Goes Whole Hog Into IBM

Warren Buffett revealed a big purchase of IBM stock, couching it in his familiar language of favoring companies with durable competitive advantages.  In IBM's case, the purported advantage is the loyalty of the company's IT clients to its services.  What else about Big Blue could have caused Mr. Buffett to shed his long-held aversion to owning technology stocks?  I'll offer a theory. 

I noted months ago that Mr. Buffett's recent investments reveal bets on oil scarcity (Lubrizol) and crony capitalist bailouts (Bank of America).  IBM can be seen as a similar play on those control systems that will prove necessary for a global population faced with energy scarcity and a transition to neofeudalism.  IBM is a leading provider of smart meter integration services for utilities.  You may not have heard much about the smart meter revolution but that's okay.  Smart meters are going to hear a lot about you.  These are devices that monitor the power consumption in each utility customer's home.  Utilities expect to be able to predict demand for energy at a household level and offer customized incentives targeted to each family's consumption patterns.  The smart grid will know exactly how long each of your electric appliances is turned on.  Data on the types of appliances households own and how they are used is invaluable to marketers. 

A bet on Big Blue is more than a bet on the low-hanging fruit of intelligent IT and energy conservation.  It's a wager that smart grids and the erosion of privacy they represent will be a windfall for technology companies.  Data service providers like IBM will store and sell data on consumer lifestyles to companies that want to know how you use everything in your home.  Mr. Buffett is a smart man indeed if he is betting on a trend toward more global controls on individual lifestyles. 

Full disclosure:  No position in IBM at this time. 

Friday, November 11, 2011

South American Silver (SAC.TO) Stays Down South

South American Silver (SAC.TO / SOHAF) has some things going for it, like over $28mm of working capital and preliminary estimates of favorable cash costs of production.  It also has 43-101 reports for its iridium and gallium deposits.  Those are always nice to see in junior resource companies. 

The bad news is that SAC.TO hasn't turned a profit, although their losses in the most recent three-month and nine-month periods have attenuated from comparable periods in 2010.  The price of silver is above its historical average; claims of demand growth aside, there is no assurance that this price will remain elevated forever.  Always remember that the single most important determinant of a resource company's value is the market price of its resource.

Risk-seeking investors are welcome to take a closer look at South American Silver.  I'd prefer a profitable company.

Full disclosure:  No position in SAC.TO / SOHAF.PK at this time. 

Thursday, November 10, 2011

Sagebrush Gold (SAGE) Digging Up Sagebrushes

The Ord Oracle sent out a glossy promotional brochure for Sagebrush Gold (SAGE).  It ended up in my pile of such glossies at some point so I figured I'd do it justice with a once-over look.  Let's ignore the boilerplate random comments from unrelated news stories and look at this stock's fundamentals. 

SAGE's alleged possession of some advanced processing plant is meaningless.  Look at the 10-Q filed on August 22, 2011 for management's discussion of what this company is doing.  SAGE used to be a web consulting company of some sort and then executed a reverse merger with an entertainment company.  They got $13mm worth of cash by acquiring the subsidiaries of another company in July 2011.  How did that work out?  It's impossible to tell because their financial statements are unaudited.  They also had to withdraw a registered securities offering in July 2011. 

Note that all of their operating revenue so far for 2011 came from promoter's fees and advertising revenue.  If you think that a shell company with a limited history in promotions has the credibility to explore for gold, please stop reading now.  I can't help you. 

The company claims to be headquartered in Walnut Creek, California, across the bay from me.  I have no intention of wasting a trip there to perform due diligence because I've never heard of an exploration company being headquartered anywhere other than a resource-rich area.  Toronto and Las Vegas I could believe.  Walnut Creek?  Nope.

Their Relief Canyon property, in a historically gold-producing area, already has heap-leach pads and solution ponds installed.  That would be interesting if this were an undeveloped property with lots of confirmed drill intercepts.  The problem is that it's an older property.  The gold's already been extracted.  The indicated average ore grade of 0.017 oz/ton is so minuscule that mining it will never be economically worthwhile. 

I really don't need to see anything else.  No thank you, Sagebrush. 

Full disclosure:  No position in SAGE at this time. 

Wednesday, November 09, 2011

Tuesday, November 08, 2011

Apple Preps Retail Shops For Union Onslaught

Apple (AAPL) may be concerned that it's not being sensitive enough.  The company is offering internal training to its retail store managers on the effects of union organization.  I find it odd that workers at a tech company would even think about unionizing, but apparently some glorified customer service clerks calling themselves the Apple Retail Workers Union think they deserve more pay, perks, and job security than the highly educated engineers and computer scientists who design Apple's fine products.

I hope Apple includes the following topics in its internal training course.  Labor relations experts have found that operating costs in unionized companies are at least 25% higher than non-unionized companies.  Union negotiating tactics actually harm the ability of employers to retain union jobs.  GM and Chrysler went into government-brokered bankruptcy partly thanks to their high costs of labor and health benefits.  I also hope someone speaks up against unionization at Apple's next shareholder meeting so management gets a warning about what their approach should be. 

Steve Jobs must be rolling over in his grave.  He saved Apple from self-destruction without the help of a unionized workforce.  He advised his successors to "do the right thing."  That means Apple's leadership should resist any and all attempts by unions to organize. 

Full disclosure:  No position in AAPL at this time. 

Monday, November 07, 2011

Italy Worries Mount As Silvio Eyes Exit Sign Above Door

Italy's timing is absolutely perfect.  Greece's ruling elite is just now wrapping up the cute show it put on for its populace to deflect all blame for implementing austerity measures.  That dance ensured it will get to empty out the EFSF and leave not a drop for other deadbeat countries.  Now Italy is trying its best to copy Greece's dance moves, but no one told Rome that the EFSF will run dry just as the music stops.  Maybe the Italians are taking cargo cults to a whole new level, thinking that money will fall from the sky if they just go through the motions they've witnessed in Greece. 

Silvio Berlusconi may lose his job over Italy's deteriorating credit situation.  If I were him, I'd relish the chance to return to a career running a media conglomerate.  It beats running around Europe hat in hand asking China and Germany for dough while trying to explain to investment banks that they really shouldn't worry about insolvency. 

Let's get real.  Greece and Italy can't pay their debts.  Key players in the credit markets have known this for years.  They are now trying to decide whether to dump European sovereign debt or arrange flights to some island in Oceania where they can hide from the rampaging mobs at home.  The Occupy movement will figure out how to track them if they don't get moving soon.

Nota bene:  I don't own any European sovereign debt.  I really am too smart for that. 

Sunday, November 06, 2011

The Limerick of Finance for 11/06/11

Start planning for "Bank Transfer Day"
Fed up people will make big banks pay
They've had it with fees
They'll bring banks to their knees
Their deposits will soon go away

Saturday, November 05, 2011

Friday, November 04, 2011

Sauer Energy (SENY) Brings Yet Another VAWT To Market

I got a glossy promotional brochure from Carpenter Global Stock Advisory about some wind company called Sauer Energy (SENY).  I'm uniquely qualified to evaluate companies pushing vertical axis wind turbines (VAWT) because I consulted for one in 2007.  It went nowhere.  Other companies won't have much better luck.

Sauer Energy would have to do everything right and then some to ever be profitable.  VAWT configurations only generate a fraction of the energy a horizontal  (HAWT) configuration can generate.  I won't bore you with the improbability of ever capturing an economically worthwhile amount of energy in the urban market from small wind turbines.  That's discussed admirably well at Paul Gipe's site.  I shake my head whenever I see small wind turbine makers tout their product as perfect for the urban market, complete with photos of a solitary turbine propped on someone's building.  Mounting turbines will be unworkable in most urban areas due to permitting restrictions and structural limitations.  Vibrations from these things will shake your home.  Noise will bother your neighbors. 

The management team has zero expertise in engineering.  Their other claims of expertise are irrelevant for a technology-intensive enterprise.  OMG, the photo of a glass-walled office building on their "About Us" page is disquieting; I wonder whether their offices look anything like that in reality.

Their financial results . . . well, the numbers speak for themselves.  Sauer had zero revenue in 2009 and 2010, and so far in 2011 they haven't earned any revenue.  Their net income went from ($13k) in 2009 to ($215k) in 2010.  They have burned through all of the cash they raised from issuing equity and now must borrow to keep pouring money into . . . what exactly?  Their 10-Q for the quarter ending May 31, 2011 shows them spending far more on consulting fees and investor relations than on R&D.  Most successful tech entrepreneurs would tell you that's the reverse of the emphasis needed to win. 

Folks, there are other ways to invest in wind energy besides small VAWT makers.  Throw away glossy promotions and do plenty of homework, including calculations of a fan's swept area (the single most important factor in wind energy). 

Full disclosure:  No position in SENY at this time (nor will I ever have anything to do with this company). 

Thursday, November 03, 2011

MEDL Mobile Holdings (MEDL.OB) Stakes Claim In App Space

Forrester Research brought us expectations of infinite Internet growth during the dot-com era.  Their pronouncements induced plenty of investors to jump whole-hog into dot-com startups that later flamed out.  Now Forrester tells us that mobile technology is one of the greatest things since sliced bread.  Plenty of firms want a piece of that mobile pie.  MEDL Mobile Holdings (MEDL.OB) thinks its focus on custom mobile apps is a juicy slice. 

Mobile apps are shaping up to be a low-margin business where new entrants quickly become commodified.  Many app developers build their own apps and give them away for free or price them inexpensively just to get name recognition.  DIY developers understand the retail concept of products as loss leaders that drive their brand's visibility.  MEDL turns this on its head by positioning its apps as premium products with celebrity marquees.  That's certainly a unique strategy in tech. 

Their bet is that a small app library driven by custom content will be profitable on a per-user basis as users develop loyalty to what the MEDL brand produces.  I'm not sure that per-user value is the right metric.  If I were an app developer, I'd want to know which of my apps was the most downloaded so I could figure out which themes, styles, etc. drive an app category's ROI. 

MEDL's published financial results show the uphill climb they face with a business model focused on premium products and user loyalty.  Premium products have higher development costs, no matter what sector you're in.  Their SGA expenses more than tripled from 2009 to 2010.  Their focus on attracting marquee partners by promising back-end revenue sharing is interesting but I wonder if a lack of upfront revenue will diminish their staying power. 

Their unaudited financial results from 1H 2010 to 1H 2011 deserve a brief mention.  Consider that their revenue went from $295k to $952k in that period (good news), while net income dropped from ($12k) to ($208k) in the same period.  That's not so good news.  Net income that drops by a multiple greater than the multiple by which revenues increase signals troubling possibilities, that perhaps variable costs are hard to control or the company has to surrender more back-end revenue as app downloads increase.  These types of problems are only exacerbated by growth.  MEDL must seek some inflection point beyond which revenue growth turns into profits; a much larger app library with sub-premium brands and less generous revenue sharing licenses will help get them to that point.

Full disclosure:  No position in MEDL.OB or FORR at this time.

Alfidi Capital Exposes Chinese Domain Name Scammers

Attention all American business owners. Scam artists in China want to extort money from you with a non-existent threat of taking your domain name. I was recently targeted in this scam. I'm too smart to become the latest victim of Chinese criminals. Now I'm posting my response in public. 

Here's the first email I received. All emails are in italics below. 

Subject: Internet Domain Name And Keyword
From: Howard Zhong
Date: Mon, Oct 31, 2011 12:29 am
To: Anthony J. Alfidi

 Dear Manager,

(If you are not in charge of this please transfer this email to your President or appropriate person, thanks)We are a Network Service Company which is the domain name registration center in Shanghai, China. On Oct 31, 2011, we received an application from Hantong company requested "alfidicapital" as their internet keyword and China (CN) domain names. But after checking it, we find this name conflict with your company name or trademark. In order to deal with this matter better, it's necessary to send email to you and confirm whether this company is your distributor or business partner in China?

Kind regards

Howard Zhong

Office Manager

Shanghai Office (Head Office)
3002, Nanhai Building, No. 854 Nandan Road,
Xuhui District, Shanghai 200070, China
Tel: +86-21-6191-8696
Mobile: +86-182-2195-1605
Fax: +86-21-6191-8697

Needless to say, I was shocked when I read this message. I replied below.

Subject: Re: Internet Domain Name And Keyword
From: Anthony J. Alfidi
Date: Mon, Oct 31, 2011 10:31 am
From: Howard Zhong

Mr. Zhong:

Alfidi Capital is my business and I own the "alfidicapital" domain name. I have never heard of
Hantong Company and I have never done business with them. They have no legal right at all to register "alfidicapital" as a domain name in China. Please terminate their application. I would also like you to give me their contact information so that I may send them a strongly worded message to stop their behavior. Thank you for informing me of this matter.


Anthony J. Alfidi
CEO, Alfidi Capital

I soon received a response from the so-called Chinese registrant of the mysterious "Hantong Company," which may very well be owned by none other than Dr. Fu Manchu himself. ;-)

Subject: alfidicapital
From: HuangGarerth
Date: Tue, Nov 01, 2011 8:11 pm
To: Anthony J. Alfidi

Dear Sirs,
We are Hantong company based in Chinese office. We will register the "alfidicapital" as internet keyword and CN internet domain names for lifetime registration period. We have handed in our application and are waiting for Mr. Howard Zhong's approval. We think this name is important for our products in Chinese market. Even though Mr. Howard Zhong advises us to change another name, we will persist in this name.
Best regards
Gareth Huang

The arrogance of "HuangGareth" (however he spells his name is irrelevant to me) made me angry. I fired back a serious threat of legal action.

Subject: Re: alfidicapital
From: Anthony J. Alfidi
Date: Tue, Nov 01, 2011 10:21 pm
To: "HuangGarerth" <>

Huang Gareth:

You have no legal right at all to register this name. I will initiate a lawsuit against your company if you register "alfidicapital" in China, and I will win, which means I will end up owning your entire company. Once I own your company, I will terminate your employment. Alfidi Capital is my business, not yours.

Do you understand how much legal trouble you will cause for yourself if you do something this stupid?! 


Anthony J. Alfidi
CEO, Alfidi Capital

The first guy then emails me again with the following offer. Hmm, how convenient. A little too convenient by half. 

Subject: Re: Internet Domain Name And Keyword
From: Howard Zhong <>
Date: Wed, Nov 02, 2011 8:16 pm
To: Anthony J. Alfidi

Dear Anthony J. Alfidi ,

Based on your company having no relationship with them, we have suggested they should choose another name to avoid this conflict but they insist on this name as CN domain names (.cn/. and internet keyword on the internet. In our opinion, maybe they do the similar business as your company and register it to promote his company.
According to the domain name registration principle: Domain name and internet keyword which applied based on the international principle are opened to companies as well as individuals. Any companies or individuals have rights to register any domain name and internet keyword which are unregistered. Because your company haven't registered this name as CN domains and internet keyword on the internet, anyone can obtain them by registration. However, in order to avoid this conflict, the trademark or original name owner has priority to make this registration in our audit period.
If your company is the original owner of this name and want to register these CN domain names (.cn/. and internet keyword to prevent anybody from using them, please inform us. We can send you an application form with price list and help your company register them.

Kind regards

Howard Zhong

Office Manager
Shanghai Office (Head Office)
3002, Nanhai Building, No. 854 Nandan Road,
Xuhui District, Shanghai 200070, China
Tel: +86-21-6191-8696
Mobile: +86-182-2195-1605
Fax: +86-21-6191-8697

I needed something further to go on, so I asked him to send me price quotes. I wanted to have as much ammunition as possible for what I thought would be a long legal fight to put "Hantong Company" out of business and its proprietors in prison. Well, the quote sheet that Mr. Howard Zhong of Yi Guan Group sent me demanded astronomically high prices . . . over US$6000 for a "lifetime" domain name registration!!! I did some web searching on "China domain registration" and soon found the link at the very top of this blog post. It turns out that Chinese scammers quite commonly troll non-Chinese domain name owners and attempt to extort money from them for a completely unnecessary domain name registration in China.

I did not spend a penny on this action. My final response to my new Chinese wanna-be business colleagues is below.

Subject: Alfidi Capital Owns China
From: Anthony J. Alfidi
To: Howard Zhong and Gareth Huang

Dear Howard Zhong and Gareth Huang:

Read my blog post about your scam: 

I just made you famous. You are both seriously stupid morons if you think I'm going to fall for your scam, assuming you are in fact two different idiots and not the same idiot using two email accounts.

Go (expletive deleted) yourselves.


Anthony J. Alfidi
CEO, Alfidi Capital

Ladies and gentlemen, the moral of this story is quite simple. Don't fall for Chinese domain name registration scams. Check out every single unsolicited email you receive from unknown parties by performing multiple Web searches. Finally, and most importantly . . . don't ever try to rip off yours truly, Anthony J. Alfidi, CEO of Alfidi Capital.  

Tuesday, November 01, 2011

Alfidi Capital Open For Business During Oakland General Strike

The Occupy Wall Street movement is morphing into something that hasn't been seen in America for decades.  What started as a well-intentioned critique of unpunished fraud in the finance sector now has the potential to do as much damage to economic life in this country as any malfeasance on Wall Street.

Occupy Oakland has called for a general strike tomorrow, November 2, 2011.  Their stated intent is to shut down the Port of Oakland, one of the largest in the United States.  These activists fail to realize that the Port of Oakland is a vital transit point for goods headed to Asia.  The port exports an enormous amount of meat, fruit, nuts, cereals, and grains essential to healthy diets.  Even a one-day shutdown endangers the global supply chain for Asian retailers and will have unpredictable effects on the lives of American producers.  Any resultant food shortages in Asia will be the moral responsibility of Occupy Oakland's strike participants.  Any collapse in revenue from American exporters of food and finished goods will be on their heads as well. 

Loyal readers of this blog know that I have often criticised Wall Street firms myself.  I started my own firm as an antidote to the tainted investment products I saw from dysfunctional firms.  Entrepreneurship can solve whatever core problems afflict capitalism.  Activists who can't see the second-order effects of their actions will disrupt the economic lives of entrepreneurs who are not at all responsible for Wall Street's excesses.

Alfidi Capital will remain open through any general strike.  My business will never shut down due to social unrest or political extortion.  I stand in solidarity with other entrepreneurs and self-employed creatives who know how to make free market capitalism work.