Insider Briefing of 12 March 2020
Helping You Thrive in the World's ONLY Vital, Scarce and Recession-Proof Market
In this Insider Briefing OriginClear's CEO covers important information on why proper treatment of sewage is vitally important while at the same time seriously neglected globally, and this fact's relevance to the spreading coronavirus. Eckelberry also discusses why foreign investors are turning to US real estate and why water distressed real estate can actually become a valuable asset. Learn what this has to do with water autonomy and OriginClear's activities.
Transcript from recording
Riggs: Good afternoon everyone. It is the 12th of March 2020.
Full Webinar & Insider Briefings
This is our much more relaxed format. The first Thursday of every month we do a full-on webinar with video and whiteboard and charts and so forth. It is getting cooler all the time as I get the production values up. One thing you always get from me is exactly what I believe is happening in the company and also in the general markets, whether they are water or not. In between we have these audio briefings which are more intimate, more insider and keep you up to date as to what is developing.
What’s Going On?
What the heck is going on? Well one thing is for sure and that is that, I was at the CNN building today recording our show, Money TV, and CNN is all virus all the time now. This is how it's going to be, so it is what it is. What does that mean? There are several dimensions to it. The first dimension of course is human, and people have moved from being very complacent to many people being panicked. I think somewhere down the middle is a good thing, but I'm not really going to get into the health side of things because you can go on Facebook and look up Riggs Eckelberry and you will see my latest public post as a person, as an individual, but that isn't really what we are about. We're about the water.
Water & The Coronavirus
Now, there is something very interesting about water and the virus. That is, headline: “Coronavirus may be spreading so quickly due to fecal transmission says new research. That's in addition to passing via droplets from coughs and sneezes and possibly even blood.”
Coronavirus May Be Spreading So Quickly Due to Fecal Transmission, Says New Research.
(Health. FEB 20,2020)
Now in this article which is dated the 20th of February, “Chinese researchers claim to have made a major breakthrough in understanding how the virus spreads and why it's so infectious.” Basically, it is as simple as not washing your hands properly after using the bathroom and that of course includes a lot of infectious, not just this one. If you are not washing your hands in the bathroom, well you are now I'm sure. It is also very important to realize that this is probably how the cruise ships have had this problem.
Right here, I've got this other story in Bloomberg, which is, “The finding of live virus particles as stool specimens indicates a fecal oral route for coronavirus, which is maybe why it's caused outbreaks on cruise ships with an intensity often seen with gastro causing norovirus, which also spreads along that pathway.” The new coronavirus, COVID-19, is behaving like norovirus, which spreads via the fecal route.
Sewage Vastly More Important
What does that add up to? It means that all of a sudden sewage is vastly more important. For years now, I've confronted the fact that both the public and the press think that water is very, very important, but sewage, “Let's not get into it too much.” The TMI, too much information, attitude towards sewage has been a problem in terms of public awareness that is changing because it's getting out that in fact we have a problem with the fecal to oral transmission.
A wild week on Wall Street could get even wilder (NY Post. MAR 11, 2020)
About The Stock Market
I'm going to get back to that in a second, but let me talk a little bit about the economy and about the stock market. You probably know better than me what the heck to make of the stock market. All I know is it's going wildly back and forth and it is what it is. It is a crazy situation. It will stabilize. It will come back. It always does. Meanwhile, it's a crazy situation. Anybody who wants to be in equities at this time, is it a very sharp day trader with a broadband connection to wall street or should have their head examined. Playing the equity markets right now is crazy. What then is any good?
Well, you can always go to cash. Cash is safe. The problem is that the fed just decided today to inject one and a half trillion dollars. In other words, we are rapidly creating this Zimbabwean dollar and the usual, a wheelbarrow full of cash to buy one loaf of bread that we saw in pre-war Germany and Zimbabwe and one day perhaps in America. What it really means is that the interest rates are going negative and the money is simply worth less and less.
That's a simple fact, not just of a lot of money being issued, but also because the Chinese interruption forced a lot of producers to go find their products elsewhere, such as in Europe at triple the cost. You still get your product. It's just going to be priced much higher. So, there is going to be a genuine inflation both on prices and in terms of the dollar going down in absolute value. Finally, interest rates being set are now officially low. I'm not going to criticize anyone who's going to cash because I hold cash myself, but it is not a way to preserve your portfolio or to increase it. You have to do something.
Not Offering A Stock
On a very basic level that's what is happening in water. Let me tell you what I mean by that. First of all, of course, OriginClear offers, not a stock. You don't buy stock from us. What you do is you lend us money secured against our revenue center and you make 8% in dividends, essentially interest paid every quarter, annual interest of 8%, and we repay you in two years and you get a bunch of free stock. That itself is price protected. That has been extremely effective and a very good offering and it is well worth doing.
A Calm In The Coronavirus Storm
Let's go the next step beyond that, I have a headline here from CNBC from the 5th of March, which Tom Marchesello, our COO, passed along to me. “Foreign investors are piling into U.S. real estate play as a coronavirus safe haven.” Now, people are coming into real estate. “Investors are looking for the calm in the coronavirus storm. These investors are not, however, coming to the U.S. to tour the homes themselves. They're buying them online.”
Foreign investors are piling into this coronavirus safe have (CNBC. MAR 5, 2020)
There is traffic, for example on Roofstock, which is a place that sells rental homes online, “Has seen traffic from investors in Asia on its site jump 500%.” The CEO states, “I think, it may be people looking to invest capital into what may be perceived as more stable areas that don't have as much of an effect, as at least not yet, from the virus. I think people look at hard assets, things like real estate, which are uncorrelated generally to the stock market and specifically U.S. housing that tends to perform quite well on a relative basis during times of market volatility.”
Now, we are not talking about people investing in a vacation home. We are talking about people investing in people's primary homes which are rented out. You have the rental income as an owner, and even if the value of the home goes down for a while, you have the rent.
It's a well-protected situation. My conclusion along with the teams is that there is a real estate aspect to everything. Real estate is interesting. Now of course, everybody's rushing towards the best properties. You can go to Roofstock and you can get properties, you and 10,000 other people, or you can take a look at opportunities for greater returns from something that we are looking at, which is the whole process of water distressed properties.
Water Distressed Properties
As you know, if you have been following my briefings, we have had a pilot project in progress now in Alabama, and the owners of a trailer park came to us, and they could not sell their property because the environmental, local state EPA said, "You need to meet sanitation requirements." Now the problem with trailer parks all over and their mobile home properties properly speaking, MHPs.
The problem with MHPs all over the south is that they generally use very crude water sanitation. We are talking about dumping it in a lagoon, generally. Sometimes it's a septic tank, sometimes it is a septic tank and a lagoon. It's very rarely sewage. Sure enough, when our client went to the city to connect to sewage, which would have cost them exactly $500, the city said, "No, sorry. You are going to have to do your own."
Remember how I've been talking about water autonomy? That is how it's happening in the real world. People are not being allowed to send their dirty water to the city anymore. It is happening less and less for reasons I've explained in other calls. They asked us to solve the problem and our brilliant Dan Early, senior engineer, came up with an elegant solution we call “the bobber” and the bobber is basically a float. We'll put a little flag on it or something like that, but it is a little float and you throw it in the lagoon and you walk away. Three months later the water is clear.
How is this possible? Well, it is called a biofilm technology, and we are working with a technology firm, we have a very good relationship with them, that provides an advanced ceramic material that allows the beneficial bacteria to basically sit on the surface and it's very nubbly. It's like a coral reef. Lots of surface area, and then, it eats up the nasty poop stuff and turns it into something beneficial, just like what happens in your stomach, same thing. It's a digestion process. Furthermore, the material that is doing the digesting tends to fall to the bottom where it incubates inside the sludge and it starts eating up the sludge. Pretty soon you end up with a clean bottom and transparent water. Pretty amazing.
EPA Signs Off!
What's even better is that Dan Early managed to convince the local EPA to sign off on it, which is huge because it is a very new technology. It took a while, took a couple months, but he got the approval, he reported on Monday. Short of a full-on personal check, I do believe him, but he has reported now he has gotten the approvals, and we are ready to move forward with this solution. What is great about it is it doesn't require any excavation. It doesn't require sewage connections, machinery, pumps, you name it. It is simply a buoy you throw into the pond. Very cool, which means that we have a solution to tens of thousands of these mobile home parks.
Modular System Solutions
In the normal scheme of things, we would just start selling these solutions to the mobile home parks. Just as I told you last week that we had a breakthrough in terms of being price competitive with the precast concrete, [our] Modular Systems, for the pump stations out there, but in that case we are just selling it. The problem with that of course is it takes a while, and at the end of the day you've sold a product. Great, thank you very much. Now, you go sell the next one. What we are looking at here is actually taking a participation of some kind, and we are still working out the details, so bear with me if I stay general about it.
Fix & Flip
We're going to have participation in these fix and flips. Basically, where they get fixed and they get sold or just operated profitably. You would think it would be done with the low rent trailer parks. No, actually it is the higher quality mobile home parks, apartment complexes, et cetera, that have a lot of value if you can just deal with their water problem.
Leveraging Water Noncompliance
Now there's two kinds of water problems that they have. The first one is that the incoming water is often noncompliant, and there are lots of commercial properties out there that are being fined by their local EPA or other government organization for too much arsenic, for example. They have got to treat the incoming water, and they also have to treat the outgoing water so that it can be disposed of. That means that there is a lot of potential value because inherently, let's say it is worth, I don't know, $10 million. Well now, because of the impossibility of selling it, it is temporarily worth $2 million. Well, if you can just fix the water problem, then you've achieved a huge jump.
There is an opportunity with huge leverage to do what we call water distressed properties. What we are working on feverously is a way to get investors to participate. That is still a ways off. We think we have a pilot client, literally our own Alabama project is potentially a participant in this, but it is still going to take a while to get all the legal stuff together. Meanwhile, we have our current offering.
I can tell you this, and this is the scoop, that we are prepared to discuss certain incentives in the current offering for all investors who come into the current offering that they will have some benefit for participating in the next one. What it is exactly, we haven't worked out. Whatever it is, it will apply equally to all the investors in the offering. We treat everybody equally.
I can't get into the specifics, but there is going to be a consideration for investing in the current protected round, for when you potentially get involved in the real estate water distressed properties project. As you see, I am being very careful in what I'm saying because I don't want to state material, nonpublic statements. All I can tell you is that this is in consideration. It's not settled, but if you would like to discuss it further, certainly we can have you speak to the architect, Mr. Ken Berenger, and I will be giving you his number at the end of this call.
The Post Virus World
This to us is how we are going to do well in the market and be relevant in the post-virus world where it is all CNN, all the time, virus all the time. It is going to be that way for several months. Why? Because the virus is going to be around and it tends to come back and all that horrible stuff. It's a virus world and you need to be useful in this virus world. We believe that we will be useful. We believe that this will make us an attractive company in the market, that we will grow our revenues accordingly. That we will be a winner because in every market, even a down market, they are winners and losers.
With that in mind, I'm just going to cover a couple more items here. One of them is that we have the topics that are evergreen topics. For example, why do third world countries have water issues? Well, it's very simple. Water issues are caused by the lack of infrastructure, and in America we have infrastructure, but since 1960 we have neglected it, which has caused the maintenance cost to go up and up and up and it is not going to change. We are not going to have infrastructure.
Failing Infrastructure & Water Autonomy
There was a whole get-together by the Democratic Party nominees about infrastructure, discussing how are they going to invest in infrastructure. Unfortunately, we seem to go to war much better than that. Then, once we're done going to war, we have no more money. The bottom line is that infrastructure money is not happening. Not high-speed bullet trains in California, not big central water plants, instead it is going to be, for transportation, the self-driving car. For water treatment, what we call water autonomy, treating your own water as I was just talking about.
Now, why do third world countries have water issues? That is another interesting question because they just don't have the infrastructure and because of their birth rate, they can't keep up. Look at India. India's spending $90 billion on a major project up-river, and I'm sure it is important, but they are spending $90 billion on balancing their water flows up in the Himalayas. Meanwhile, they have people dying in the sewers who are literally cleaning sewers by hand, that are dying from the sewer gases. There's just a complete lack of infrastructure. How do you solve it? Well you solve it by again, enabling people to solve the problem where they are, and that is our Modular Water solution.
New Quotations & Opportunities
To report on how we are doing, I can tell you that I am very happy with the deal flow that is occurring. I see it every Monday morning at our weekly meeting, and Mike Mann who was helping me talk to our investors for a while is now back in sales and working closely with Tom Marchesello on generating new business. I have been told that there is a tremendous amount of new quotations and opportunities. We haven't seen a slowdown in our activities. Perhaps that will happen down the road. In the meantime, we are hedging our risk by getting into something entrepreneurial that involves real estate, and we think that is going to be very, very strong.
Real Estate Improvement Projects
It is really about real estate improvement projects through water treatment. I have all kinds of notes about how it is going to happen and that is just not something I can discuss on the call. Investors in the current private placement can hear more about it subject to the confidentiality of the private placement. As I say, we will apply whatever benefits are given to the current investors, the new investors in the current private placement, it will be applied across the board to all our investors in this private placement.
I know I have teased you a heck of a lot about this. I am telling you this as it is developing. I'm trying not to say too much, or I will have a nice interview with the SEC. These are not fun. I am trying to be as conservative as possible and not tell you too much, but we do think this real estate thing has legs, and more importantly we think it can be scaled up to lots of deals.
Why do we need to do that? Frankly, it is a scandal that only 20% of the sewage is treated in the world. Here is how I see it rolling out in principle, as we figure out this real estate thing, which as I say is not a done deal. It is not figured out. It's not official. So, anything that we extend as a courtesy in the current private placement to people is not a guarantee yet. Let's just put that aside for the time being.
The first generation of this is going to be with our accredited investors in the current generation of the offerings that we do. The next one out would be something like what is called a Regulation A, which is for unaccredited investors. Then, the final one would be perhaps with decentralized funding through, we have this WaterChain™ project which has been on the shelf and we would use WaterChain.
I met with one of the board members of WaterChain last night and he is very excited about getting that going again for the purpose of getting these real estate projects funded all over the world. A grandmother in Korea, this is my example I give. A grandmother in Korea investing in a trailer park in Alabama on her iPhone or Samsung phone. That is where it eventually goes, but it is not something that is happening today. It's down the road. For now, we are working with the accredited investors.
For unaccredited investors, we have an offering that was filed with the Securities and Exchange Commission. I can't update you specifically about where that stands, but we have every reason to believe it is on schedule. At that point, then one of my dreams, which is that anybody can invest in OriginClear, not just people who have $200,000 income, will be realized. I think that will be a wonderful time.
Well, that's it. I want to thank you very much for having you been on board with us. It is a real pleasure always talking to you and essentially thinking out loud, sharing the thoughts. Let's call it a day. Thank you very much and have a great weekend. Okay, everyone. Be good.
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