Insider Briefing of 18 June 2020
Helping You Thrive in the World's ONLY Vital, Scarce and Recession-Proof Market
The post-Pandemic world will be much more focused on public health, and that includes better sanitation. That makes a water marketplace vital; Our CEO reviewed the company’s message on LinkedIn, and progress on the 2nd and 3rd pilot programs in the lab, with the help of longtime OriginClear investor Eric Keller.
Transcript from recording:
Hello everyone. It is Thursday the 18th of June, Water Is The New Gold. And in fact, I'm about to do my little cute share thing that I do. So, Water Is The New Gold: “Helping you thrive in the world's ONLY vital scarce and recession-proof market.” And there'll be more about that. We just wrote an important LinkedIn article of that, we'll get into that. So, without further ado, I'm going to quickly show you the panel that talks about our disclaimers safe harbor statement, which basically says that while we're very smart, we are not fortune-tellers. And so what we say here is intended, it's the best information we have, but of course there are risks and uncertainties.
If we start talking about the offering, that's in progress, then of course, there's a disclaimer here that the securities and exchange commission has not reviewed the offering. And so they are not responsible. There happens to be Regulation A disclaimer here, but as you may know already, we've paused the offering to improve it and we expect to have more updates about that very soon. But without further ado, I'm going to stop sharing and I would like to introduce a good friend of the company's Rick Keller, Rick say hi.
Interview With Rick Keller
Rick: Hello, good evening everybody.
Riggs: So, Rick, gosh, how long have you been involved with this company?
Rick: I believe it was around 2008 that through, I think it was a Scientific America, that I discovered that you were working with the algae and able to separate the oil and the algae from it through electrostatic and coming from Illinois, unbeknownst to a lot of our country, our great lakes have a lot of water. The problem is it's not available to the United States by treaty with Canada. You've got to be in the watershed to have access to it. There's a town in Indiana about eight miles away from the Lake and they can't get water because they're not in the watershed.
Riggs: Wow. I did not even know that.
Going Through It Pretty Fast
Rick: Oh yeah. So, when you look at the United States, we got plenty of water in that. No, we don't and we're going through it pretty fast. And at some point we're going to have to realize that we just can't put it down, the rivers or try to get rid of it. We're going to have to recycle that water to make better use of it.
Riggs: I think I'm going to hire you as a pitch man for the company because you're doing a fine job. So fast forwarding here, obviously you've been a long-term investor in the company itself and you got involved a couple of years ago in Wisconsin with a colleague who was interested in using our technology in the hog farms there, dairy farms too, I believe. And now we'll be discussing further how you may be getting involved with this short-term rental phased approach, which we'll discuss in greater detail.
So you really starting to become not just an investor in the company, but also potentially doing equipment financing with this partner of yours. And at this point, I want to make it very clear in this briefing that at this time, OriginClear is not offering investments in water equipment to investors. What's happening right now is people like Rick Keller are directly working with potential users in this case, in the Wisconsin area and they're doing deals directly. We're like witches looking at the cauldron, but we are ourselves not parties to the transaction because we still have to work out the regulatory fabric of the investment offerings.
So at this time, the only offering coming out of OriginClear is to invest in the private placement that is now in progress. So just putting that there, its very important. Now what I'm going to do is I'm going to quickly play a video that sets the stage for what you and I have been working on.
Projects In The Lab
What we have here is the Investor Water™ draft website. This is a very simple website that is pending, the fancier one is being done. But just to recap, where we stand, we have three projects in the lab. The first one is called 2 million pools. And this is really about recycling. Instead of people dumping the water in their pool, which has to be done occasionally, instead to run a kind of a kidney dialysis machine to purify it. And that of course saves a lot of water, but also potentially saves that pool from being cracked when it's dry or in Florida floating off the bed.
So that as we reported last week is a done deal. We finalized a rental to a pool cleaning entrepreneur. The great news is that we've since had several leads. Now the Investor Water project is not interested in doing more pool deals.
What we're working on as a financial model. So, in this case, we turned over those leads to OriginClear, which is now following up in Texas and doing very well with it and those things are being done with conventional financing. The unique Investor Water incubation shall we say, is being done on these very specific transactions.
Remediating The Lagoons
The second one is the project in Troy, Alabama. And this is where we're talking about remediating the lagoons. Trailer parks have their own lagoons, it's astonishing, but true and these lagoons have to go. The state of Alabama and other states are like, no, no more of this. And so, we are in the process of finalizing a project and once again we've hooked up the potential investor. And I spoke with her this week and she agreed in principle to connect with the end users of that Troy Alabama thing.
And once again, we're not going to be acting as a "market or sponsor" in any way of the financing. We'll be providing the equipment as a water company. And that means we're not going to take off percentages of market, fine, but it keeps it simple and allows us to keep working on this model without getting into the mine field of regulation, which is state by state. It's probably the most challenging part of this whole project.
Animal Farm Lagoons
So finally, we come to the third lab project we have in mind, which is animal farm lagoons. Now these things, as I've said before, they generate huge amounts of manure. We're talking about 2,500 cow dairy farm generates as much manure or poop as the entire city of Miami with 440,000 people. I think I've calculated, that all the farms dairy alone in America generate as much manure poop, shall we say effluent as, 1.6 billion people. It's just a ridiculous amount of people.
So it's a real problem. It's actually a far bigger problem than human. And a lot of these operators are hauling it out. But let me just run the video real fast because I think that that tells the story really well and then we can circle back.
Hi, Riggs Eckelberry here, OriginClear CEO and I love where we're going with Investor Water. It's a breakthrough marketplace to get rapid funding of badly needed, local water sanitation projects. It's fast, it brings in a whole new class of investor, main street investors and I think it's a solution for so much that is not happening right now, but must happen if we want better sanitation in the world. But the real question is how do you scale it up? Like an outboard motor, pull on the cord and the thing starts, but then it can grow bigger. And that's what this presentation explorers. Take a look and I think you’ll like it.
Animal Farming Problem
Let's talk a little bit about a specific situation where we can actually help because now we have this Investor Water concept, right? And what do we have? We have the hog farm, cattle farm, poultry farm, whatever. These are the buildings where the animals are raised, the slaughter and so forth. And here we have the manure lagoons, right? Well, that manure lagoon there's a problem. Why? Because the US government and the state government is coming down hard on these. Why? Because you have various toxic gases coming out of it. And so what they're doing right now is they have to do something, right?
A $Million Per Month
So they're literally paying, these are my little pictures of trucks, right? They're paying waste haulers, like Waste Management, up to a million dollars a month to haul that away, and yet you could have a comprehensive solution, like say for a million, two million. It’s what you’re paying a month, you could pay and be done, right? Now, I’m just being, approximate numbers. It might be more but it’s in that range. So it’s just like when you rent a TV, you’re soon going to spend more money on that TV than if you payed for it in the first place, right? And so that's where we really want to get into a solution. The problem is that this solution, and I'm going to put it right here, I'm going to clear some land here and I'm going to set up our… Remember that operation in Spain that we had set up? Well, there it is, okay.
So there's processing plant, and there's ponds here, and so forth. And so that now takes the water, and it processes it and you get fertilizer, and then you get clean water. H2O. It's a win-win, right? Everybody is happy. That's great. Only problem is money, right? These people are able to spend a million dollars a month let's say, but a capital expenditure of that much or perhaps more is going to be tough. And so that is the challenge.
How Do We Solve It?
So how do we deal with that problem? Because we looked at it and said, "How do we solve this?" And our partners in Europe and our partners elsewhere, and we ourselves in the United States are dealing with a problem of way, way too much waiting and waiting and trying to get capital and raising money. And that again is not getting us anywhere, and it's now gotten worse as I said.
Well here's the solution. We have a solution here where we can put something that we've colloquially called, the bobber. Here's a little flag, and we've got a little diving platform, and this thing here is a biological solution that sweetens that manure pond. Now it does not take care of the entire problem, but it does reduce the amount of trouble that the government's giving, and it buys time, and it is a pretreatment for this eventual system.
So what you do is you say, okay, you are going to buy this whole thing, but you can start with something inexpensive in the $100000, $200000 range that we'll even rent to you. Just start paying. Well, you're already paying over here. Get rid of these waste management trucks, right, and just sanitize the lagoon.
And now you've got phase one of a total solution, and that's made a lot of sense because it gives them a win. They are now able to save money, get a stay of execution. And then, when the time is right, they go ahead and they get the whole thing. They get away from rental. Again, you don't want to rent forever. But they get the whole thing in a package. And now, they have a beautiful fertilizer, H2O type situation going on, and Bob's your uncle, right?
So that's where this translates into real world solutions. So far, we've done things like these pool cleaning systems and so forth, which are really great, but they don't go to the millions of dollars, right? This we think is the real business. That's so exciting.
Water Companies ⇒ Projects ⇐ Investors
So let me just recap a little bit, what we're talking about here. Just going to persuade this thing to go, to slide. Let's take a look at the business model, okay. So when we have Investor Water, what are we talking about? In this eventual marketplace you have a series of water companies, right? Water, water, water. And over here, you have money. In the middle you have projects that these guys and gals upload. And we have OriginClear watching this and making sure that these are technologically good, right?
It’s A Marketplace
And then we help bring the investors in. We help bring the water companies in, and now we have a marketplace, okay. And that's our vision for this whole thing, is to actually promote what I call a popcorn popper. Put the popcorn in, turn up the heat, and pretty soon the popcorn is popping. So that is in the vision of Investor Water.
And it really works well when you have these longer-term solutions like that hog farm, where you are really looking at starting with something cheap, but rolling it into something bigger. And that's the progress that we've made in the last week or so.
I hope that next week I can bring on somebody who knows this business really well, who's been educating us on it, who's been pointing us in the right direction to where this is going to help us build that interesting marketplace.
Vision Of The Future
So the vision of the future for us is again, and I'm getting good at moving these little tabs here. Vision again for us is to create a place where everybody is going to be working together. And that is the future.
Stay tuned, and you'll be seeing the Investor Water website coming up and more wins. As I said, we already did the thing in the pool business. This gets more exciting. I'll see you soon.
End Of Video Presentation
Riggs: Well, you're one of those experts that we've been relying on tremendously. I was talking in the video about the problem of this endless trying to do the big deals. And you and I know about this. You've been living this with your partner, Rob, and this is a direct attempt to deal with that. How do you think this is playing, this pretreat idea?
Rick: Well, the pretreat idea is... We've talked about this for now probably nine months to almost a year. Because when we first started this type of project, we were looking at some of the variables that cause difficulties for the engineers to kind of focus on, because every farm is different.
Rick: It's just the nature. God doesn't make all the lagoons exactly the same. And the contents of it can vary. The phosphorus, the nitrogen, how much solids are in it, and that. We were sitting there, okay. Now we can send the water and get it tested and we can know what it is. And that leads to the engineers telling us what we need to acquire to process that water to be usable in some way. From the fertilizer, how we're going to get rid of the water and that, are our constraints.
Getting Everything In Line
And when I started working with, you might hear from Tom later, it looked like the pretreat, or how we start the process to get everything in line so that when we process the water, it's consistent. Because remember what happens with the lagoon. We can take water today, and three weeks later there are heavy rains. It's changed.
Riggs: Oh, you're so right. So, we're basically not just sanitizing the water. In a way we're formatting it so that it is standardized. This is very smart.
Rick: So that we can run consistent treatment.
Riggs: Yeah, it's so good. That's a really good observation, Rick.
Rick: So you came up, well, let me just add, when you came up with the sweetening capability, because remember, here's what gets the farmers in trouble. Obviously, the smell. The neighbors don't really like it.
Rick: And as we expand communities and that, and people get into the suburbs and the rural, they hate to have a pig farm somewhere within the next three miles, because they know.
Some of the other constraints are, is things that they were doing before. Like they might've just been, some of the other applications take out the solids and that. They may have been solved, but they never hold up long enough, but more so they hadn't really focused on the chemistry of what their water is. So, if they put it on their fields, they could build up salts. If it's running off and the phosphates and that are getting into the rivers and the creeks, next thing you got is algae blooms. All kinds of things that nobody thought about when it was such a great idea. And it was expensive. And most of them had to be built then.
OriginClear Takes Care Of The Chemistry
What is OriginClear giving us? The ability to have some capability, to really take care of the chemistry. And if I may just interject in a minute about how we go about that, it's modular and can focus on the chemistry, and also gives us a chance to keep what the farmer considers gold. As effluent dried, or the fertilizer, or the nitrogen phosphorous that they can get out of pig manure. It's one of the best.
Riggs: You're so right, gardeners love that stuff too.
Rick: Oh yeah, that's gold to them. They don't want that to get away from them. But the thing is that they spray down their sheds in that, and the pigs in that, and all that water has got to go somewhere. Some have three ponds actually to keep separate. But again, we're getting EPA who says, "Wait a second, you can't have three smelly ponds in that small a territory.”
All these things are going on. We have been told stories about the fact that they have to haul it away, as you said. Other people have tried to dump it over some sort of flow way towards the river, through sand and gravel, and none of these things have really solved the problem.
So when we come with Modular [Water Systems], the nice thing is we can talk about the three tiers. The first tier that after the water comes through, real quickly, would be capable of being put onto the farmers' fields and that. They liked that idea. If you were going to discharge it and it's going to end up in the creeks or waters, you can bolt on another unit that will get it to potable and easy enough to pass the EPA requirements for discharge.
But the thing is that you can even get to the water that's clean enough to drink that will pass all EPA, if you need it. So, if you were going and reusing it and that, you can do that. And you could build it over time. Start with your sweetener, add this, add that, add the other as things change. You've basically got a closed cycle in the end, if you wanted to get to it.
Riggs: You and I are in such strong agreement about that. That we've now broken down... In other words, we're now eating the elephant is smaller bites. Right?
Riggs: Because it was so darn hard to go, "Oh, we're going to give you a complete solution, millions of dollars" and it would get into this horrible capital cycle. And what we like about this immediate rental project, which I'm going to go over briefly on the spreadsheet with you, is going to be really a way to jumpstart things with really no capital planning whatsoever. So, thank you. I think that you have really pointed to what is a major problem, and that we might just have the solution here.
I'm going to share quickly the spreadsheet that this has been about. So what we have here very, very fast, and this is, you’re giving me informal advice on this, but as a CPA, you are not opining here in any way.
Riggs: But let's say that this solution is $125,000, including everything to install it. And over here, we have the table of fees where the renter pays first, last and security. So roughly 21,000 some dollars and gets into the business and then spend $7,000 a month. Now this may be different. It may be that the market can only bear $5,000. We don't know yet. That's why we're testing it. The investor gets a certain percentage. The operator gets, we've been playing with different numbers, 20%, plus the 5% monthly service. The market, which is what Investor Water would get.
The market percentage is not being charged at this time because of the legal thing. So that goes away, and it makes the piece for the investor a bit better. And then, of course, I want to disclaim that this is a theoretical model right now. And then we get how the rental works out. And the beauty of this thing is that the IRR, the internal rate of return, can be, depending how it models out, right around 26%. Which is a beautiful internal rate of return. 41% if you build in the tax advantages. 38%... I mean, to make more than a third of your investment every year is, I think, attractive. Because not only that, you have ownership of the asset.
So this is very popular right now. There's a buyout here where the buyout occurs at year four. I won't get into details here, but still the IRR is very good. It's 24% without tax and 40% with tax. So this is a model that you are now, Rick, going to be experimenting with the potential renter. Because I think you have identified a potential customer for this test. Am I right?
Riggs: Excellent. So you're going to be playing with that and this is why we're so interested in this. Even though we're not yet getting our market percentage, we are providing the machine, the equipment, as OriginClear. So for us it's as if we were bringing in a leasing company that would do things separately. You and the user will work things out directly.
The Equipment Lasts Longer
Rick: Exactly. May I add one interesting point from the OriginClear that's kind of important
Riggs: Go ahead.
Rick: You've got five years here.
Riggs: Mm-hmm (affirmative).
Rick: The equipment lasts a lot longer than that.
Riggs: Oh my gosh. I know exactly where you're going. Go ahead.
Rick: So once this projects done with the farmer and that. If he likes it, then it's still good for another 10, 20 years or more. Just needs some membrane refurbish and that and clean up, and should last them far longer than one would have ever expected in this environment.
Riggs: Well, you have made an extremely good point. What the investor gets full depreciation year one with section 179, accelerated depreciation, he or she is out now.
Rick: At the end of five.
Riggs: And at the end of five years, OriginClear gets the machine for a dollar or whatever, and that's an asset. Which is very exciting.
Riggs: So moving quickly along here, I wanted to go to the next stage here. So we'll close this out.
Smart Investor Like Alternative Investments
We published an article on LinkedIn, both in my personal LinkedIn, but also in the OriginClear one. And this is an article which basically states what this is about. Smart investors like alternative investments. Why not water? And we say, "Okay, alternative investments. Because they're not connected to the stock market". And if you think the stock market is predictable, then please give me a call because I can't. Whatever. I can't even make sense of what's going on with stock market. What we do have here is these alternative investments, which are assets and make cash money. Real estate? Problem: crashing. Oil and gas? Problem: crashing. Solar industry? Set back five years. Water needs more people actually. And it's actually growing stably and so forth. You can buy shares in water company like us. You can buy a municipal water bond, but no, you cannot invest in the projects like you are Rick. And that's a whole missing category of investment in the world. I invite everyone to go take a look at this, because this is our statement of where we're going and how exciting it is.
How You Catch COVID
Here's why this is very, very, very, very important. We have here a Wall Street Journal article, which talks about the growing consensus of how you catch COVID, which I'm not going to get into in this conversation. But what it does talk about, very importantly, is that as we go in the future viruses are not going to go away. What's happened in the past is we've tended to go, "Okay, looks like the virus didn't get too bad". We kind of whistled past the graveyard, right? Well, that's done. There's going to be precautions now. I don't think we'll have full lockdowns, but there's going to be an ongoing…it says right here, "We should not be thinking of a lockdown, but of ways to increase physical distance. Including allowing outside activities."
Let me make it bigger for you. "Allowing walking while physically distant. Curbside pickup, which can facilitate resumption of economic activity without a rekindling of the outbreak". So what's happening is that... And again, widespread testing, contact tracing, isolation of people. It's going to develop into a regime that's going to allow the world to continue, even while there are viruses out in the wild.
Water – A Big Piece
Now, the reason I mentioned this is that water is a big picture. A big piece of this. Sanitation is the reason why we don't have what happened with the Spanish flu, which [was] 80 to 100 million people dead because of the horrendous sanitation that was going on at the time. Today we have much better sanitation, but it's still way shy. And so I would add to this list of the things is going to be better sanitation. Water ranks right there. So that's why the mission is so important, in my opinion.
Moving To Florida
I told you last week that I'm moving to Clearwater, Florida. My wife and I are doing so. And here's an announcement we made on my friend's page. It looks like a lot of people... What was it? 180 comments and 210 likes and wows and so forth. Going to the West coast of Tampa. A place called Clearwater. As you can see, we're overlooking, the bottom left there we’re overlooking the Intracoastal waterway, and we intend ultimately to buy. This is just a short-term rental so that we can check out the place.
Now, the reason I mentioned this is not just because you need to know where I live because it probably doesn't matter very much. But as you know, a couple months ago, we announced that we moved the company itself from California to Texas. And we left a small administrative presence in California. Now, even that's going away and we will establish a small operations office in the Clearwater St. Pete area.
And so, the general manufacturing and headquarters of the company will remain in Texas and we will have an operations office in Clearwater. I will be there, Tom Marchesello is already there. He's been there for several months in Sarasota, which is South of St. Pete. And it doesn't matter much because it's WFH, right. It's work from home, but I wanted you guys to know that is going to happen. And you're the first no outside of our friend network.
I'm going to now turn to the slideshow and I'm going to mention that we have some very important people here to talk to. Right now, the offering that we have in place is, even though it seems that the stock's doing fine, but we don't want you to rely on the stock price. We offer basically a bond and that bond is convertible to stock at your option. And there's all kinds of interesting, very good dividends, 12%, 8% cash, 4% stock and annual dividend paid quarterly of 12% all in plus a big premium. You're able to recapture your principal with stock and you're also receiving a stock grant. So, it's extremely generous.
Airbnb For Industrial Water
Why are we doing this? We're doing this because you are funding our development of what we think is this Airbnb concept for industrial water. And you will participate as an investor. You're super important because you're basically our venture capitalists is what you are. Now, Ken has an amazing presentation. You must book with him. You can simply schedule a call by going to www.oc.gold/ken, or call him up extension 201 at this phone number. If you want to talk to Devin, that's a great way to get through to me because he's my assistant. He's at extension 116 or email email@example.com. So that is pretty much it for tonight. To recap, we really are moving fast on the three lab projects. First one done as you know, the second one and the third one are actually happening almost on top of each other.
And we're finalizing this financial model and making sure that we have something viable. And I also want to mention this parting shot that we believe that we have found a partner from whom we can license their financial investment. A way for ordinary investors to invest in an asset. They use it in the real estate space and what they're doing is they're enabling investors to invest directly into a residential real estate, bypassing the mortgage companies, the banks, and everybody else. I love it. Democratization of investment.
We believe that we can use their model and we're speaking in fact further on Saturday about this. And I will keep you advised. I'm very excited about that. This is a company that's on the Inc. 500, so they're extremely successful. And we think that we can take their model and adopt it for ours. It's just a theory right now, but it's very, very exciting.
Stay Safe & Healthy
"Viruses are not going away," Munira says. "What ways do you suggest we stay safe and healthy moving forward?" Well I think that what the Wall Street Journal says, they're not saying themselves they're reporting on this group, is very good. Number one is to follow all these…I think permanently, we're going to have a more socially distant world. I'm in Florida right now, when I flew over yesterday the center seat on Delta was empty. That center seat is going to stay empty for a long time. There's going to be massive changes. So, all that aside, what can you do yourself in the water area? And that's where what we're doing is very important. Look, I've reported before on the 100,000 septic tanks in Miami-Dade County, that are now overflowing.
We can replace them with these financed units. This is super exciting. I am so excited that we've broken through, I believe, to what the solution is to get these problems handled quickly, which they cannot be handled by one company. I'm sorry. We are not gods. We are, I think, a very good company, but it's impossible to take care of the entire world, certainly on the timeline we're talking about. And so let's move quickly and it's done by putting in place a system. And technology is good. We have this important technology.
Riggs: But even more important is the money.
Riggs: Yes, sir.
Rick: Can I add something to that?
Riggs: Of course.
Can’t Use Chemicals
Rick: When we're looking at the hog farms and things, as we clean water, we can't chlorinate it. We can't throw chemicals in it. We have to go and remove contaminants and you might consider chlorination and those things that our municipal water people do, as not the way of the future.
Riggs: Well, you just blow my mind. Eric, you just blew my mind because as you know, we have Electro Water Separation™ and electro oxidation (Advanced Oxidation™), which do the sanitizing without the chlorine and so forth.
Riggs: You have just, my gosh. Well, that is a very good note on which to wrap up, Rick, thank you for that.
Rick: You're welcome.
Riggs: We think of our technology is amazing. And with this structure we're going to do well, but also, we believe that everyone else has got great technology too. We're not the only people with great technology.
Riggs: We want to have this big witch’s cauldron with all these deals happening there. And we're overseeing it with our great Chief Engineer and the whole team. So, thank you Rick has been fascinating to have you on board. Thank you for having contributed and thank you everyone for sticking through literally every one stuck here. So I thank you for your loyalty and your patients. I'll see you again next Thursday.
Riggs: And we will have more exciting updates on where this is going. Have a nice evening, everyone. And Rick, thank you very much.
Rick: You're welcome.
Riggs: Say goodbye.
Rick: Goodbye. Bye everybody. Have a great weekend.
Riggs: Right on. All right. Thank you all.
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