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Transcript from recording:
Riggs: Well, good evening, everyone. Riggs here and it's a pleasure catching up with you. So much stuff to talk about and I don't know if you got a chance to look at my update. It was about three hours ago. Pretty amazing. We got, literally, a microbrewery deal in three days flat and that's shocking. We thought it was pretty good that Dan Early got it done in a month when he first started out with that brewery in Maine. But then, another one of our good guys, who I'll be introducing soon, went and got a southern California brewery in those three days.
I posted his notes on the conversation he had with the client and, three reasons, which is perfect; the first reason being the quality of the MWS equipment, incredibly well designed and to Dan Early's credit. Then the other thing was the cost. Systems for Modular Water are 5% to 15% cheaper on average and finally, the water savings, and that's a big deal in California. We talk a lot about reusing water, but generally people have a backoff from reusing water to drink, right? Toilet to tap? You've heard that term? So generally people are squeamish about that. There's no reason for it. All water is recycled water. It's been through everything many, many times in the history of the planet, but nonetheless, people are, you know, they're a little bit untrusting, because who knows.
When we talk about reusing water for a brewery, we're generally talking about non-potable use. Rinsing equipment and so forth. In fact, there's a very good report that gets into it by Water Online and it's called, "Water audit expands reuse opportunities at breweryRe-use." It quantifies all these different uses as being roughly half of the total water that goes through. Things like sample chiller, initial vessel rinses, chase water, the vacuum pump, external bottle rinser, the brewhouse vessels, the fermentation vessels, packaging vessels, production filtration equipment, filtration vacuum pump and boiler makeup.
In this particular situation, we're reusing a total of about 76,000 gallons and that's roughly half of the total water used. It actually could be more, but that's after all the inefficiencies. So even if you're not thinking about reusing the water to make the beer, which people again are queasy about, you're still able to reuse about half the water and that is a big win in California. You're going to save a couple hundred thousand dollars a year, perhaps. It adds up and it all depends, of course, on the size of the brewery. So that's a big deal.
Now, size of market. There's about 1100 craft breweries in the southwest, 900 in California alone. These are numbers from the client, actually. Another 300 are in permitting stages, so literally 300 microbreweries are being permitted in these states to come into operation. If you imagine a 20% penetration of this market, that is selling to one out of five of these at a cost of $70,000, you've got yourself over $15 million in revenue and if you imagine that you're doing about 40% cost of goods, that's about $8 million in profits at scale. So that's pretty darn good.
What we're really talking about in California, there is a piece of California law called Title 22, which basically says you shall reuse your water. Well, there's all kinds of uses for water and there's 40 specific uses for this, 20 specific uses for that, but the bottom line is that people need to start reusing their water and in California, that's a law and that is helping us tremendously.
So that was the brewery thing and that ran into the other piece of news today, which was actually happening over on the WaterChain side, because Tom Marchesello, who is our strategist over there, was at an industry event and talking about the use of enterprise zones, which are an amazing piece of the Tax Cut Act that people don't realize exists, which is literally a way for the 2800 most disadvantaged zip codes in America to be designated as free trade zones and this is tied into the WaterChain concept.
I won't get into that, but he happened to be at this conference and there was a Track B, “Investing in the Cannabis Industry” and the moderator was Sherri Haskell, founder and CEO of CannaAngels, LLC. Cannabis Angels. And she said, according to Tom, that the number one issue for the US cannabis industry is water and she said that water rights and access to water and wastewater cleanup are the reason the industry cannot grow faster. Literally, this is why. The industry is growing very, very fast, but access to water and cleaning it up are literally the gating factor on an entire industry which, as we know, is in a boom time.
Now, just like when we were getting into frack water cleanup, people would say, "How dare you be involved with fracking?" and so forth and so on and we'd say, "We don't have a position on fracking, but the water is dirty, so if you want to stop fracking, fine, but as long as people are fracking then somebody's got to clean this stuff up." That's our position on cannabis. We have zero position on cannabis itself, that's for individuals to have. For us, we're in the water industry. If people need clean water and they need to treat their water clean to be good citizens, that's what we're there for.
So, cannabis, the reason why I mention cannabis today is because it's a big deal and it's extremely similar to cleaning up the leftover from processing the hops and the malts and so forth in the brewing process. Very similar effluent. And so that's really, really interesting. We don't have any deal flow with regard to cannabis yet and really, as I said in the CEO update, we are focusing on the breweries. Now, breweries are not the only thing we're doing. But my basic thought was that we can do really well in cannabis and cannabis needs us.
Okay. Now the other piece of news that came across, which I mentioned on MoneyTV today, is that there's a new report from Raymond James that says, it's very, very interesting and it talks about how water scarcity is going global. Less than 3% of the earth's total available water is fresh water and this percentage is declining due to facts such as the draining of aquifers, et cetera, pollution, climate change, and by the way, water technology is a way to adapt to climate change versus try to do something about climate. But that's a whole different story. The point is that doing something about water helps us survive the process of less and less fresh water available in the world.
Okay. Now, the reason I mention this is at the very end of the report, it says, "Water Tech Mergers and Acquisition, M&A. A very active space as befits a strategically important investment theme." And it says, "More than anything else under the Clean Tech umbrella with the possible exception of solar, the water space is an undeniably hot space for M&A," mergers and acquisitions.
“Put another way, the water scarcity theme is becoming a, quote, crowded trade, unquote, as can be seen from the amount of deal activity. Bearing in mind what we wrote earlier in this report, sellers comprise a diverse set of companies across the water value chain in a variety of geographies.”
Now, here's what interesting about this. The report, which I would be happy to provide, just email us at BizDev@originclear.com or Invest@originclear.com and we'll provide the report. I mean, it's not a confidential report, but it's not public either, so I can't just post it. Anyway, report lays out the mergers and acquisition action and it's all with companies that are $100 million or more. That's because a very large water company might have a billion-dollar mergers and acquisitions budget per year. Now, you're not going to spend a billion dollars by buying a bunch of $5 million companies, you're going to do it by buying ten $100 million companies and your job is done for the year.
So, people tend to focus on the larger players. The much smaller players are generally ignored and this is where our opportunity is. We showed, when we acquired Progressive Water, that we can be very, very good at acquiring a company, that we can execute and that we can integrate. One of our signature policies is that we refuse to do heavy integration. We don't go in there and do what people call a Chainsaw Dunlap, the name of the guy who pretty much destroyed a few companies. We don't destroy companies. What we try and do is to leave the guy or gal in charge of the company and just take away all the things that they can't stand doing like accounting and marketing and search engine optimization and so forth. So, you know, they don't like E-commerce, but they do like selling water systems.
So anyway, the mergers and acquisitions situation is wide open to us in the area of companies well below the $100 million range and again, I don't want to tout the mergers and acquisitions activity that's going on right now, because it's the kind of thing where it happens or it doesn't, right? It's, "Oh, we bought a company. Oh, we didn't buy a company." So that's the kind of thing that can be very, very disappointing if it doesn't happen, but we are doing extremely well with our mergers and acquisitions. We have three companies that have signed letters of intent. They're non-binding, so we don't disclose them, but nonetheless, they have signed these nonbinding letters of intent. Very specifically we have detailed deals with these three companies, and as we've announced, we have a capital organization called TCA Capital, which is helping us fund it and beyond that, I can't say anything more.
The only thing that I can say is that in the process of doing the due diligence, the capital guys have discovered that Texas is on fire. Right now, in Texas, there's too many water projects going on. There's too much business. Normally a water company, service company, will get one out of 10 of the deals that they go after. This company’s been getting one out of two. There's so much business to be had that if you're any good, I don't know why this is, but Texas is on fire for business. I guess it's a good time. Also, you know, regulations are continuously increasing. People have to do more to handle their water. The other big, big deal is that throughout the country infrastructure is falling apart, just from old age.
So, if you're doing infrastructure, water infrastructure, then you're going to be very, very busy these days and the companies we run into have just huge amounts of business because they're doing new water treatment plants, new infrastructure, new pipes and so forth. Water transport, all that stuff. So they're seeing way too much business and they're having to be very picky. That's an interesting thing. Another thing that we learned, and this is all anecdotal; a few years ago, there a lot of companies from the north came into Texas to try and take away business. They were very aggressive and it was tough times, because a lot of companies were trying to jump into the Texas market. That has largely subsided.
The Texas market now is pretty much in the hands of the Texan companies that survived, such as the companies that we are talking to. We already have one, which is doing very, very well. Marc Stevens, Mike Jenkins and the whole team at Progressive Water in McKinney, Texas are doing an amazing job. A couple dozen of them. When we went to set up Dan Early's Modular Water, we found that we didn't have to do a whole bunch of new engineers for Dan, because the guys in McKinney, Texas were quite, quite competent for the job. It's no coincidence that more than one company that we are in talks with and potentially acquiring is in Texas. It's a great place to operate and I wouldn't be surprised if we didn't see a whole lot more.
Now, part of what's driving all this is, I don't know if you guys saw it, but I have here a report from Water Online dated October 24th. “Trump signs historic water funding bill”. This is the America's Water Infrastructure Act of 2018. It's strange, we hear about everything, we hear about whatever noise, but we don't hear about these things, which are pretty darn good. America's Water Infrastructure Act will significantly increase annual federal investment on water and water infrastructure from approximately $2 billion to over $7 billion per year and then it's going to dramatically increase the efficiency of the loan approval process, fast track projects with certain provisions. I'm not going to get into all this detail, but basically safeguarding funding from cuts. This is a way to ensure that there is secured, required funding for water and that's super, super cool. I guess it's part of the reason why things are so busy.
So we have two big trends in water right now. One is the fact that because the water infrastructure is falling apart, we have a tendency to create a lot of point of use water treatment. It's called decentralized water treatment and that's a trend that's growing. It's inevitable, because industry is growing, populations are growing in developing countries, et cetera. There's just more and more water treatment needed, but also there's progressive decay of water infrastructure, which is now being attended to very late in the game. So that's growing businesses like Modular Water, these breweries with their own water treatment, all that good stuff.
At the same time, there's catch-up being played on the central water infrastructure. Actually, some of the companies we're talking to that have these non-binding, conditional letters of intent are in the business of doing exactly that. I mean, I've been banging the drum for months about decentralization and it's very true. It's the biggest trend in water and the fastest growing one, but there is also a huge amount of business in fixing infrastructure. Really not enough. It needs to be a lot more. It needs to be, seven billion a year is a drop in the bucket, because we need to spend a quarter trillion to fix the infrastructure. If you really think about it, because there's also decay as that goes along, it's about 1/50th of what it should be. But that's okay. It's a start. The point is this: decentralization is a fact and we're playing in it with Modular Water, with the WaterChain project, which is going along in the background on a very low level basis. I don't want it to distract anybody. We are also working in the cleanup of the centralized water infrastructure. The pipes that are breaking down and so forth.
Dan Early's technology for pump stations, for example, is fantastic. Right here in Los Angeles County we've got literally hundreds of pump stations. They're wells. They're wells, they're maybe 30 or 50 feet deep and they pump water out of basements or whatever and they fall apart, because they're built out of concrete, steel, fiberglass and these are all materials that last a quarter century or less whereas the reinforced thermoplastic that Dan uses, lasts easily 100 years. Again, Modular Water's technology can be used for the centralized systems with the pump station, but we also are playing in the conventional rebuilding of the piping systems and the municipal water infrastructures. And I say we're potentially playing with it subject to the acquisition of these companies.
As I'm saying, mergers and acquisitions is a binary business. So, you don't bank on it. What you can bank on is building a business, right? That you can do. You don't say, "Oh, well, we failed to market. Oh, gosh, well, we'll try another time." No. You keep marketing until you succeed and the important thing, when you are marketing stuff, is to realize what is working. So, when we saw that we got a brewery back in July, August and now we've delivered it very successfully and I featured it on MoneyTV last week, did a little video with that, and then we got one this week, literally three days after we talked to the client we realized, "Wait a minute. This is hot." And so, we're gearing up a major brewery vertical market attack with a whole marketing plan going after the trade groups and so forth and getting the word out and getting the engineers, one of the things that's still being permitted and so forth so we can sell a lot of these. What we're going to start doing with Modular Water is taking specific verticals, knocking them down, taking another vertical, knock it down, et cetera.
The brewery thing is very good, because we have a lot of connections and I'll get into that in a couple weeks, because there's good reasons for it, but we have great relationships in the microbrewery space and we're going to take full advantage. So you're going to hear a lot more about that. So, we're racing towards the end of the year. It's really getting down to the wire here. I just want to remind everyone that we are in the middle of this final round of funding. The private placement that we've been working on that is so advantageous, it's wrapping up. I hope that you will work with Ken and Devin, who work on my behalf, to get in and take advantage of this offer because it does end in a few days, in December, and you really must take full advantage. Devin is doing a wonderful job of reminding me what the numbers are, 323-939-6645, 323-939-6645. Ken is at 201, that's extension 201, and Devin is at extension 116. Give them a call.
Here's the situation. We have enough things going on that I believe that we are going to be a very strong player in 2019. That's just how it is. We're playing so many notes on the keyboard that it's going to make music. It is already and I think the volume is going to increase dramatically and as we hit it on all cylinders, wow, I am mixing my metaphors, as we hit it on all cylinders, I think it's going to really, dramatically increase the volume of revenue. We're going to get into profits, we're going to dramatically improve our standing in a variety of ways that I'm not going to get in to right now, but I will be talking about how we're going to build a very strong player and so I really appreciate your support and you can help us acquire these companies by investing in OriginClear today. In my opinion, it's a good, stable investment, because your investment is repaid and it's secured by our patents and you get a good return on your money and you get this wonderful grant of stock.
So please consider it. Call up these gentlemen. They are there, phones are standing by. So thank you all. It's been a pleasure talking this evening. As always, you can reply to any of my CEO updates and it will go into my inbox and I would be happy to hear from you. Have a good evening, stay warm and enjoy the holidays. I will be with you next week, so that will probably be our last discussion before the holidays hit. Meanwhile, talk to Ken and Devin. Thank you and goodnight.
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