Worthy. Wonderful Photographer in Cuba

Nine Questions for Arien Chang Castán, a Photographer from Havana

A small portrait of Firuzeh Shokooh Valle

Arien Chang_Ciudad

I was looking for someone. After my first foray into illustrated interviews, I wanted more. So, my editor Solana Larsen suggested a friend, Arien Chang Castán, a photographer from Havana, Cuba. As soon as I saw his beautiful website filled with old people, seas, solitudes, cities, colours, darknesses, I wrote to him.

The questions in this interview are based entirely on what I observed of his photos and what I read about him on his website. The questions, and answers, were given in an email exchange that took several weeks. I would need more time and closeness to be able to describe and tell the story of Arien Chang, but in the absence of this, below, a photographer in/from Havana.

Global Voices (GV): Tell me the story of your last name. 

Arien Chang (AC): My grandfather came to Cuba as an illegal immigrant in 1927. He moved to Old Havana, very close to where I have lived my whole life. He started out in the business of casinos, gaming houses, bars, he even joined a political party that brought together many Chinese immigrants that, like him, had come to Cuba with the hope of new opportunities. Some had even used Cuba as a bridge to cross to the United States (a bridge that we still use…) Of course, working and living in Old Havana, he fell in love with a mulata, who ended up being my grandmother; hence the mix of races and the last name.

Chang is one of the most common family names in China. I had the opportunity to verify this first hand in February, thanks to “Red Gate,” a well-known institution that offers grants to artists from all over the world. For two months I was working on my project, which involved trying to find my roots, the place where my grandfather was born and raised – not because I feel rootless or that I need to find an identity in China, but rather because of the impatience that pursues us and makes us believe that we exist, simply, because we know where we come from.

As a photographer I’m always looking – in my house, in my neighbourhood, in my country – for a new image, a new concept, something that indicates why we exist, where we are going. Photography is my medium and my last name might seem exotic on this island, but that’s what is magnificent and photogenic about Cuba: the races, the ages, the history of a whole people are mixed together in its streets. And what’s more, in Cuba we use two family names, the father’s and then the mother’s. My second family name is Castán, which comes from Arabic, and that’s a whole other story of roots and immigrants.

Arien Chang_Bailarina

GV: Photographer, why? 

AC: I don’t think there is a ‘why’, but I can tell you a bit about how I started, how my life, or rather, how photography changed my life or how my life became photography.

It all started during the hot summer of 2003 (not as hot as it is now), in the América Theatre, a spectacular construction representative of Art Deco, in Galiano Avenue in the centre of Old Havana. They were offering a photography course, along with other unrelated courses like massage and hairdressing, but I just wanted to learn how to use a camera (in those days I didn’t even think about light). It was a very basic course, but in it I finally learned how to use the Russian camera that my father had brought from the Soviet Union, it was a Zenit that had been in a drawer in my house since I was little. I used to play with it and move its controls, it all seemed very fun, of course back then I never imagined that photography would become my life, but I already knew that I liked having a camera around and pushing the shutter.

When I finished the course in the América Theatre, I discovered that I did indeed know how to work the controls but I didn’t know a thing about taking photos. Since I’m a bit stubborn and when I get my mind set on an idea I have to do it, I discovered that the best school for me was on the streets of Havana. Documentary photography is what I wanted to do, what I have done and will continue to do; I’m a photography addict and it’s too late to fix that, now all I can do is surrender myself to this addiction and feed it each day with more work. Photography exists and people can see it, but it must be discovered.

GV: Cuba has been the object of countless photographers. So many that it has developed an image difficult to reinvent. How do you photograph Cuba from the inside?

AC: Photographing Havana from the inside is very easy… you just have to have a Libreta de Abastecimiento (ration booklet) and permanent residence, an ID card or anything that allows you to live here for a while.

The life of a Cuban is not reduced to going to work in the morning and coming home in the evening, people in this country go through an odyssey every day. They are constantly tried by the dynamic of life that we have in this country, to put a name to it. The (non-)transport, the (non-)money, and all the other “nons” that each Cuban faces every day leave marks on their faces, in their clothes, in their spirit, sometimes of desperation, sometimes of fun, but they always reflect a story that if you don’t live it yourself or you don’t know how to read it, you can’t take the photo. We can add to this the incredible architecture, that as we all know is frozen in time and sometimes makes us believe we are in the 40’s. It is this apparent disguise that makes Havana easy and not-so-easy to photograph. This damned Havana is a double-edged sword, which I thank for who I am and what I do.

To create an image you must live it, you must suffer it, and that is why you can sometimes find photos of Cuba that are very well composed, with an impeccable use of colour and light, but at the end of the day they are empty, they are nice little postcards, because the photographer cannot go beyond the impression that Havana makes at first contact.

You have to touch Havana every day, handle it, enjoy it, you have to understand it.

Arien Chang_Viejo

GV: Why take portraits of old people?

AC: For their experience, their tranquility and their wrinkles.

Old people don’t mince their words, they have lived enough to have nothing to lose. In my photos you can see sweet expressions and also looks of hate-disgust at having the lens pointed directly at them. Elderly people, like children, say what they think, they act and get by without fear of the future, because the future for them is already the past.

The series “Longevity”, which I started to develop a few years ago, consists of taking photos of people over 100 years old. A century is a lot of history, even for a country, someone over 100 years old sometimes has less to say with words than with their feelings, expressions.

Old age is intriguing, I don’t expect to live long enough to take my own self portrait and add it to the series; but to photograph someone over a century old is always impressive for me.

Arien Chang_Malecón

GV: Tell me about the sea.

AC: It’s impossible to ignore the sea in photography, especially if you live your whole life on an island. Since I was a kid I would escape from school with my friends to go and swim at the Malecón (waterfront esplanade) and like me, generations and generations of Cubans have grown up using this coast-beach, full of reefs, dog-tooth (sharp rocks), as we call it here. Getting to the Malecón, taking off your school uniform and throwing yourself from the highest, most dangerous, deepest part, is less an action than a sense of belonging, a power relationship, you use the sea, sometimes it uses you. Thousands of accidents have happened on Havana’s Malecón, but even so, no-one is afraid of it. The Malecón, or “el Bleco” as we neighbourhood locals affectionately call it, is there and always will be, sometimes calm and sometimes agitated, like the idiosyncrasies of Cubans themselves. It has learned to live with us and us with it, though I hope that the prohibition on swimming at the Malecón doesn’t last.

I miss the sea, when I don’t see it for a few days I miss it, my whole life it has been near me, near my city. The Malecón series, the one that carries the name “el Bleco” in honour of my childhood, is my reconciliation with this city, with this country. It is a debt that I owe it for being Cuban, for being from Havana, for living in it for part of my childhood, my adolescence, for being part of my life.

GV: Black and white or colour? 

AC: I don’t think I could choose one, that would be like choosing between two pretty girls, the difference is that I don’t have to choose just one, I can stay with both and be happy.

When I started out in photography my work was all in black and white, analogue and processed in a “laboratory”, that is, the room where I was born on the corner of Monte and Ángeles streets, without any way to close it off, often without water; but with a good enlarger, from the beginning of the 20th century, which allowed me to do my own prints, control my own image from another perspective. There I learned more than anywhere else about lights, shadows, composition and I really enjoyed doing the whole process to my photos.

I spent seven years doing just black and white, even when I made that much-feared change to digital, I still didn’t use colour. It’s only in the last few years that my photos have started having “some” colour. I have always believed that colour is a very difficult technique in documentary photography, the dramatic quality of a black and white photo is always more attractive; but the use of colour when it is necessary, when the image practically cries out for it, has an undeniable strength. But, really, when you see photography you can tell when it is in colour and when it is in black and white. It’s only now that I am trying to understand the language of colour, translate it, I am searching for a personal style; always basing myself on those years that I worked only in black and white, but that helped me begin to understand colour in a different way, I’m trying to reinvent it in these colourful streets of Havana.

I can say that recently I have developed a certain fetish for colour, I really like it a lot and I don’t know… the black and white phase hasn’t ended but I think that in the future colour will predominate my work, that’s my intention.

Arien Chang_Ventana

GV: A bleeding window?

AC: That bleeding window only has one culprit: The Havana Biennial. This kind of big party was happening at that moment, with artists on the streets of Havana, where they intervene in spaces with different art forms, I simply passed by that street, that house. The bleeding window, a coincidence, I saw the image, the dress, the sandals, the contrast of colour with the window, the yellow wall, so I took the photo.

If the window had been another colour or hadn’t been bleeding, or the woman hadn’t been there, maybe I wouldn’t have taken a photo or maybe I would have, but of course, it would be a completely different one. I didn’t seek it out, the window came to me and that is what’s incredible about documentary photography, the spontaneity of the moment.

Arien Chang_BN

GV: Solitude permeates your photography. 

AC: That’s an interesting question because no-one has ever spoken to me that way about my photography. I just do photography and that’s what I see, maybe it’s the solitude and abandonment of this city that has so many needs, so much history, so many bad memories, and good memories too, but those are secondary.

Solitude, you say, permeates my photography, but being a documentary photographer is a kind of solitude too, it’s a way of being alone, even when you are surrounded by thousands of people, only you know what you capture with your camera that only you can control. What can I say, there are people who are solitary, sad, bitter, just as there are people who are happy, fun, sociable; I simply try to capture their feelings, the stories that they drag around often without realizing that in the way they walk, talk, move around the world, they carry their own load, their own particular solitude.

GV: What is your relationship with the city, Havana?

AC: I really feel as if I were wearing pijamas on the streets of this Havana that has watched me grow and that I am constantly looking at and looking at again and rethinking. I get home, after a whole day of moving around out there, and then, instead of resting, I take my work home because at the end of the day that’s what we photographers are, slaves to our own way of life. I download the photos, I edit, I edit again, I look at them, look at them again, you never know what surprises Havana has in store for you. Sometimes I feel like I violate her, that I am taking advantage of her, that I use her for my own good, but in the end I always thank her with my photos, or at least I try to.

Rediscovering Havana is my main project, my constant aspiration, because sometimes just going out onto her streets is not enough, you have to go into her houses, go up to her roof terraces, talk with her domino players, with the ones who have fighting cocks, with the woman who sells on the corner, and the child who plays ball. In short, my relationship with Havana is very simple: to wake up every day and go out…


Vignoles–Ravat 51

Looks very good.

If I have trouble importing Torrontes vines.

Widely grown NY State, Indiana, Missouri. Often termed cross between Pinot de Corton and Seibel 8665

But that may not be it. Genetic markers say nay.

parentage unknown. Previously thought to be from Ravat 51,  Seibel 8665 x Pinot de corton, but studies of genetic markers demonstrated this was inaccurate): cold hardy, moderate vigor and productivity, compact clusters, susceptible to bunch rots, makes a fruity, sweet wine.

Genetic marker  tests:

We tested several accessions of Vignoles (Ravat 51), an important parent in the Cornell grape breeding program. They were found to be identical and the data were consistent with Vignoles being a parent of a particular selection (data not shown). However, this study shows neither of the reported parents of Vignoles (Seibel 6905 x Pinot de Corton, a clone of Pinot noir) could be a parent of Vignoles (Group G). To the best of our knowledge, the two parents are correctly identified; therefore, it may be possible the tested Vignoles may not be Ravat’s actual selection 51.

Conclusion: Markers exclude both Pinot noir and Seibel 6905 as parents for Vignoles, though these are the reported parents.

In any case had good characteristics. 105 days from blood to harvest. But skins are tough. Can hang until November.


Vignoles grape

Only one grower in Canada.













Fielding Estate Vignoles 2010 ($35 for 200 ml, 92 points, only 38 cases made)

fielding vignoles


Like sticking your nose in a bowl of honey and lemon chiffon. Such a defined lemon-lime nose with fresh pineapple and honey notes. It’s textured, luxurious and concentrated on the palate with sweet lime pulp, candied citrus and red apple flavours to go with nice acidic structure, honey and length through the finish. A real treat.


The major role for GMO’s is to sell poisons to famers

Don’t believe the crap that Monsanto really wants to feed more people. It wants to get rich by selling poisons. And it’s working. As plants develop resistance. farmers need to buy more product to get the same effects they used to. Add after they’ve done this for a few years, or decades, they forget how they used to get more crops than they now do–but without poisoning the earth. As Philpott says below:

But there’s another sense in which stakes are high indeed. The industry’s core traits, herbicide and pesticide resistance, have proven vulnerable. Nearly half — and growing — of all U.S. farms are plagued by weeds resistant to Monsanto’s herbicide Roundup, and farmers have responded by jacking up their Roundup doses and adding to them older, more toxic herbicides. Meanwhile, a pest called the western corn rootworm has evolved resistance to Bt corn.

  This is a great response to someone who said we pay too much attention to GMO’s.

Crop flops: GMOs lead agriculture down the wrong path


Harvester rejected GMO corn crop
Martchan / Shutterstock

Editor’s note: After we ran What I learned from six months of GMO research: None of it matters, Nathanael Johnson’s essay concluding his “Panic-Free GMOs” series, we heard from a lot of people who think that GMOs really do matter. We’re publishing three responses: one from Denise Caruso, author of Intervention: Confronting the Real Risks of Genetic Engineering and Life on a Biotech Planet; one from Ramez Naam, author of The Infinite Resource: The Power of Ideas on a Finite Planet; and — to kick things off today — one from Tom Philpott, whose work long graced these pages and who is now at Mother Jones.

Before I respond to Nathanael Johnson’s assertion that the “stakes are so low” in the debate over GMOs, I want to address a smaller point. “The debate isn’t about actual genetically modified organisms — if it was we’d be debating the individual plants, not GMOs as a whole,” Johnson writes.

That’s a good place to start: actually existing GMOs. What traits are on the market today, in use by farmers? First, I’ll note that there’s no shortage of land devoted to GMOs. Since the novel seeds hit the market in 1996, global GM crop acreage has expanded dramatically, reaching 420 million acres by 2012, reports the International Service for the Acquisition of Agri-biotech Applications. That’s a combined landmass more than four times larger than California. The pro-GMO ISAAA hails this expansion as “fastest adopted crop technology in the history of modern agriculture.”

Yet, for all of that land devoted to GMOs, there are just two traits in wide use: herbicide resistance and pest resistance (Bt). Note, in the below ISAAA chart, the “<1″ at the bottom. That represents the percentage of all global GMO acres planted in crops that aren’t either herbicide- or pesticide-tolerant: that is to say, less than 1 percent.

clive james biotech acres

Now, one might ask: But isn’t the industry on the brink of rolling out wonder crops — new varieties that are more nutritious, or use water more efficiently, or need less fertilizer? One way to tell is to peek into the U.S. Department of Agriculture pipeline of new GMO products being considered for deregulation. Here we can expect to find the stuff the industry has tested and found rugged and ready for field conditions. What’s in there? Thirteen products — nine of which involve herbicide tolerance or insect resistance.  Of those nine, five are engineered to resist two herbicides — a dispiriting trend I’ll explore more below. The others are an apple variety engineered not to brown, a eucalyptus designed to resist freezing, a potato charged with bruising less easily, and an alfalfa type meant to contain less lignin.

Something tells me that none of these novelty items are destined to crack ISAAA’s <1 percent box.

It’s true that rice engineered to deliver beta-carotene is due out in 2016 in the Philippines, and that citrus trees engineered to resist a ruinous pathogen have shown promise. Then there are those virus-resistant GM papayas in Hawaii — though it should be noted that the state’s entire papaya production covers about 2,000 acres, the size of a moderately sized corn farm in Iowa. But until the “golden rice” and the novel oranges prove effective, durable, and acceptable to a large swath of growers, we live in a world in which upwards of 99 percent of GMOs are engineered for the two traits mentioned above.

And that means that actually-existing GMOs remain essentially an appendage of the pesticide industry, which has dominated the technology from the start. But a fixation on pesticides doesn’t fully answer the question of why the industry’s vaunted innovation has stagnated into variations on two themes, with a few promising products at the margin. Monsanto, for one, has signaled its intention to diversify away from pesticides by entering what might be called the climate-change-services business; and back in 2008, the company pledged to create seeds that would “reduce by one-third the amount of key resources required to grow crops by the year 2030,” while also doubling yields.

More than five years later, where’s the progress? For that, I think, we have to look to the fact that genes and traits (the cool things we want plants to do in the field) don’t always track on a one-two-one basis. There are single genes that confer resistance to particular herbicides or express the toxic-to-insects trait of Bacillus thuringiensis, the basis of Bt corn and cotton. But there’s no one gene that regulates the way a plant uses water — which probably explains why Monsanto’s “drought-tolerant” corn, deregulated by the USDA in 2012, has fallen with such a thud. In its Final Environmental Assessment of the crop, the USDA delivered quite a caveat. “It is prudent to acknowledge,” the agency declared, that the Monsanto product’s ability to fend off drought “does not exceed the natural variation observed in regionally-adapted varieties of conventional corn (representing different genetic backgrounds).” Translation: In areas of the U.S. corn belt where drought is typically a factor, conventional breeders had already developed varieties that do just as well under drought conditions as Monsanto’s genetically altered product.

Churning out crops designed to require less nitrogen — which involves another complex process beyond the scope of a single gene — has so far proven to be an equally vexed project.

So what we have here, in essence, is a bit of a carnival-game scheme: an industry that lives by trumpeting elusive promises while quietly profiting from old tricks. In that sense, I agree with Johnson: stakes are low in the GMO debate, in that it’s an industry that’s wildly overhyped — by champions and foes alike.

But there’s another sense in which stakes are high indeed. The industry’s core traits, herbicide and pesticide resistance, have proven vulnerable. Nearly half — and growing — of all U.S. farms are plagued by weeds resistant to Monsanto’s herbicide Roundup, and farmers have responded by jacking up their Roundup doses and adding to them older, more toxic herbicides. Meanwhile, a pest called the western corn rootworm has evolved resistance to Bt corn. Here’s NPR’s Dan Charles, writing last summer:

It appears that farmers have gotten part of the message: Biotechnology alone will not solve their rootworm problems. But instead of shifting away from those corn hybrids, or from corn altogether, many are doubling down on insect-fighting technology, deploying more chemical pesticides than before. Companies like Syngenta or AMVAC Chemical that sell soil insecticides for use in corn fields are reporting huge increases in sales: 50 or even 100 percent over the past two years.

The failure of these products — a profitable failure, if you make both GMOs and pesticides — has brought industrial-scale agriculture to a crossroads. Farmers could respond by making tweaks that have been proven to maintain productivity while slashing herbicide, insecticide, and fertilizer use — simple changes like adding another crop to the rotation and planting fall cover crops, as demonstrated by a landmark 2012 study by Iowa State University researchers.

Such a relatively minor change in farming practices would bring enormous benefits to society — to name a few, more carbon stored in soil, less fouling of drinking water with agrichemical runoff, and greater resilience to drought in the heart of the U.S. grain belt. U.S. farm policy could and should underwrite a shift to a more diversified and low-input agriculture — an unlikely prospect, given that the industry deftly invests a chunk of its profits to lobbying Congress, and that its “feed the world” rhetoric has won over a broad swath of progressive thought leaders.

Or farmers could head down the path paved for them by Monsanto and its very few peers in the agrichemical/GMO game, including Dow and DuPont. This way involves responding to the plague of resistant weeds by adding yet another herbicide to the mix, through those double-herbicide-resistant products now marching through the USDA’s deregulation process.

In a 2012 paper, Penn State researchers pondered what would likely happen if they make their way onto farm fields. Chances are “actually quite high” that the products will give rise to a new generation of superweeds that resist both Roundup and the older, more toxic herbicides that will come into use. And farmers will likely respond just as they responded to the advent of Roundup resistance — by applying ever higher doses. Here’s what the Penn State team envisions:

The authors predict that glyphosate (Roundup) use will hold steady at high levels—and use of other herbicides, like 2,4-D, will soar.
From Mortensen, at al, “Navigating a Critical Juncture for Sustainable Weed Management,” BioScience, Jan. 2012
The authors predict that glyphosate (Roundup) use will hold steady at high levels — and use of other herbicides, like 2,4-D, will soar.

So it seems to me that the stakes in this fight are indeed quite high. Yet, given what’s going on within the halls of the USDA and on our farm fields — corn and soy covers more than half of U.S. cropland, and nearly 90 percent of it is GMO — I wonder if the agrichmemical industry hasn’t already won.

Meyer’s Cabin

Great concept. I would make sure there was a real firewood stack along here somewhere.


If you were walking through the woods and came across this looming in the distance, you would probably think that it was just a large stack of cut logs. From all angles, it seems like a normal pile of firewood. However, as you get closer, you’ll see that something doesn’t look quite right. It’s not just a bunch of logs, but something much, much better. Check this out.

The cabin was designed by a man named Piet Hein Eek for Dutch performer, Hans Liberg (the man in the pictures). The outside is made of wood that is covering plastic and a steel frame, making the walls look like logs. Right now, the cabin is being used as a recording studio, but with this design, it could be used as a camping cabin or hunting blind.

Source: Thomas Mayer Archive

If you want to share this genius log cabin with others, click the Share button below.

Farmers who have made a difference: Paul Willis

Paul WillisPaul Willis. Returning the family farm to an earlier model.


What Humanely-Raised Pork Looks and Tastes Like

October 19, 2011 by Amelia




There’s a long-running joke that Iowa is the “fly-over” state in the U.S. – nothing but a wash of cornfields and pork-producing confinement buildings that looks like a rectangular checkerboard from planes overhead. I’ve even heard the joke come from the mouths of Iowans themselves.  But I saw and experienced something completely different on a recent trip to Des Moines, the heart of the pork-producing state.

I came up-close to a curious mother sow and her black-and-white speckled piglets; snacked on chorizo-green chile-stuffed tacos made with homemade corn tortillas; bought a hand-carved, hand-smoothed chunk of rusty-colored wood that now holds fruit on my dining table; tasted raw, juicy slices of 20 different kinds of heirloom tomatoes; trail-blazed through the tall, clover-spiked purple, yellow and green grasses of natural Midwestern prairie; savored every bite of 18-hour, slow-roasted whole pork immediately after “pulling” alongside pork belly, glistening with its hearty layer of fat cut-through by a meaty underside and crispy-caramel skin; and, most importantly, met some of thekindest farmers and ranchers who care deeply about their families, their animals, and the earth.

This was my trip to the pork “division” of Niman Ranch, and more specifically, to the birthplace and working farm of Paul Willis, founder of the Niman Ranch Pork Company who has been crowned by Alice Waters and other chefs, food-lovers and other as the “godfather of pork.”

Paul has weathered, tan skin and some wrinkling around the eyes – evidence of a life as a happy, constantly smiling and outdoor living farmer. Donned in his staple blue overalls, which he once refused to sell for a hefty price to an affluent visitor, Paul speaks softly but knowledgeable, being a living legend among chefs and culinarians. And, apparently Chipotle as well.

Niman Ranch is known as the answer for sustainable, humanely-raised meat that’s produced around the country, but distributed like local food. Niman’s business strategy differs from the big distribution companies that focus on grand-scale, cross-country trucking and commercial animal production, otherwise known as factory farms, as a way to meet those big demands. Instead, Niman’s program is the opposite: it’s a network of small farms that pool their resources and products as way to keep things small-scale and sustainable while meeting the needs of customers around the country. It’s a business philosophy that’s started the “slow food” concept of transforming this country’s food system completely – for the better.

When Bill Niman decided to get into the pork business, he first searched around his state of California for producers, but failed to find the right match. Through Alice Waters, he learned about Paul, who was one of the only pork producers in the country raising their pigs completely outdoors. Immediately, Niman loved Paul’s pork. “He told me to send him 30 more chops,” Paul said. “I had to figure out how was I going to get those to him? Do I put them on a plane? Or do I send the animals on a train and have them processed in California?” Paul ended up doing the latter and the rest was history.

During the eighties, Paul explained during the trip to his ranch, pork began being bred for a leaner product that could compete with the popularity of chicken breast. The pork board added further pressure in this regard, and many farmers found they didn’t have as much use for the fattier parts or lard byproduct as more consumers switched from lard to oil. The new breed of pork was a leaner one, and that meant the pigs couldn’t withstand the cold temperatures and harsh winters that of the Iowan, Midwestern climate without that important layer of fatback they once had. On top of that, pigs use that layer of fat like sweat glands since they don’t have any. This meant the hot, Midwestern summers were just as unbearable.

The solution for this was to move the pigs indoors. But Paul refused to do so. As a result, he became part of the less than 5 percent of pork producers that, to this day, still raise their animals completely in confinement operations. More often than not in these operations, pigs have little, if any, room to move around and very little care or attention, as many of the production companies have “outsourced” management of these facilities to poorly paid workers, including illegal workers, who literally come in to check temperatures and remove dead animals. This is also precisely why antibiotics became infused in feed and water as a way to prevent stress-induced illness before it happened.

Paul’s pigs are Berkshire, Duroc and Chester White, three of the types of pork that are known for their generous fat layer so they can remain outdoors, and juicy, tender meat. In fact, Paul’s breed standards are extraordinarily intense. Interested farmers must apply and ensure their raising and production processes are in line with the at least eight pages of standards outlined in the Niman Ranch application. They also have to go through a few rounds of farm visits, tasting and pH testing. During a demonstration of the difference between commodity and Niman pork chops, Niman’s field operations manager Lori Lyon explained that the company’s standards for pH is 5.7 or above. Most commodity pork, on the other hand, has a pH as low as 2 or 3, meaning these chops are highly acidic. And you can tell from looking at it, too. Ever seen a package of pork chops from the grocery store “swimming” in what looks like a pool of water? That’s actually the juices of the pork running out as it breaks down from its own acidity.

Lactic acid is the culprit, and that acid builds up if the animal is stressed just before slaughter. The most lactic-acid preventing and also humane slaughter method, used by Niman and increasing numbers of even commodity producers these days, is to group the animals together according to their age and “pack,” then gas the animals so they fall asleep. At that point they are killed and processed. This method has increasingly replaced the stunning method, during which workers can “miss” an animal and have to repeat the stunning, twice, even three times. Pigs are intelligent so when they see others of their kind in distress, it causes them to be distressed. The horror stories of the sounds and smells coming from those slaughter houses became too much for a lot of those workers, including one who spoke about his experiences during the Niman ranch trip.

On the farm, Paul’s pigs are happy. They run around, play, snort, root, sleep, eat and cuddle together. Contrary to the cartoons and sayings, pigs actually don’t enjoy sitting in their own you know what, though they do enjoy a cool mud patch from time to time. They also enjoy hanging with other pigs in general, but mostly those their age. Sows are kept separate with their black and white speckled piglets who curiously peer out from inside the small shed shelters scattered about the field. The “adolescents” look like a pack of deer running back and forth from a nearby predator, though they’re really just “exercising,” Paul said. Other curious potbellied creatures were braver to approach us and say hello. We smiled and said hello back.

Later that evening for dinner, our group gathered around an indoor-outdoor shed of sorts where the Willis family and friends had set up an enormous buffet of foods, from caprese salads with heirloom tomatoes, corn salsas, homemade bread and fresh churned butter, hot, crispy jalapeno poppers, and home-cured salamis paired with fresh cheeses and picked vegetables. But the star of the show was the whole hog, head, apple-stuffed mouth and all, that had been smoked for 18 hours in a massive smoker at the Niman specialty meats processing center nearby. The meat was a mixture of tender, pulled pork layered with fattier bits that barely needed the bread, let alone a sauce. And then the finale: huge pork belly chunks with all their layers perfectly intact: tender-braised meat on bottom, succulent fat in the middle, and a crisp, seared top. Just like the French make it. Just like a sustainable Iowa farmer makes it.

After dinner, a few of us got off an over-packed hay ride to walk with Paul through his prairie and wildlife preserve, a experimental project with the state of Iowa. As we walked through the tall, yellow and purple flower-spiked grasses, Paul ran his hands along the trunks of the stems, pointing out the different species and birds that flew in and out. Crickets purred softly. At one point, a hummingbird hummed by. Downhill, just beyond the little pond at the center of the field, the sun began to set and cast a purple hue across the sky. Though he doesn’t raise any pigs on this particular property, this is where Paul’s family lives, cooks, eats and gathers. He calls it “Dream Farm.” One can see why.

Some Smart Hedge Funds like AAPL

REFERENCE: http://seekingalpha.com/article/1931061-Hedge-Fund-Picking-Means-Apple-Season?source=email_

BY: Hedgemony. www.hedgemony.us   A social research tool to discover where hedge funds and other investment managers are finding investment opportunities today. Join now to find out where to put your money to work like the experts do!

We all know Apple (AAPL) has had a tremendous decade of growth, but just to explicitly remind you how astronomical it has been, below is the table of Apple’s yearly performance. The stock has been up nearly every year by sensational amounts, and even though 2013 was a rocky year, it still managed to put forward a positive post.

Date Price Change % Change
12/31/2013 561.02 28.847 5.42
12/31/2012 532.173 127.173 31.4
12/30/2011 405 82.44 25.56
12/31/2010 322.56 111.828 53.07
12/31/2009 210.732 125.382 146.9
12/31/2008 85.35 -112.73 -56.91
12/31/2007 198.08 113.24 133.47
12/29/2006 84.84 12.95 18.01
12/30/2005 71.89 39.69 123.26
12/31/2004 32.2 21.515 201.36
12/31/2003 10.685 3.52 49.13

What is more interesting about the quality of Apple’s return, however, is that the correlation to the broader market is at an all-time low. I graphed the 120-day daily rolling correlation to the SPX index, and it is at a decade low of 12% (having peaked as high as 80% from 2008-2011).

(click to enlarge)This signals that Apple is becoming a source of diversification to the broader market, believe it or not, and may even be a source of true alpha generation going into 2014 after a lackluster 2013 with what many agree has resulted in cheap valuations at 12x PE (when the SPX index itself is at 17.5x today). Out of curiosity, I looked into who the smart money institutional owners of Apple are, and I was surprised to find an eclectic collection of well-respected hedge fund managers that are each known for their unique and proven investment strategies.

Top 5 Hedge Fund Holders Explained

If you look through the Top Holders of Apple on Hedgemony (www.hedgemony.us), you can observe that there is an array of institutions – from banks to sovereign wealth funds. I sorted the list by “percent of Portfolio” which is what I think remains the best proven metric of the investment thesis conviction. While percent of shares outstanding is important to gauge size in market, a portfolio manager’s conviction is only reflected by sizing within his fund assets. Of the 100 fund holders that have sized Apple to be 4.5% or greater, I share with you the top five hedge funds that remain relevant players today. I will provide you a brief biography so that you understand their pedigree and investing philosophy, which may perhaps even motivate you to peak into what other stocks they own so that you can gather new intelligence if their investing philosophy is in line with yours.

Shares % of Portfolio
Greenlight 2,397,706 20.29%
Andor 350,000 12.40%
Valiant Capital 258,431 10.57%
Empire Capital Management 180,000 9.89%
Nokota 425,000 8.84%

1) Greenlight – Long term value + activism

David Einhorn really needs no introduction to anyone who follows the hedge fund industry. A Cornell graduate, Mr Einhorn has demonstrated success not only in long positions but also in shorts through some various highly publicized inquiries (there was Green Mountain (GMCR), Chipotle (CMG), and even Herbalife (HLF) at one point before the infamous you-know-who got involved). He has returned ~20% annually for almost two decades, with a beta less than half and now currently runs close to $5 billion. His investing philosophy tends to be very long-term oriented so his portfolio does not turn every quickly. In fact, comparing quarter to quarter on his 30 stocks according to the 13Fs, only three are new initiations in Q3 2013, and of the remaining 27, 16 of them didn’t even change in sizing. That’s value investing. And guess how much Apple Greenlight owns? A whopping 20.3%. In fact, it’s his largest position in the portfolio and if there’s any career investor you can trust who did his homework, it’s Mr. Einhorn. Regarding his activism, he has advocated for an efficient reorganization of the capital structure; a similar theme was more recently repeated by Carl Icahn himself. While suing Apple initially was probably not the friendliest of actions, he remains level-headed in the pursuit of several share buyback arrangements that have been received positively by Tim Cook. 2014 may be the year that everyone waited for the release of Apple’s cash to determined investors. Fun fact: he is also related to Sheryl Sandberg as cousins, for what it is worth.

2) Andor – Technology guru + concentrated risk

Andor Capital is run by a guy named Dan Benton, ex Pequot. It is a technology specific hedge fund with reported assets north of $1bn of which a significant chunk were from investment gains itself. The firm suffered horrible losses in 2008 during the financial crisis and was temporarily shut down, so risk management is not the strongest suit. The firm employs a traditional long short strategy, but is known for taking very concentrated positions (15-25 names), with the top 5 names to account for over half the risk during various cycles – potentially the reason why the firm faced such difficulty in 2008. His most notable longs in 2013 were Google (GOOG), Cirrus Logic (CRUS), Mellanox (MLNX), eBay (EBAY), among others. Today, his top position remains Facebook (FB), but Apple is a close 2nd.

3) Valiant Capital – International markets focus + Tiger grandcub

Valiant Capital is a $2.5bn long short fund managed by Chris Hansen, a member of the Tiger family. It was founded in 2008, and Chris was formerly an MD at Blue Ridge Capital for over five years. His performance unfortunately in 2013 was lousy – most likely due to shorts, and his past performances has been mediocre as well. Also important to note is that he invests internationally (60%+ of his longs are non-US) – and emerging markets generally has had a tough environment, especially India and Brazil. Regardless, Mr Hansen is a stubborn investor who sticks to what he knows and likes best – and he likes value and shorts frothy fraud-like names of utmost exuberance. This didn’t work in 2013 with the social media frenzy and general appetite for multiple expansion, but his pedigree and value-oriented picks should give comfort to why Apple remains a strong buy from a macro angle beyond the US stock market.

4) Empire Capital – Longevity

Empire Capital is arguably the least known fund on this list – and that’s perhaps because the fund is a lot older than others (which is a good sign and the reason for my inclusion of conviction). It is run by Scott Fine and Peter Richards, and is one of the oldest technology hedge funds in existence, having launched in 1996. Apple remains their 2nd largest position. The conviction I get from Empire Capital being on the list is that they are one of the few tech funds to have experienced the tech bubble and then survive to rise. My guess is that they are careful in their longs being fundamentally sound and not momentum driven, as a survival period of ten-plus years in the tech investing space is a testament to its own success. There are not even many technology firms themselves that last that long.

5) Nokota – Event Driven + Tactical

Nokota, saved for last, is nonetheless a compelling addition to the roster. Nokota, founded in 2011, is run by two guys named Matt Knauer and Mina Faltas. What is truly outstanding about this firm is that both PMs come from two of the most successful hedge funds ever – Appaloosa Management and Viking Global Investors. In fact, David Tepper helped seed Nokota, which is a strong signal of conviction for his fellow analyst. Nokota tends to traffic in event-driven names and situations, where a tactical component is maintained to dynamically mange the risk from a top-down level in addition to being fundamentally driven. It combines the best practices of both worlds thanks to the PM’s complementing experiences. They own Apple through options, which is an interesting implementation that signals that there may potentially be the necessary event in the short-term to capture outsized volatility in the right direction. Nokota also tends to own relatively unknown names, so seeing a brand name like Apple on the list makes me believe that it is compelling beyond general expectations.


What I have tried to highlight is that of the five hedge fund holders on the list that are each known for different expertise, Apple remains an outsized top position for all in unison. Be it fundamentally value driven with an activist component, or a tactical overlay to an event-driven strategy, by sector generalists or technology gurus, from 1996 launches to 2011 newly minted managers, it really is the most solidly diverse source of conviction that anyone can ask for. It is when such consensus among varied investors is reached that an average investor can gain conviction in joining the camp. Sometimes, it is just as simple as that – you win by following the smart money ahead of you.

Natural Wine Sales surge in France

Good news, but note that even some of this “natural” wine has pesticides in it.

The share of organically produced French wines rose from 2.6 percent in 2007 to 8.2 percent by the end of 2012. Despite this progress, France is still the third-highest user of pesticides in the world after the United States and Japan, and the highest user in Europe, applying 110,000 metric tons of pesticides per year.

Organic wine producers in the Burgundy region of France are facing prosecution for refusing to use pesticides. This move is perplexing given the Ministry of Agriculture’s support for the organic wine industry and growing public alarm over pesticides in French wine.

A study in February that found pesticide residues in 90 percent of the French wines tested created an uproar. Pesticide residues were even found in organic wines, indicating contamination from neighboring vineyards or other sources. French vines are susceptible to a contagious bacterial disease, flavescence dorée, transmitted by a leafhopper. Treatment with pesticides is required by French law in several winegrowing regions, including Burgundy.

One organic producer in Burgundy has now been charged with breaking the law for refusing to use Pyrevert, a pyrethrin pesticide. He says there is no evidence that his vines are infected, and argues that Pyrevert, a neurotoxin, is nonspecific to leafhoppers and kills beneficial insects as well. He faces six months of prison time and a fine of 30,000 euros, or about $41,000. Another organic grower was fined 1 euro after he agreed to use pesticides.

France has pledged, under the 2007 Grenelle law on the environment, to reduce its pesticide consumption by 50 percent by 2018. To help meet this goal, Stéphane Le Foll, the minister of agriculture, announced on Nov. 13 a new sustainable agriculture bill that is scheduled to be submitted to the French Assembly in January for debate. Considering organic producers who refuse pre-emptive use of pesticides as criminals will not help France’s transition to sustainable agricultural practices. The law requiring such use in Burgundy is not only bad policy, it is terrible publicity for French wine. The law should be changed, and the French Assembly should pass the new bill on sustainable agriculture this month.

But Bordeaux has greatly reduces its use of pesticides.



“Reduce pesticide use by 50 percent.” That was the challenge thrown to Bordeaux wine producers by French president Nicolas Sarkozy in October 2007 during national consultations on environmental issues, reports French daily Le Figaro.
The producers were given 10 years to reach that objective but they have already exceeded it after just two harvests.
“We have reduced insecticide and herbicide use by 80 percent and we no longer have to treat vines against parasitic insects and mites,” announced Etienne Priou, the director of Château Beaumont, a major producer situated in Cussac-Fort-Médoc. He made his announcement during an organized visit by members of the Union of Industries for Plant Protection (UIPP) during which he also confirmed that neither the quality or quantity of the 700,000 bottles of Bordeaux which Château Beamont produces each year have suffered in any way.
Looking at Priou’s immaculate grapes makes it difficult to imagine the ravages that mildew and parasites like the fruit tree tordrix (Archips Podana) or Botrytis can cause. These three infernal imports from other parts of the world have caused much damage over the years.
Thierry Coulon, scientific director of the French Institute of vineyards and Wine (IFWW) says that “In the Bordeaux region, mildew is public enemy number one. If it attacks early, in spring, it can destroy entire harvests, as was the case in 2007.” To demonstrate his point he showed the visitors a shriveled vine stump which had fallen victim to mildew.
In order to protect his vineyards whilst at the same time reducing environmental impact to a minimum, Priou, along with a hundred other Bordeaux producers, decided to apply the principles of Integrated Farm Management which in his view represent a reasonable compromise between two extremes – all-chemical or all-bio.
The French version of the Integrated Farm Management concept was launched with the creation of a website forum dedicated to the development of agricultural practices which respect the environment and are economically viable.
Three basic principles underpin the concept: The use of biological and culture-based products in the fight against parasites, treating only if and when absolutely necessary, and accepting minor losses which do not incur significant negative economic consequences.
Priou and the other producers stepped up inspection rounds of their vineyards and, in the event that mildew was discovered in small quantities, it was treated immediately with natural products before it could spread. That tactic reduced mildew by 20 percent for mildew and even 30 percent for botrytis, which is particularly damaging to the taste of wine.
The fruit tree tordrix was tackled using pheromone traps which eliminated the need for chemical insecticides. Finally, ground fertilizer use was limited to a strict minimum due to the use of more detailed soil and leaf analyses.
There is not yet a general inclination to produce strictly bio wine in the Bordeaux region. Philip Blanc is the director of Château Beychevelle at Saint-Julien, and he has been carrying out trials of wine produced using strictly bio techniques for the last two years on a small section of his property.
He said that although last year “wasn’t too bad” this year has seen a serious outbreak of mildew which means that the bio section of his vineyards will produce 36 hectolitres per hectare. That translates into 35 pe cent less wine than the rest of the vineyards, upon which he has used an Integrated Farm Management program. The problem there is that the minimum profitable yield is 47 hectolitres per hectare.
So, although the Bordeaux region is not going to see mass-produced bio wine anytime soon, it can’t be denied that a lot of progress has been made in terms of the development of environmentally safer wine-producing techniques

Oh, and Nicolas Sarkozy? He owes the wine producers of Bordeaux a generous round of drinks for their efforts.

US EPA & Sludge Gassification. Some good news for 2014.

EPA Ruling on Sludge Gasification Process

Opens Door to Environmentally

Beneficial Waste Treatment Technology

 REF: http://www.sacbee.com/2014/01/02/6042023/epa-ruling-on-sludge-gasification.html




A version of this was release by the law firm that acts for MaxWest, who can be found here, but not on any stock exchanges. http://maxwestenergy.com/about-maxwest/biosolidsdisposal/

 A recent US Environmental Protection Agency ruling that sewage sludge gasification technology patented by MaxWest Environmental Systems Inc., is not an incinerator heralds a major victory not only for clean air and water but also for taxpayers in municipalities looking for a sustainable alternative to costly incineration.

The US EPA, in a letter dated Dec. 19, determined that federal emissions guidelines and compliance rules for sewage sludge incinerators do not apply to a MaxWest sludge gasifier near Sanford, Fla.

In its findings, the EPA held that MaxWest’s pioneering technology that breaks down sewage sludge through heating in an oxygen-starved environment prevents combustion, and thus will not be regulated as an incinerator.

The agency further exempted from incinerator regulations the second energy-saving step in the process – a “thermal oxidizer process heater” in which gases released from thermochemical reactions are scrubbed and then burned to create heat needed to dry incoming sludge.

The result of the process is a self-sufficient closed-loop system that requires little or no fossil fuel after start-up, drastically reducing costs of and emissions from using natural gas

The  process carries other environmental, commercial and economic benefits. Gasification produces a more valuable fertilizer for farmers since some of the carbon that incineration destroys remains in the solid byproduct.

And, as space in landfills becomes scarce and motor fuel costs climb, the costs of hauling and disposing of sludge in them have skyrocketed. MaxWest’s gasification technology also eliminates air and groundwater pollution risks that landfill disposal of sludge poses.

In a June 2012 report, the EPA extolled the benefits of its gasification process for its emissions control and green energy benefits and singled out MaxWest as the only domestic gasification technology ready for prime time.

Micro: Leasing Software




At the end of each year a special stock buying situation occurs, and I like to pick up some beaten down bargains before the window closes. Typically between November 15 and December 31, stock owners reduce income taxes by selling some losing positions. This is especially important in 2013, as even mediocre investors likely have substantial trading profits that need to be protected from Uncle Sam.

Since 1950, 80% of the periods comprising the last 7 trading days of each year and the first 3 days of the following year have been positive for stocks. The average gain during those periods has been 1.5%. Tax selling in the weeks immediately before Christmas may be one dynamic that has funded these “Santa Clause Rallies.” Additionally, tax selling is generally credited as a cause of another market phenomenon known as the “January Effect,” the tendency of small cap stocks to outperform in January.

I am very respectful of the market philosophy of not trying to “catch a falling knife.” There are reasons why a stock has underperformed and is being sold for tax benefits. Therefore, I have a few filters I prefer to use before investing in a value proposition that is on sale during tax-sale season:

  1. The negative influence on the stock was limited to a one-time or short-term event.
  2. Positive influences are probable in the following year.
  3. I prefer small caps that were possibly oversold by retail investors (January Effect candidates).
  4. The stock should have reasonable fundamentals and growth prospects.
  5. The stock should be showing signs of reversing the fall.

One candidate that meets these requirements is NetSol Technologies (NTWK), a software developer for the leasing market, with finance and leasing arms of most of the world’s leading auto makers as clients. The company announced blow-out annual earnings in September, but was subsequently hard hit by sellers fearing big costs associated with an aggressive expansion plan outlined in the annual conference call. A few weeks later, there appeared a vicious short attack in a SA article citing “potential” accounting irregularities, and traders and short sellers hammered the stock. The company issued a professional but mild rebuttal that got little exposure and minimal market reaction. Finally, a disappointing first quarter earnings report dropped the stock into the bargain basement. However, 2014 should be kinder to NTWK as present growing pains subside, and new products could put NTWK back on path to achieve its stated initiative of double digit revenue growth and expanding margins for the next five years.

(click to enlarge)

I think part of the problem for this company is some misunderstanding of the company culture. NTWK is not a fly-by-night newcomer. It went public in 1997, was a dot.com darling and survived when most others crashed by cutting costs, working closely with solid clients and eventually emerging as an enterprise with a double-digit growth profile. On April 23, 2013, the company’s first and only CEO, Najeeb Ghauri, stated in an interview with a NADAQ reporter that the company “has never lost a single client.” One reason the relationship is so important to both NetSol and its clients is that NTWK’s product is customized to work with the various accounting and enterprise programs utilized by each client. Daimler Benz (OTCPK:DDAIY) is different from Nissan (OTCPK:NSANY), Toyota (TM), BMW, Volkswagen (OTCQX:VLKAY) and other NetSol clients, so the custom application creates a long-term marriage.

About half of the revenue comes from service fees working for new and existing customers. The other half of revenue is split between software license sales/renewals and maintenance fees for existing licensees. These activities represent some reliable, recurring revenue. The NetSol bread and butter is getting its foot in the door, and then working with the clients to continually upgrade and improve their systems, which manage the full spectrum of the leasing cycle, from applicant processing to disposal of assets, and all the administrative and accounting functions in between. NTWK has focused on financing and leasing operations in Asia, India and Middle East markets primarily, but also has clients in Europe, the US and Latin America. A company initiative is to double US and Latin American operations in the next three years. This is part of the reason for the recent introduction of its next generation leasing software platform, NFS (NetSol Financial Suite) ASCENT.

Are NetSol’s negative influences near-term or systemic?

In September, NTWK reported annual earnings indicating a 27% revenue increase, and earnings per share more than doubled.

Net Revenues: 2013 2012
License fees 17,756,444 13,369,701
Maintenance fees 9,550,471 7,866,930
Services 23,490,243 18,538,893
Total net revenues 50,797,161 39,775,524
EPS .95 .39

So why is NTWK selling with a PE of 5 times trailing earnings? As the stock shot above $12, the company clarified in the conference call that it was embarking on an aggressive plan to hire about 300 engineers and build a facility in Pakistan for their workplace. The company explained that their customers were indicating the need to upgrade and expand their NTWK services, and growth with new markets and customers required them to add staff to meet it. The company stated that it would require about 6 months of training before the new engineers would be productive, so they could not provide guidance for the following quarter or year. Traders immediately realized that the added expansion costs would negatively impact the stock for at least two quarters, and they bailed out.

Seeing the stock’s weakness after a blow-out year, the short seller, a first-time SA contributor, published an article attacking the company, implying “potential” accounting problems. Specifically, he stated that the company was “hyper-aggressive” in capitalizing R&D instead of expensing those outlays. Also he cited “red flags,” trying to imply insider deception at NTWK due to long-term relationships with it’s auditor and investor relations company, which both had past clients in their history which had duped investors. Given the company culture of developing and maintaining relationships, it is understandable that NTWK would stay with the firms that helped them survive the dot-com bubble implosion. This inclusion of unrelated stock failures was irrelevant, but, combined with the accounting concern, the short attack was effective in dropping the stock several points.

Regarding the accounting concern, the FASF rule is that the engineering costs should be capitalized if the company expected to realize revenue generation from the effort. Of course the R&D was primarily to meet needs of existing clients and respond to their suggestions to improve the existing software; therefore, NTWK was well within the guidelines for its selected accounting method. Actually, the company could gain a tax advantage by expensing those costs, but that would seem to be more subject to scrutiny, given the company’s business model. The short seller further cited unrelated technology companies that expensed those costs, without regard for business differences and tax preferences…another irrelevant point.

In general the points in the short seller’s article were mostly based upon innuendo and its own manipulation of accounting, but it should not be discarded completely. The company business model generates engineering work before revenue collection, and collections have been slow. NTWK has added a new CFO recently and there has been inconsistency in that position. The company has noted, and reports bear out, that the Accounts Receivable collection has improved, but remains more than 100 days of sales, which is high. This is actually not very unusual for companies operating in Asia, where payments are notoriously slow. Also, the credit quality of the major auto manufacturers should be reliable, but the high AR is the largest problem that I see in the accounting area.

In the latest quarter, ending in September, the company introduced the ASCENT software, but the only impact on the earnings for that quarter were the costs associated with the launch of that product, as new deals had not had time to be finalized. Since then the company has announced that Nissan Thailand has adopted the new software. The company also reported reduced revenue in the September quarter, explaining that clients were holding off license purchasing and upgrades, aware that NTWK was developing a better product. This also meant that service fees were reduced, as those are partly triggered by license sales. The company results indicated a net loss, and the stock dropped below $5 from the $12 it sold for after blow-out annual earnings.

Expectations for 2014

At its current price, NTWK appears to be a reasonable value, selling well below book value and with a market cap below annual revenue. If the company meets its goal of 55 – 60% gross margins for 2014 and double digit revenue growth, it will need a fast acceptance of the ASCENT platform and booming sales in the rest of 2014. However, analysts are assuming that the losses will continue for the current quarter, with profit in the last half of the fiscal year (ends in June) just balancing out the losses in the first two quarters. They also expect NTWK to produce more than $1 per share earnings in 2015. Although accounting issues can cloud the book value and EPS calculations, YAHOO statistics indicate that operating cash flow exceeds $1 per share, even including the weak recent quarter. However, I should mention that any investor considering an investment in NTWK should expect cash flow to be plowed into the growth and expansion initiatives this year.

The intelligent stand might be to wait until a couple quarters have been reported to be sure that ASCENT will take off as expected, and risk missing the chance to get in at a bargain price. After all, we should know by mid-year if the 300 new engineers will be producing profitable services, making the drag of the current training costs look like a smart investment. On the other hand, short sellers may be waiting for the year’s end to buy back shares, and the January Effect could be a particularly powerful tailwind on the NTWK stock. Waiting until everything is clear and verified is a luxury that stock traders do not have. Technically, the stock is showing signs of life, so the bottom may be in.

Ii is difficult to determine the seasonality of license sales and renewals for NTWK, but many such software vendors experience slow end of year sales, with the best quarters being the first two calendar quarters in the year (NTWK’s last two fiscal quarters). This has to do with capex budgets and spending, and I think that is why the timing of the new release was made late in the year, to take advantage of a ramp up to a busy marketing effort in early 2014.


NetSol Technologies has been in the business of developing programs to facilitate the processing, administration and accounting for leasing companies, particularly those in the auto industry since 1997. We have had this stock on our radar for some time, because the auto leasing business in emerging countries has only begun and there is much room for growth. NTWK has chosen a niche that is not free from competition from generic software, but the special custom features of its products and customer service are the differentiating factors in its market. The proof is the long-standing relationships with the leasing divisions of many of the world’s leading auto makers, which provide a valuable recurring revenue stream. The company has established management and has weathered tough times before. There is a lot to like about NTWK.

Concerns about operating in potentially unstable locations, complicated accounting that arguably is not as conservative as some companies, high levels of accounts receivable and unknown acceptance of the next generation product are clouds that have hung over the company lately. Those have kept the stock price at a level that has frustrated investors this year. That frustration is exhibited in tax selling, which appears to have created an oversold situation.

Of those concerns, the one that is most important to me is the question about the acceptance of the ASCENT platform. It is good to remember that NTWK is in constant contact with its clients, performing improvements to the existing systems and listening to their needs. I have to think that before embarking on an aggressive expansion of staff and facilities, that the NTWK management had good visibility about the market for the new technology. In fact, if the industry widely expected a newer version to be available that meets new needs, the potential buyers certainly would wait for that product. This explains the lack of activity in the past quarter, which could indicate that pent-up demand will materialize as new IT budgets are established by clients and potential clients in early 2014. Management has also indicated that they feel that the ASCENT product has enough competitive advantage that they will not be offering deep discounts to make sales. The company is focusing on larger contracts and expanding margins. Those deals can take longer to finalize and the company has indicated the pipeline is healthy.

Software companies typically carry a PE of more than 20, and at the end of 2014, we expect that NTWK will be earning at an annual $1 EPS clip and growing revenues at a 10-20% rate. By the end of 2014, a PE of 20 would create a target price of $20 per share, opposed to the current $4.80 share price. Although we are more conservative, that is not out of the question, as it would represent a price of 4 times sales and less than 3 times book value. The company may have been able to continue for some years with an EPS near the 2013 level of $.95 without the drama and risk of the aggressive growth plan. However, we would not be so interested in a small company that was satisfied with only treading water.

I do think it is reasonable to expect that NTWK will have some lumpy revenues, as big clients move the needle, and growing pains with the new platform. However, I agree with the strategy of making a controversial move to dramatically increase market share and grow the company. There is some leverage in the revenue and earnings growth potential, because sales of the new ASCENT system also create additional service fees. It is a speculative bet for sure, but the current tax-selling season is probably the best time to place that bet. We think the NTWK management has worked hard and been through much to get this company healthy, and they would not jeopardize that on an ill-planned expansion. We have lower expectations than they do, but we do expect NTWK to double in 2014 to $9.60.


SUPERCOM Interesting stock. Elements of a turnaround in the framework of a startup.  It is back where it was six years ago, after a huge fall and more than five years of going nowhere.

Nasdaq: SPBC. PE 10.31

Note the interviewer is Lazarus InvestmentsPartners, an  Investor in Supercom

Introduction(LAZARUS) . Every once in a while we walk out of a first meeting with a management team and are interested in immediately buying stock in the company they run. That was the feeling we had the first time we met with the team from SuperCom (SPCB). We were so intrigued by our initial visit that we followed up the next day by returning to their office for a second meeting. Weeks later we became one of the company’s largest shareholders. What we saw, and still see, in SuperCom is the rare combination of:

  • a highly incentivized management team with a track record of building shareholder value
  • a corporate turnaround to which the market was giving no credit
  • an acquisition (now complete) of the company’s largest competitor that nearly triples the revenue base and grows EBITDA 2.5x
  • a recurring revenue model with long term visibility
  • a loyal customer base that’s extremely sticky
  • growth opportunities that offer the prospect of multiplying the top line
  • a very low valuation

We’ll give a quick overview of the business but spend most of the article expanding on the above points, followed by an interview with SuperCom executives. (If you want more background on the company, try this article by Tom Shaughnessy, this article by Irit Jakoby, and the company’s recent road show presentation.)

What they do. SuperCom has two business segments which both use proprietary technology to service long term contracts with sticky customers.

The electronic ID [EID] division offers a full solution for managing countries’ digital identity programs, such as drivers’ licenses, passports, and national ID’s. These programs are essential to countries’ operations and also serve as revenue sources for governments. The number of countries with national EID’s is expected to grow by 70% over the 5 years ending 2015.

The RFID (radio frequency ID) division offers complete solutions for monitoring and tracking people and assets. SuperCom focuses on 3 verticals: public safety (offender tracking), home & healthcare (patient and medical equipment tracking), and animal intelligence (herd and pet tracking). SuperCom’s RFID technology has several important advantages over competing products, including battery life that is up to 10 times longer and price points a fraction of competitors’. The slowest annual growth rate among these verticals is 70%, driven in large part by cost savings. One example: the cost for maintaining an inmate for 1 year is $30,000 to $60,000 whereas the annual cost of electronic monitoring is $1,000 to $5,000.

The company sells software, hardware, and services which altogether offer attractive profitability, on an adjusted basis: over 80% gross margins and operating margins over 25%.

Transformative acquisition. Just a few days ago, on December 26th, SuperCom announced that it closed on the acquisition of On Track Innovation’s (OTIV) [“OTI”] Smart ID division. This division is very familiar to SuperCom, since it used to be part of SuperCom before it was sold to On Track. The purchase price to SuperCom was an exceedingly low 3.5x EBITDA.

Before we tell you about the significance of this acquisition let us address a question that is probably on your mind – if the Smart ID division is so attractive, why did OTI sell it, and why did they sell it so cheaply? We met with OTI management earlier this month and they explained that they were going through a restructuring and had to choose which businesses to focus on and which to move out. There was much debate inside OTI, and they considered making the Smart ID business their main focus. In the end though, they decided to sell this segment to their competitor SuperCom and focus on their NFC (near field communication) technology business. SuperCom was the natural buyer because of their prior ownership of this division and because they were its chief competitor. Most other buyers would have had to add significant infrastructure to bring on OTI’s division. The acquisition multiple was so cheap on a pro-forma basis because it’s based on the contribution to SuperCom’s EBITDA; SuperCom already had the experience and the assets so they can just plug and play this division. The multiple would have been higher for another buyer acquiring the division on a standalone basis.

OTI’s Smart ID division was SuperCom’s single largest competitor in the EID business. The two companies were of comparable size and often both made it to the short list on competitive RFP’s. The acquisition positions SuperCom to win more contracts and also reduces the pricing pressure when they bid. It diversifies SuperCom’s revenue base and adds new countries to the client list. This last point is very important since once SuperCom is awarded one contract in a country (eg, voter registration) that gives them a huge advantage when the country wants to add other services (eg, passports and border control) since new services involve only an additional module to SuperCom’s platform, rather than having to install and manage a whole new system.

The financial impact of this acquisition is dramatic. We’ll cover ahead the RFP pipeline that SuperCom is acquiring. On a trailing basis, looking at 2012 pro-forma numbers, the addition of the OTI segment takes SuperCom’s revenues from $8.9 million to $26.3, an increase of 296%, and grows EBITDA to $7.9 million, up from $3.1 million, an increase of 255%. SuperCom’s market cap today is just north of $50 million.

A business Buffett would love. SuperCom’s EID segment has many of the hallmarks of a classic, defensible business – the type Warren Buffett and other savvy investors are drawn to. Globally, there are only about a dozen full service solutions providers for national identity systems. No surprise, governments are very, very picky about whom they entrust to run these sensitive programs. SuperCom has a track record of successfully implementing programs for over 20 governments. If you are a competitor looking to get into this space but haven’t already done it for years someplace else, you don’t have a chance.

The contracts are long term in nature, with stable recurring revenues, often paid monthly. Five to seven years is typical for a contract minimum, as are multi-year renewals. Some of SuperCom’s contracts have been in place for 15 to 20 years. The reason for this is very simple: once you run a massive national program on a system, you can’t switch that easily. Millions of people have ID’s on that system and agencies rely on the system to run their operations, so there are both cost and logistical barriers to switching.

Once you have your technology infrastructure in place with a country, you are a shoe-in for the addition of any new systems the country needs. Competitors will offer entirely new systems and won’t be able to match the price, timing, or convenience that comes with adding an incremental program to a system already familiar and in operation.

Besides impacting national security, SuperCom often services programs that are revenue centers for governments, so contracts tend to grow in size over the years.

To be fair about it, the flip side to having very sticky customers means that the decision-making process for a contract award can take 2 to 3 years. This makes it hard to add new contracts over a short period of time – unless you happened to have acquired a full pipeline of RFP bids, the way SuperCom just did.

The pipeline. In the interview you’ll read SuperCom management get into the details surrounding their pipeline of opportunities. In brief, they are feeling great about things since they not only took out their largest competitor but also got to add that competitor’s pipeline to their own. The combined pipeline included over 50 bids in more than 20 countries. The bids SuperCom has out are at various stages, with a number of contracts expected to be announced in 2014. The contracts vary in size, from $5 million to $150 million. There are larger contracts out there, but SuperCom wisely chooses not to compete against industry giants such as 3M (MMM) and Gemalto (OTCPK:GTOMY).

Based on the interview it sounds like SuperCom only needs to win 10% to 15% of the contracts they are bidding on to keep busy for the next 7 years. Arie, SuperCom’s CEO, commented, “I do believe that, if we can make the most of having both companies combined together, that a win rate of over 10% is very, very achievable.”

What’s possible.

Listen further to what Arie is saying about the magnitude of what’s possible with the EID pipeline of opportunities:

“In the EID market we talk about contracts that, in many cases, can be 3-times larger in size than the combined revenue of SuperCom and OTI. So investors may be surprised to see that — maybe — we’ll announce a contract that will double our revenue in the next three years, just from one contract.”

– Arie Trabelsi, SuperCom’s CEO

After growing revenues from $9 million to $26 million with the OTI acquisition, SuperCom is suggesting that it has multiple opportunities that can again triple revenues to the $78 million range.

Management is targeting growing revenues as much as ten-fold over the next 5 years, to the $200 million to $250 million range-and that’s before accounting for possible acquisitions. Every time we publish an article suggesting that the future of a company might be different from its past we get vitriolic “how dare you!?” comments, and we’re confident this article will be no exception. We do wish to point out that SuperCom was highlighted by Forbes for its 30-fold increase in value this year, so when Arie suggests a mere 10-fold increase in revenues over the next 5 years, it just might be possible.

We’ve chosen to focus on the EID segment more than the RFID segment for this article, but note that management is guiding for RFID contract awards in 2014. This segment is growing even faster than EID and the company feels that their technology is the best on the market, in many instances.

Management also happened to mention a number of sizeable acquisitions that occurred in the RFID space (Safran bought L-1 for over a $1 billion, and 3M bought Attenti for over $200 million, for example), some at high multiples. We certainly see a takeout as a possibility for SuperCom, if not in whole than at least segments of their business.

Management. SuperCom’s management has a long history of turning around companies, growing businesses, and completing accretive acquisitions. As we noted above, this year alone the stock has been a huge winner, yet there’s an ambitious 5-year plan to continue to grow the company to multiples of what it is today. An investment in SuperCom is a chance to ride management’s coattails with their latest venture.

To give you a feeling for how driven Arie Trabelsi is, we’ll point out that to accommodate our schedule, he held the below interview at 1:30 am local time. He hadn’t slept much in recent weeks as he was rushing to get the OTI acquisition financed and closed, but he still made time for the interview. If you are wondering why Arie is so motivated to grow SuperCom, look no further than the Trabelsi family’s 44% stake in the company.

The Trabelsis got involved with SuperCom in late 2010, when the business was plagued with a bloated cost structure and lack of focus under prior management. Note the trend in the company’s operating income, from losses in 2010 to a small profit in 2011 to a handsome one in 2012. Almost as soon as Arie and the new management had the company turned around, they completed the OTI acquisition that tripled revenues. The team has the drive and the record of building shareholder value.

2010 2011 2012
-$1.048 million $0.054 million $2.006 million

Valuation. Despite the recent acquisition, SuperCom remains under the radar of many investors. And despite the increase in SuperCom’s share price this year, shares remain exceedingly cheap. Simply put, if it’s off the radar today, it was out of the solar system earlier this year. The presentation from just a few months ago showed shares trading at 2.5x earnings. Below is a snippet so you’ll know we don’t make this stuff up.

Shares have increased in price since then, but post the acquisition of OTI, on a pro-forma basis for 2012, we calculate SuperCom’s P/E ratio at the still incredibly low multiple of 6.5x. This number includes some financial income and the adjusted number will look a bit higher depending how you calculate it, but it’s still extremely cheap. It’s worth noting that the company has close to $50 million in net operating losses, so tax favorable treatment of profits is on the horizon.

For the first 6 months of 2013 (SuperCom is an international company that reports differently from US companies), on a combined pro-forma basis SuperCom recorded $0.45 a share in EPS leaving the company at 9.8x earnings from half a year. If second half earnings match the first half, the P/E ratio for 2013 will be 4.9x. Investors buying shares of SuperCom today have a lot of the risks behind them since the turnaround has already proven itself out and the OTI acquisition just closed.

Recurring revenue businesses with highly visible revenues and sticky customers typically trade at high multiples – especially when they have clean balance sheets and minimal warrants and options outstanding, like SuperCom.

SuperCom competes in more than one business and the company’s competitors (see the F-1 for names) are often divisions of larger companies. One competitor, Zetes Industries (BRUSSELS: ZTS) trades at 25x earnings. If we take a discount to that and use 20x, applied to pro-forma combined 2012 earnings, you end up with a market cap of around $170 million, which is more than 3x the current share price.

Recall that this calculation does not include any of the strategic benefits that SuperCom will experience from having acquired its largest competitor. Recall further that there’s a pipeline of over 50 bids outstanding, a number of which they expect to hear back on next year, and at least several of which management took the time to point out could triple company revenues yet again.

If management executes on its 5 year plan and revenues grow to the $250 million range, at a multiple of 2x sales, the stock will be worth over nine times its current price. We believe that 2x sales is the very bottom end of a sales multiple, as some acquisitions have taken place at 6x, so substantially higher prices are possible – but again, it’s contingent on the company growing into something that it is not currently today.

Risks. As stable and as visible as SuperCom’s revenues appear, they are not without risk. This is a technology company, and any failure in the operations or security of SuperCom’s technology could ruffle clients. The company just closed on a major acquisition so the next few quarters will be crucial for management to demonstrate a smooth integration. Contract awards in the industry take years and despite high hopes, there’s no guarantee that SuperCom will win any. SuperCom is based in Israel, so an investment in the company is subject to the risks of investing in that country. The CEO’s family owns a significant stake in the company which may leave some investors feeling they are along for the ride, but we like being aligned with that kind of economic incentive and talent.

Management interview. We offer a very sincere thank you to Arie, SuperCom’s CEO, and Ordan, the company’s Vice President of US Operations. During an exceedingly full month that included financing and closing the OTI acquisition, they made some time to talk to us and summarize the company’s progress and opportunities. We are pleased to share a transcript of the conversation.

Let me kick off by wishing you congratulations on closing the OTI acquisition. Would you tell us a little about the business you just acquired and what attracted you to it?

Arie: Thank you for the congratulations. This acquisition is absolutely transformative for our company. We are all very excited about it. OTI’s Smart ID division was our main competitor in our applicable electronic identity [EID] market because of their size, flexibility, and technological capabilities. This is a very highly synergistic and accretive acquisition for us, both from a strategic and financial point of view. This acquisition means that our largest competitor has joined us to form a very strong solutions provider.

Ordan: Strategically, the acquisition boosts not only our revenues but also our sources of revenues, to different places around the world. We’re expanding to Africa, Asia, South America; areas with great potential going forward and, with the local subsidiaries that provide us with outstanding pre and post sale operations, we can capitalize on that potential to get more and more contracts in those regions of the world.

It also brings in some great employees, very experienced technical and marketing experts in the EID space. People like this are very hard to find because of the high barriers to entry in the EID space – there aren’t many people out there who have this kind of experience.

Arie: Moreover, we are inheriting a huge pipeline of bids around the world and, as some of you might know, the bidding process in the EID space is very long term. It can take two to three years to win a contract. But, once you win these contracts, you have a very long term base of revenues. So we’re inheriting a pipeline with bids in over 20 countries around the world and many of them are close to maturity and we expect to see a number of these awards be given out in 2014, which has potential to increase our revenues significantly going forward.

Lastly, perhaps overlooked by some, a major source of our competitive advantage in the EID space is our technology. The technology we are receiving from OTI is not only complementary to ours, but also consists of a field proven, very robust, and well known platform – Magna. This will help us capitalize on our current strengths to adapt to any customer’s needs around the world, giving us the substantial edge we need to target rapid growth while sustaining a leading position in the EID space.

What are highlights of the financial impact of the acquisition?

Ordan: In terms of revenues, we’re looking at around a near three-fold increase in SuperCom’s revenues on a 2012 pro-forma basis, from around $9 million to $26.3 million.

In terms of margins, in any industry, when you consolidate with a competitor, especially one as significant as this, you can expect a natural margin increase. But here, it’s even more apparent because, besides the overhead costs that are not being transferred over to SuperCom, $5.6M on a 2012 pro-forma basis, there are real operational synergies. Their division is very similar to ours in terms of size, operation, and the nature of the contracts it serves. We have capacity to take their operations and government contracts and place them onto our current division and management structure without having to allocate more overhead costs.

But more than that, as we continue to integrate OTI, we plan to see the same kind of improvements that we saw in SuperCom’s margins over the past three years. As you recall, we’ve done a turnaround on the company that included improving the gross margins and the operating margins. We’ll apply that same process to OTI’s division.

What price did you pay for the OTI acquisition?

Ordan: The price we paid for this division is relatively low for us because its contribution to our 2012 pro-forma EBITDA comes to around 3.5x the price we’re paying. That comes from just the basic overhead cost savings that are not being transferred over to SuperCom. Just removing those overhead costs gives contribution of around $5.6 million.

Arie: I also want to mention R&D. Building the backend technology to serve EID contracts takes a lot of R&D dollars. OTI is coming with terrific technology so we’re going to save more than $5 million worth of net R&D in the next three years just by acquiring this division, and of course also have a more rich and robust software platform, which allows us to bid on many more contracts around the world and hence shorten the time to market and speed up revenue growth.

Taking a step back, would your share some background on the EID industry? What should investors know about this business?

Ordan: The solutions provided in this industry are systems for managing all aspects related to the issuance and usage of a country’s national ID cards, passports, drivers’ licenses, and so forth. They are large, complex systems that are mission critical for the safety and operations of any country, while providing a constant stream of high margin income for the governments.

It’s a very lucrative industry, around $12 billion a year and growing. Most interesting to us is that there are super high barriers to entry. You need to have around up to ten years’ experience deploying these types of systems in other governments before you even bid on an international contract. You can imagine that for systems so important, the governments are very careful who they award them to.

It takes a long time to win a contract in a government, but, once you do that, you enter their infrastructure. You usually deploy a full production line within a government: the printers, the materials, the software, the databases, and the readers. And since it is core to the operations of a government and it takes a while to install it and it also takes a very long and expensive process to remove it, once you are installed in a government, you have very long term recurring revenues. We’ve seen one of our contracts supply us with nearly two decades of growing revenues; it keeps on being renewed.

There are less than a dozen end-to-end turnkey EID solution providers around the world. That makes it sort of a closed group of players with a growing market size so everyone has potential to see some growth, especially the players who are strong in the emerging markets such as SuperCom and OTI’s Smart ID Division which we just acquired.

How would you characterize SuperCom’s track record in the industry?

Arie: We at SuperCom have an impeccable record that every one of our systems that has been installed and delivered has run through for the full length of the contract, something which can’t necessarily be said by all the players in the industry. And with that capability, you know that your revenues are going to be sticky for a very long period of time.

Also important to mention is that these operations, the electronic ID’s, are actually a source of income for the governments. So, not only are they producing something that’s vital to the operations of the government, but they are revenue generating, making the deterioration of contract revenues even less likely.

Two of our major competitive advantages are our track record and our technology, and both have been emphasized thanks to our acquisition of OTI’s Smart ID Division. Both SuperCom and the Smart ID division have ongoing contracts with happy and satisfied customers, some of them for over 15 years. This gives us strong references to provide to new potential customers. Our proprietary technology offers not only very strong security, but also drives our ability to offer lower prices, shorter deployment times, and very high customization, elements which are of very high importance in the international tenders of our addressable markets.

Between all your contracts, including the newly-acquired ones from OTI, can you mention the names of any countries or agencies that you serve?

Arie: I think that OTI provided to the public some examples — Tanzania in Africa, and Ecuador and Panama in South and Central America. We have contracts in Europe and in Asia.

Separate from the EID business, SuperCom has another business segment that uses RFID technology. Can you tell me about that?

Arie: RFID, we believe is going to be a powerful growth engine for the company for years to come. That’s because we have proprietary products which were developed in the company for many years that have specific advantages over other products in the market, both from a technology point of view and from a cost perspective. Better solutions with easier configuration and with a lower price.

We have a very wide range of products that are proven with thousands of customers in the United States. The next step for us is to focus on the right vertical markets we’ve identified, those that are growing fast and that are large enough to attract attention.

And which markets are those?

Arie: One large one is public safety — think for example of wrist or ankle bracelets that track an individual’s location. 3M has put over $500 million in this market by acquiring companies so they can gain a presence. In this market, our solution is probably the most advanced available. Like in our EID business, in the public safety market once you’ve secure a contract with a government it is likely going to be with you for many, many years with a nice stream of cash or revenue every month. Market research presents that this vertical is growing 200% a year and will be a $6 billion market in 2018.

Healthcare and home care is another vertical. We are providing the IT managers and hospital managers with the ability to track their assets, to track and monitor their patients, to prevent disease, and to make sure that they will be able to comply with regulations, like sanitizing their equipment before it is used by other people. The growth of these markets for electronic monitoring and tracking is about 70%.

The third one is probably the fastest growing one – it’s what we call animal intelligence. We provide solutions that monitor, track, and analyze data from cows and livestock for example, pets as well. A tag on the animal tracks its movement, location, life cycle and, probably most uniquely, you can analyze its health condition to prevent diseases early on. There is a huge return on investment. A farmer can buy our system and get the full recovery of their investment in less than a month.

We are leveraging some key abilities from our EID business – our expertise in database, data analysis and other IT technologies, our proven track record in effective deployment of large decentralized systems, and our experience working with governments and structured bidding processes. This together with our proprietary products’ IP in RFID – the board design, the RF and antenna design, the optimized firmware and the algorithms – gives us a very strong value proposition and competitive offering to secure a leading position in these three verticals.

I’ve seen a bunch of acquisitions in the asset tracking space.

Ordan: Definitely. Some of the companies that we’ve seen, for example, Attenti was acquired for over $230 million in 2010 by 3M. 3M-Attenti is a solutions provider to the public safety market, and is a direct competitor to our public safety solution.

In the healthcare space, a company called AeroScout was acquired in 2012 by Black & Decker for over $240 million. It was acquired at 6x trailing revenues, again representing the rapid growth of this vertical. AeroScout is a solutions provider for the real time hospital market, and is a direct competitor to our healthcare solutions.

For both divisions, meaning both the EID and the RFID segment, it sounds like much of future growth is dependent upon winning new contracts. Would you comment on the pipeline for the next 12 months? If not, specifics, than any commentary that you can share.

Arie: I think the important thing here is that on one side we have contracts which continue to generate revenue on a recurring basis. On the other hand, we have a pipeline of bids in different stages. Some of them are very close to the point of award. Some are in the early stages. Others are in the middle. We believe that, right now, we’re in an excellent position in terms of our pipeline.

In EID, what we have, both from OTI and SuperCom, enables us to potentially see a nice stream of contract awards implemented over the next seven years. We are talking about a wide range of proposals, opportunities or bids that can range from $5 million up to $150 million. When you take them and you put each one on a timeline, you see that you can fill out seven years of revenue just from the award of some of them. If we estimate a win rate of 10% to 15% of those opportunities, I believe we’re going to be in excellent position in comparison to the combined OTI and SuperCom revenue for the year 2012. And I do believe that, if we can make the most of having both companies combined together, that a win rate of over 10% is very, very achievable.

Are you able to provide more specific commentary in terms of how many contracts you have an open bid on? And of those, how many might you hear from back in 2014?

Arie: I don’t know if I can disclose numbers. I could just say that it’s well-known that in the market there are at least, I think, 30 opportunities every year. Now, we don’t bid on all of them because we concentrate on the ones where we have a competitive advantage, for instance with our technology. We have over 50 of open proposals and bids in more than 20 countries and our goal is to secure at least three contracts every year.

Given our uniquely modularized technology solution, securing a contract in a new country is a major goal, because one contract with a country provides us with the ability to get more and more contracts in the same country. Once we get a contract, for example, for passport, we have huge advantage to be awarded other EID contracts. Our technology is deployed in a manner such that we can use the same infrastructure that we built for the passport for all other solutions. This gives us a huge advantage in pricing and time to market. In this situation, governments are not likely to go to a competitor because it’s going to cost them much more money and take so much longer.

Besides hearing back on a number of contracts, what are the other important things that investors should look for out of SuperCom in 2014?

Arie: First of all, I think investors probably will look to see if we are able to integrate this acquisition with OTI. Something very important for us to show to the market is that we’re able to do it and that we have the capability of acquiring companies and delivering synergies.

Aside from integration, which we don’t think will take more than a quarter or two, the big thing is delivering contracts wins. You asked me to talk about things outside of contracts, but there are things about the contracts that I need to explain. Can I promise anything here? Not with certainty. But what is possible is that every few months we could be announcing a new contract award, some of which are very, very large.

In the EID market we talk about contracts that, in many cases, can be 3-times larger in size than the combined revenue of SuperCom and OTI. So investors may be surprised to see that — maybe — we’ll announce a contract that will double our revenue in the next three years, just from one contract.

The other thing our investors should expect to see from us are more and more implementations of our RFID solutions. We are going to bid and secure more and more contracts and deliver more solutions there.

Arie, you have a history of turning around companies, of building and selling companies. What’s the goal with SuperCom? Where do you think it can go over five years? Are you looking to build it up to an exit?

Arie: Our goal is build a strong company with streams of recurring revenue. We would like that our investors will see every year that the number of contracts with recurring revenue is increasing. We are talking long term contracts — five years, seven years — so each new add is cumulative to what we’ve added over the prior few years.

Our goal is to increase our market share to a point that our company will be in the range of $200 million to $250 million of revenue in the next five years. No, that’s not guidance, but I’m telling you what my goal is. And I’m talking about growing organically. I’m not talking about acquisitions on that scale, although we may do some very selectively.

We are not looking to sell the company, although we believe from what we see, more and more, both in the EID market and the RFID markets, that large organizations find those markets very attractive. Given the high barriers to entry, these organizations have made large acquisitions in order to become players in these markets. SuperCom probably can be and will be considered by large organizations as a natural target for acquisition. In terms of increasing shareholder value, though, we think the opportunity over the next few years is much greater when we focus on the growth we can deliver organically rather than seeking or approving an acquisition proposal.

For closing remarks, would you summarize the key reasons why investors should take a look at SuperCom right now?

Ordan: What we’ve done since current management took over is complete a significant turnaround rather quickly. The same type of fast results we achieved at SuperCom, we hope to see with the OTI business we acquired. This capability helps us to grow very quickly in a market where it takes a long time to win contracts. But if you can acquire the contracts as we just did and deploy them on a very lean cost structure, then you’re creating massive shareholder value.

Looking at our peers, our share price may be viewed by some as undervalued. Look at Zetes Industries, ZTS on the Brussels Euronet Exchange; it trades at a P/E of 25. Or consider the L -1 Identity Solutions acquisition at an EV to EBITDA multiple of 20. Some may view our share price as even more undervalued when they add in the Smart ID acquisition at 3.5x EBITDA, and investors may get comfortable with a nice margin of safety when taking into account the recurring revenue businesses model and pipeline of opportunities that could start delivering in the next few months.

Arie: SuperCom is a company that on one hand has very nice recurring revenue — stable, not so sensitive to economic slowdown. And on the other hand, has rapid growth engines that can move the company’s revenue to a very high level. I’m referring to the near-term pipeline in EID and the opportunities we have right now in RFID.

The market likes visible revenues. When investors will look at our company once we’ve seasoned the OTI acquisition, they’ll see our revenue baseline for the next five years, based on announced contract wins. All growth and new contracts will be gravy. Subscription businesses can achieve very high multiples, once people understand them and the steady free cash flows they can generate. A year from now once we will have integrated OTI and hopefully have announced several new contract wins; we could be in a very, very different place.

I mentioned before that my goal is to hit $200 million to $250 million in revenues over the next 5 years, just from organic growth. If we find other acquisitions like OTI where we can add assets that fit into our business very well and where we can pay attractive prices, we’ll consider those opportunities. On 2012 pro-forma we just tripled our revenues, yet I feel that we are only getting started with where SuperCom can go.

Thank you very much, both of you.