Flex Fuels Energy, Inc. (FXFL-OTC: BB)
January 15, 2010 Issue
The Most Powerful Name In Corporate News and Information
Focused On Creating Value For Their Shareholders, Flex Fuels Energy, Inc. Is In The First Year Of A Three Year Turnaround Plan That Now Has Them Focused On The Financial Arena And A New Derivative World Currency
Flex Fuels is an Intellectual Property
development Group with technology interests in the UK and mining exploration
activities in British Columbia, Canada.
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – January 15, 2010
Mr. Barr: Flex Fuels Energy came to market in 2007 intending to build an oil seed crush and biodiesel plant in Cardiff, Wales. Unfortunately, the funding environment and the biodiesel environment deteriorated in early 2008, but even if the plant could have been funded, which it probably couldn’t, it would offer little or no value for Flex shareholders. As a result there was a bit of a management dispute, which was resolved in late 2008, and resulted in a new board and a new strategy for the company to build value in the intellectual property area.
CEOCFO: What is the grand plan for Flex and where are you in the process?
Mr. Barr: We are into what we consider a year into a three-year turnaround plan. We have closed down the Cardiff plant in Wales, because the project there offered no value. We have entered into the first of subsidiary investments, which are very tightly managed, in the intellectual property area. This first investment is in the financial arena and it is derivative currency developed by a company called the WDX Organization Limited, based in the heart of the City, in London, England.
Mr. Barr: You are absolutely right; we have probably had about 25 to 30 opportunities across our desks in the past year, since taking over in December of 2008. We chose WDX because it offered, for around 15% of our cash resources at that time, an absolutely astounding growth opportunity, if it can be made to happen. We considered that we could add a few items to the company that needed to be in place to give it the opportunity to develop. Conventionally it would probably be considered unfundable but we have worked closely with WDX to support them in line with out active management philosophy, added in sales and financial skills. As it stands now the opportunity is well developed and could be absolutely enormous if it can be made to happen.
CEOCFO: What’s going on at WDX?
Mr. Barr: In summary, WDX is producing a derivative world currency. This is an unmet commercial need. Obviously, they don’t plan to print any notes or mint any coins; it is a derivative currency quotation. Basically it is basket currency, and that is nothing new in the financial world. There are many large corporations that can go to their bank and get a bespoke basket currency product developed for them so they can spread their currency risk over their international operations, but this is the first fungible, where one unit is interchangeable with another, basket currency that is available in real-time. It is called the Wocu™. What WDX do is take in the currency pairs of the largest twenty economies in the world, which is roughly the equivalent to G-20, but not quite. Then they weight them by their economic importance as measured by IMF GDP figures, and from that algorithm they output in real-time the Wocu quotation against all other currencies. This has the massive advantage of being a very, very low volatility instrument compared with traditional currency pairs.
CEOCFO: What has WDX developed that is not available elsewhere?
Mr. Barr: Basket currencies are not a new idea. I believe there is a Chinese basket currency that is basically an intellectual idea knocking around over in the Far-East, however, it is not based on the calculation and algorithm that WDX use. The principals behind WDX are ex-Reuters, with a very strong financial background have been developing this on an intellectual basis for about ten years. It is very well received; people in the city like it, people in finance like it, corporate treasurers like it because it reduces risk at a much reduced cost. As an intellectual principle it has existed for a long time. What we have done this past year is fund the development of that intellectual idea to a commercial reality.
CEOCFO: Is Wocu ready to go to market?
Mr. Barr: Yes it is. You can see the quotation on www.wocu.com. It is available for free in real-time for a limited period until we go live commercially in 2010. So the quotation is real and that is being outputted. To make the Wocu a commercial reality we need to put in relationships with global banks; we are currently in talks with a number of global banks to create pools of liquidity in the Wocu, i.e. creating accounts enabling corporations to trade this product as a currency. We are in talks with various derivative exchanges with a view to letting them create the derivative products, which are necessary to hedge the Wocu and speculate upon it, to create an orderly market around the Wocu. We are also talking to many interdealer brokers and other financial players to create the peripheral products around the Wocu.
CEOCFO: Is the current economic situation helpful in getting this launched?
Mr. Barr: That is a very good question! Yes it is. It was a bit more prevalent a few months ago at which time you could hardly open a paper or look on a financial website without seeing speculation around global currencies and the need for a global currency because of the currency volatility with the financial meltdown of the last year-and-a-half. Yes, there is a great need for it. Comments we have received from financial and industry players are largely along the lines of “your time has come”. So the time is definitely right for it.
CEOCFO: Does the fact that Wocu is not coming from a government or official entity make it easier or harder to gain acceptance?
Mr. Barr: We think easier. It is an economic need, a commercial need and I will always trust the market to better fill that need rather than governments who have to come to an agreement about something. The Euro is a long time in coming and even that is starting to look a bit shaky now. Whereas the Wocu is a commercial solution, a market solution to the commercial need and it automatically balances itself for the rise and fall of economic power of different countries and different currencies. So as China, for example, increases economic power, its prevalence within the Wocu calculation will grow automatically, making the Wocu a very stable, commercially driven currency instrument.
CEOCFO: What is the revenue model?
Mr. Barr: The revenue model has three strands. From banks, we aim to take a basis point fee out of trades conducted in Wocus. And we are talking about the largest pie in the world here - various figures are quoted, but in dollars about $2.3 trillion of world trade per day. So we aim to take a small basis point fee out of the bank transactions, which would be invisible to the corporate transactions. It would come in the banking fee, but the volume is so great that the revenues are potentially very large. We also charge an algorithm hosting fee. Secondly, with the derivative exchanges, for products based upon the Wocu or quoted in the Wocu, carbon is one we are looking at, because a global problem needs a global quote, and Gold and Oil are also obvious. We would take a small fee in the size of cents, or pennies in the UK, from the per lot transaction fee that the derivative exchange will charge the trading client via the clearer and broker. Thirdly the quotation itself; FTSE is a very good example of the model of charging screen fees. These are basket equity quotations and FTSE does very well on that. So we anticipate putting out the spot price of the Wocu, and will also engender good fees on the screen fee.
CEOCFO: Do you have some other ideas for this technology as well?
Mr. Barr: Yes we do, and in some places the people come to us. We are currently in talks with a Far-Eastern player with potential of producing an Asian currency quotation, based on the Wocu methodology and technology. We have submitted an application for a US patent that we think will protect us worldwide, because everything has to go over a US global financial network. That is one thing we are looking at and the other is a global stock market quotation, balanced for currency volatility. There are global stock market quotations now available, but with the Wocu and with the protected technology method of the Wocu calculation using the WDX algorithm, we also have the potential of quoting an equity index on a currency balanced basis, say the top 500 corporations in the world. This will be a very useful tool in which to base some hedging instruments for global fund managers. So we anticipate that is going to be quite popular.
CEOCFO: Will the patent protect you against competition and perhaps some major organization realizing that this is great and attempt to copy it?
Mr. Barr: Yes, when we entered this it was fundamental question. We entered the WDX funding on the basis of a loan, in phases. However, we always said to the principals of WDX if we see major competition emerging while we are in the formative phases we will pack up and walk away, because we are not about to compete with a Global Bank or some other massive financial player. Our idea was to be the first mover and protect by establishment and perhaps not patents, because we thought it was kind of unlikely that we could protect at that stage, but we could protect our intellectual property by establishment. What we discovered, and we are talking to major players in the world’s financial centers, is nobody else was doing this, which was very comforting. Secondly, the major difference now is that we have got the US patent application submitted. We cannot submit an application in Europe because it is not a “thing” as such; it is a method and technology. But in the US you can and the way we look at it is that this is a global product and it will pass over US servers and US financial networks. As such we believe and our patent agent believes that if the patent is granted will protect us against globally, effectively.
CEOCFO: What WDX/Wocu’s potential value for Flex?
Mr. Barr: People have asked me this question. To be brutally honest if we don’t get it off the ground and we believe we are doing everything right to get it off the ground at the moment, certainly all the signs are very encouraging, but if we don’t get it off the ground, what I can say with an absolute certainty is that it will be worth zero. On the plus side and obviously we are working at the plus side because we intend to commercialize this, but we cannot model how big the Wocu might be. It would be disingenuous of me to suggest that we could model what it might be worth, but it is self evident that the owner of an effective World Currency, and we own around 75% of WDX at the moment, will obviously be in control of a very valuable asset. We have not figured it out yet, but it is tens if not hundreds of millions if it is successful.
CEOCFO: It is certainly worth the risk!
Mr. Barr: Yes it is. So we will invest under the original agreement, about 600,000 pounds sterling. It is likely we will invest slightly more to accelerate it. We are very encouraged about where we are now, so yes, as on risk/reward basis we are shooting for the moon to some extent. However, this could be absolutely enormous if successful and we have no reason to believe it won’t be at the moment.
CEOCFO: What else are you looking at in the intellectual property area?
Mr. Barr: We have a considerable cash balance, which is inherited from the original plan, the abandoned plan to build the crush and biodiesel plant. We plan to apply portions of that to different prospects. It is probably going to be two perhaps three, and the first one is WDX. We currently expect to conclude a deal early next year in another area of intellectual property in the medical device field, which is much lower risk, but under our investment criteria has, in isolation, the potential to make the company. So even if the Wocu didn’t get off the ground, but there is no reason to believe it won’t, this other opportunity is also enough to what I define as make the company, which is to get it back to a share value of about 90 cents. That is my first target.
CEOCFO: Would you tell us about your Malibu Gold property and why you have a gold property?
Mr. Barr: It is a good question. It certainly doesn’t fit in with the IP strategy. It is an historical asset. It was the original asset within the company under its former name Malibu Minerals Inc, and we have not spent a lot of money on it. We have to spend a little bit to maintain our ownership of the claim. It is an interesting gold exploration prospect north of Vancouver. We have done some studies on it, early-stage, and there are high gold values of interest on the property. For us to develop it further requires a further investment, which we probably will not do in the near-term as it is not in line with our core strategy. But we are looking at all options for the Malibu Gold; it is in our books for zero, so it has only got upside. We are looking at all options including divestment, partnering, etcetera.
CEOCFO: There are some legal issues that are still ongoing at Flex; where do you stand now?
Mr. Barr: Like I said we are one year into a three-year turnaround plan and that first half of the year roughly could be considered to be dealing with the historical issues. For example we bought back 35.8% of our shares for around only $200,000 from the original founders of the failed biodiesel project, who I believe had a fundamental desire to see that the remaining shareholders could benefit from the new strategy going forward, which I thought was a pretty decent thing of them to do. Secondly, we have got some legal history, which isn’t a problem; it is all discretionary now. Last year there was a huge fight between myself and the former CEO, who wanted to progress the biodiesel plant. We since examined that and it was not commercially viable for Flex. It would not have returned value, so we did the right thing by having a fight. Unfortunately, that fight probably wasn’t conducted on a level playing field and I was walled off from the company, by both the former CEO and our former lawyers. We are currently considering action for recovery from the lawyers for the fees that were sucked out of the company in the process and the money that was wasted. That is quite a considerable sum, considering that we have also been considerably damaged by it. We are not going to let it drop - we will pursue this.
CEOCFO: You are still trading under Flex Fuels Energy name; when and how will that change?
Mr. Barr: Flex Fuels Energy, Inc. doesn’t reflect the company’s strategy going forward, so you are right, there is a plan for name change, which we will probably conduct early next year. However, we still for now trade under Flex Fuels Energy, Inc. under the ticker FXFL and the trading opportunity is quite interesting.
CEOCFO: Lay it out for investors; why choose Flex?
Mr. Barr: It would be wrong of me to give investment advice, but at the moment we are trading around 6 cents. Our cash value alone is around 15 cents, so that is a fundamental fact. This discount is probably due to the damaged sentiment because of the fighting of last year and the damage that has been caused to the company. Secondly, we have a very, very exciting opportunity in WDX. In a different market, say of a few years ago, we would probably have been valued at ten times our cash alone for the potential of the Wocu and WDX alone, but we are not in that old market. We also have the medical device diagnostic opportunity very well known to us. We know the principals very well. They want to work with us, we want to work with them, and they have done it before. So, with WDX and this other opportunity there is a matched set of intellectual property opportunities, both of which have huge upside. We are also taking action for the recovery from damages from our former lawyers, assuming we can protect the company and we are not putting the company through unknown additional risk by doing so. We think there is a method of doing this on a contingency fee basis and after the event insurance, so we can manage that quite well. In summary, discount to cash, more than enough cash to see us through our defined strategy, so far one and potentially two very, very exciting opportunities. Personally, I don’t think it gets much better than that.
CEOCFO: Final thoughts, what should people reading about Flex remember most?
Barr: When they
read it they should look at the detail of what we are saying about the Wocu
and WDX, look out for more detail on the next deal we expect to enter
although I caution it is it is not completed yet, but we expect to, and the
discount to cash. If you are going to buy something, then buy it for less
than it is worth, I would say.
In summary, WDX is producing a derivative world currency. This is an unmet commercial need. Obviously, they don’t plan to print any notes or mint any coins; it is a derivative currency quotation. Basically it is basket currency, and that is nothing new in the financial world. There are many large corporations that can go to their bank and get a bespoke basket currency product developed for them so they can spread their currency risk over their international operations, but this is the first fungible, where one unit is interchangeable with another, basket currency that is available in real-time. It is called the Wocu™. What WDX do is take in the currency pairs of the largest twenty economies in the world, which is roughly the equivalent to G-20, but not quite. Then they weight them by their economic importance as measured by IMF GDP figures, and from that algorithm they output in real-time the Wocu quotation against all other currencies. This has the massive advantage of being a very, very low volatility instrument compared with traditional currency pairs. - Tom Barr
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