This is Why You Avoid Story Stocks

by John Rubino on May 24, 2010

February’s A Big Future for Small Wind? was a hopeful story on small-scale wind power, based largely on a conversation with a representative of WindTamer, a New York start-up with a promising new turbine design that the company claimed was far more efficient than anything else on the market. Lots of people were lining up to buy and invest, said the rep, so the company’s financing needs would be no problem.

In retrospect, a little more skepticism would have been in order, because this is exactly the kind of thing you see constantly in hot markets. Revolutionary technology, lots of interest that will certainly turn into solid orders, and near-term financing needs that will be met, no problem, from excited current investors and down payments on the revolutionary technology.

Nine times out of ten something goes wrong on the road from impressed visitors to massive cash flow. Like this: On May 19 WindTamer announced that its systems weren’t performing as expected, and that the company founder (and the technology’s inventor) had effectively been looked out of the building:

(Marketwire – 05/19/10) – WindTamer Corporation (“WindTamer” or the “Company”) (OTC.BB:WNDTNews), a developer and manufacturer of a patented new wind turbine technology, announced that Adeeb Saba, Vice President of Operations, has assumed responsibility for the development of its wind turbine technology from Gerald E. Brock, the Company’s founder and inventor of the WindTamer technology.

William A. Schmitz, Chief Executive Officer of WindTamer Corporation, said that, “The decision of the Board of Directors and me to no longer have Mr. Brock head the research and development of the Company was the result of a difference of opinion over how to best address performance issues of the WindTamer turbines that have been installed and are operating in the field. It has recently become apparent to management that the turbines installed to date are not performing to product specifications, and we felt that a shift from Mr. Brock’s inventive approach to a more analytical approach was the best way to improve the technology so that it performs at the levels that we believe possible. Moving forward, Adeeb Saba will lead a team of engineers and has begun a systematic, data-driven process to determine how to optimize the energy output of the turbines to bring the performance back in line to the performance levels achieved during the development phase.”

“There is a difference between inventing a new technology and designing a systematic engineered energy solution that can be mass-produced,” said Mr. Saba. “Based on the early prototype performance validations by Dr. Ken Visser, Associate Professor of Mechanical & Aeronautical Engineering of Clarkson University, the WindTamer turbine is a breakthrough turbine technology. However, a total systems solution approach must be taken in order to fully maximize the annual energy output. I have already initiated this process and I have every confidence it will enable us to maximize the performance of our turbines.”

Mr. Saba continued, “As an energy system, the WindTamer turbine needs to leverage the strengths of the system components, including the turbine, generator, inverter and controls. The optimal combination of variables can best be determined through a rigorous data-based testing process. As one of our major efforts, we plan to utilize proven Shainin design of experiments methodologies to more accurately understand the significance of and interactions between the various design parameters. I have successfully led similarly complex product and process development programs in the past such as the design of the Land Warrior Power System launched by the U.S. Army in 2007 as well as several plating, coating, and electronic projects, and I am confident that I can do it again here at WindTamer.”

Mr. Schmitz also said that Dr. Visser continues to be engaged with WindTamer to assist in maximizing the WindTamer turbine performance. Dr. Visser stated, “I have been completely engaged with Adeeb Saba and his engineering team in this new data-based analysis and I have been very impressed with their approach during my work with them. I look forward to continuing to work with Adeeb and his team to continue to optimize the WindTamer technology in a scientific and efficient manner.”

Mr. Brock was notified on May 16, 2010, that his employment and Employment Agreement with the Company will be terminated for good cause effective June 15, 2010. The Company’s Board of Directors approved and ratified the termination on May 17, 2010. Mr. Brock was terminated due to his willful disobedience of material and lawful instructions of the Board of Directors and Chief Executive Officer of the Company. Mr. Brock will continue to serve as a director of the Company.

Whether the company is able to salvage anything from its early missteps is beside the point. Today it’s no longer an investment; it is now an object lesson in the most fundamental rule of clean tech investing, which is that game-changing technologies are a dime a dozen. Real businesses with sustainable cash flow are very rare, and only become identifiable after their products have attracted repeat orders from happy customers. Before that, all they have is a good story.

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