But first . . .
- ‘I am a friend of John Kerry’s. I think he would be a good president. … I think he is resolute, yes. … I think he is strong enough to be President.’ [John McCain on ABC Nightly News yesterday]
- If we are so much safer . . . where is Osama Bin Laden? How does having so much of the world hate us make us safer?
- Maybe it’s just me, but I don’t feel safer.
And now . . .
Each share of Borealis (BOREF) represents roughly one share in each of its four semi-public subsidiaries, Chorus Motors (CHOMF), Cool Chips (COLCF), Power chips (PWCHF), and Roche Bay (RCHBF). I say semi-public, because these stocks trade rarely, in tiny quantities, and are relegated to the Pink Sheets. At recent prices, it would cost you about $30 to buy one share in each of the four . . . or $7 if you simply bought a share of Borealis, which owns a share in each of the four.
This is not to say that the subsidiaries are worth a collective $30. They may be worth zero. But better to lose $7 than $30, in that case. And if one of these companies did prove to be worth something – a big if, to be sure – that might suggest that the others aren’t scams or pipedreams either.
With that as background – and the full disclosure to newcomers to this column that I own a ton of this wacky speculation – I offer a recent communication to the shareholders of one of the majority-owned subsidiaries. Note that with 5 million shares outstanding, selling at $7 or so each, Borealis is valued overall at $35 million – the cost of a nice corporate jet.
Chorus Motors plc Letter to Shareholders
10 August, 2004
We now have product and we are tendering bids for specialty Chorus® Meshcon™ and Chorus® Star™ systems for major customers.
Please look at http://www.chorusmotors.gi/press/pr_040803.shtml for our most recent press release, relating to the new test data on our Chorus Meshcon motor system. These are very heady times for Chorus Motors plc.
We have completed the basic development of the Chorus Meshcon and Chorus Star technology.
We demonstrated in June 2003 a 1.5 horsepower motor and in June 2004 we completed development of a plug- and-play 20-hp Chorus Meshcon motor system. We are now in a position to be a substantial virtual producer of these motor systems that transform the engineering envelope for electric motors. Test results, posted recently on the Chorus Motors Website, show that a Chorus Meshcon system can produce at least five times more startup torque than a comparable conventional drive system, using strict criteria for a true apples to apples comparison.
This new capability means that motors (Chorus, of course) can now be used in many applications where previously no motor could offer the combination of high torque, small size and light weight required. The market for Chorus systems will thus be broader than the current market for electric motors as Chorus replaces not only conventional motors, but also hydraulic and pneumatic systems and even internal-combustion engines for many purposes. Indeed, we have spent much of the past year designing Chorus systems for highly-demanding (and in some cases novel) applications for major corporations. While it takes significant time for us to design and customers to evaluate these new systems, we expect that some of these designs will lead to large and multi-year supply contracts.
Let us give a little background on what has happened here from our viewpoint and perspective. With our working plug-and-play 20-hp Chorus Meshcon motor, we have in hand the culmination of decades of work by many research teams in the United States. For almost as long as the U.S. Department of Energy (DOE) has existed, it has been funding programs looking for a “better”, “more efficient” and higher-torque electric motor.
In our opinion, motor R&D has been very weak for decades. The main textbooks were written in the 1950s, and the really seminal work was done around a century ago and published from 1915 to 1917. Motor companies learned the hard way since the early days of spectacular advances in understanding and the ability to build motors that spending money on research was a waste – because for so many years it was.
In the late 1950s the advent of power silicon, and its capability to synthesize variable frequency power was the first serious advance in over 50 years. Initially silicon-controlled rectifiers (SCRs) came on-line in the 1960s, but they could not do a proper sine wave because they could not switch fast enough. The transistor had a faster switching speed, allowing pulse-width-modulation (pwm), but there was a problem: making variable frequency drives requires a microprocessor. So while inverters were available for motors in the 1960s, they did not become a major part of the supply chain and normal corporate offerings until the 1990s.
Partially this slow adoption was a result of the technology not being available. Motor companies were also slow to adopt electronic drives because they saw little competitive advantage in doing so. In this, they were basically correct: it took from the 1960s to today to make electronic drives relatively common. Nobody in the business today currently selling product into the market has a truly superior technology solution which gives them proprietary pricing, margins are thin, and strong profits are not to be found in this commodity industry.
Chorus started working in this business for three reasons: We saw that the industry did not aggressively research breakthrough technologies. We saw that the market size, at more than $100 billion yearly, meant that if something really special did come along there would be a superb opportunity to profit. Most important of all, we had a researcher who convinced us early on that he really understood AC electric motors at a level that perhaps no one since their inventor, Nikola Tesla, has even approached.
The few researchers left in the field are primarily academics, and they have done an excellent job of furthering the incremental advances still possible with standard brushless and AC induction technologies. These advances include better ways to control a given drive, better ways to make high-speed machines, and still-better ways to crowd out harmonics by simulating more perfect sine waves.
When we started making Chorus machines back in the mid-1990s, we set out to try to go back to the basics. So instead of working in an area which already had researchers (such as vector-field control), we went in an entirely new direction with high phase order machines and concentrated windings. Instead of minimizing harmonics, as everyone else was doing, we explicitly embraced them.
There is no surprise that nobody else went in this direction. Academics were not doing basic research any more, and nobody would have funded such work. Motor companies had learned not to invest in research anyway – and certainly not in something which would take time to pan out.
The best candidates might have been companies making inverters (certainly we have found that drives engineers have been the quickest to understand Chorus Meshcon), but their direct focus on immediate products meant that they would not invest in or invent a strategic shift such as Chorus.
So the field was left wide open, and we drove right in. This is why our patent coverage is so strong: nobody had previously understood what could be achieved with high-phase-order drives and concentrated windings.
In terms of basic concepts, Chorus Meshcon could not have been demonstrated 20 or perhaps even 10 years ago. The computing hardware was not there, and it is still not there in the digital signal processors used by most drive companies and researchers. We are using processors that are now inexpensive and common. But they had no equal just five years ago.
Our progress has certainly not been smooth. It has been painfully slow with many false hopes and starts. Now, over ten years later, we have developed Chorus Meshcon and Chorus Star. We have shown that our technology is superior to any other motor/drive in the world capable of the same torque-speed profile. And Chorus Motors owns 100% of this proprietary patented technology.
Instead of trying to work with new materials or a new control paradigm, we have cheerfully adopted all of the excellent incremental work done in the three-phase world. We use standard materials, standard bearings, and standard control modules. This is why it is possible for Semikron® Limited to make our drives, and a normal motor manufacturer can wind a Chorus machine. Our building blocks are the same – we just think about the way those blocks should be assembled differently from anyone else. And what makes it all so much fun is that our motors and drives outperform any other system and we provide a huge increase in the size of the available engineering envelope.
We are currently bidding on several large orders. We are increasingly confident that the adoption of our science will be quick, as our technology allows companies to increase their engineering envelope and thus opens new and huge markets for electric motors.
Again, we are initially going after the high-value sales. Chorus Motors is becoming a spectacular business.
*Our Organizational Structure*
Chorus Motors plc is a public quoted company trading under the symbol CHOMF. Chorus Motors is a majority-owned subsidiary of Borealis Exploration Limited. Our immediate parent is Borealis’ 98%-owned subsidiary, Borealis Technical Limited, which owns all patents on the Chorus Star and Meshcon technologies and has licensed them exclusively to Chorus Motors plc.
Chorus Motors plc has 10,000,000 shares authorized and, at fiscal year-end, had 6,396,467 shares outstanding, of which Borealis owned 5,222,672 shares, or 82% of the total. Both Borealis and Chorus Motors plc are incorporated in Gibraltar.
Our headquarters and legal domicile are in Gibraltar, Chorus Motors operates as a virtual company, and the Internet plays a dominant role in our day-to-day work. It is the means by which we manage our businesses, discuss new ideas, and promote ourselves to the outside world.
Modern communications technology has allowed us to circumvent the traditional problems associated with working on four continents and twenty time zones. Because of this, we have access to facilities and personnel about which a company of our size would normally only be able to dream.
Chorus has consultants around the world, all of whom work over e-mail. Management and technical discussions take place over the Internet. Chorus Motors runs a continual Board of Directors meeting 24 x 365, with an annual traffic of well over 3,000 messages to each board member. Chorus has intense direct participatory management, and many consultants to the Company sit in on the board meetings and provide input even while they are not voting members.
Our Website, www.chorusmotors.gi, makes information about our technology available, and informs shareholders, other companies, and the general public about Chorus Motors. The Website is frequently updated, and our major disclosed technologies are described on the site in detail. Additionally, Borealis sends out a weekly update (as well as daily share trades with its prices) to shareholders and to all the major news organizations and other interested parties, detailing Chorus’ ongoing work and progress (please e-mail firstname.lastname@example.org if you would like to receive these updates). Through this wide distribution, we are able to keep people better informed than through traditional channels.
Your management uses this technology to maintain a close relationship with our shareholders. This virtual company structure is great to work with and allows us to have many people directly involved in the decision-making processes at Chorus. This approach may not be conventional, but the results to date have validated the business structure.
*Patents and Intellectual Property*
Borealis Technical Limited so far has been granted a number of patents for its Chorus Motor and Meshcon technologies, and we are applying for additional patents as our continuing research warrants. In fiscal 2004 we were granted three new patents related to Chorus’ technologies. We have recently, for example, received patents covering the winding of electric motors and the Meshcon and Chorus technologies; we believe these are among the most significant patents granted for electric motor technology in almost a century.
We are confident that some of our patents will be judged by the courts as “pioneer” patents, reflecting the fact that they represent a technical revolution in the motor field. Pioneer patents are those to which most later patents in a field make reference, or on which later patents build by adding new improvements to the field. Because pioneer patents represent the result of groundbreaking scientific discoveries or development, the courts have found that they merit a wide breadth of protection in construing their claims and specifications.
Because our scientific discoveries and technical advances are the core of our business, we are very careful about protecting these assets. Patenting and otherwise protecting our technologies is an important activity at Chorus and consumes a considerable portion of our resources. We have developed a valuable library of intellectual property and we intend to protect it vigorously.
Chorus Motors plc also owns 100% of a technology, which we have not previously disclosed, and to which we refer internally as “DeepG”. The U.S. Patent and Trademark Office has approved this patent for issue and we are awaiting its formal issue. This patent is very long, and it covers the basic control technology of generator systems known in the trade as “gensets”. We expect that the technology covered by this patent will enable motors operated as generators to operate with radically improved efficiency and sharply reduced energy consumption.
If properly managed and marketed, this technology will generate significant revenues for a very long time with virtually no capital investment in plant or equipment. We have worked on this technology for about 10 years, and we are now considering alternative business models for capitalizing on the technology. One option under consideration is to give the product away in return for 18% of the user’s monthly fuel savings. The profitability will be very much a collection issue but, like Microsoft Corporation, we believe that we can manage a product that has basically no manufacturing cost but generates substantial licensing revenue.
We initially expect to get paid through license fees by the large companies using the technology and hopefully we can get paid by most users of this technology worldwide. It should be noted that this is another stand-alone business with huge revenue and profit potential coming from our long-standing on-going research efforts worldwide.
Chorus Motors plc has all its bills paid by Borealis Technical Limited and as such has noliabilities of any kind. In return Borealis Technical Limited will receive 50% of the sublicense revenue and 8% of all other revenue generated by Chorus Motors plc.
All proceeds from private sales of Chorus shares are due back to Chorus Motors plc and these totaled $9,504,030 at fiscal 2004 year-end, compared with $7,038,069 for fiscal 2003. Stated another way, Chorus Motors plc has accounts receivable of $9,504,030 and no accounts payable, and no long-term or short-term debt.
Borealis Technical Limited collects $64,800 in annual management fees and the cumulative loss to date for your Company is $324,000.
The fiscal year ended 31 March 2004 was very active, with continual major on-going advances in our technologies. What is very unusual is that our pace of scientific advance is, if anything, speeding up.
The fiscal year-end 2004 showed 6,396,467 shares outstanding compared with 6,044,289 shares outstanding for fiscal 2003.
As Chorus Motors plc has no debt or other obligations, the Company is in an excellent position to pursue its business in an industry that has long been very immune to any change.
The technical advances have continued year in and year out and are now really picking up. With the business model we are using of the Chorus Club, we expect a very long life for our continued scientific advances. We now have products to sell and are working intensely to do so. It is difficult to make any sales in such a stable industry. That said, because of our financial structure and position, we can continue our scientific advances and development work for many years until this industry finally adopts our technology.
We thank everybody for their help and for their support. This has been a long tough road to run down, where we have made many mistakes, gone down numerous technological dead ends and have finally arrived at the other end vastly enlarging the engineering envelope for electric motors.
Changing basic industries is not easy. The motor industry will only change as we go directly to the industry’s customers and provide them with vastly improved product at competitive pricing.
When and if we are allowed to talk of the business we are generating all of our shareholders will be very pleased with our customers and our partners.
Chorus Motors plc owns the proprietary and patented technology that will be the dominant technology in electric motors for generations to come. In the long run, we will dominate this industry. We want the long run to begin in as short a time period as possible.
Thanks again for your support, your help, your brilliance and perseverance in the face of many obstacles in getting this family of technologies from a gleam in our chief scientist’s eye to market reality.
Chorus Motors plc
Rodney T. Cox, Chairman and CEO
Isaiah W. Cox, President and COO
☞ My guess is that at least THEY believe all this stuff – and that’s something. But as always: only for money you can truly afford to lose.
Quote of the Day
That I'm their competition.~Famed hedge fund manager Michael Steinhardt, when asked the most important thing an investor could learn from him.
Request email delivery