Insider Briefing of 21 May 2020
Helping You Thrive in the World's ONLY Vital, Scarce and Recession-Proof Market
CEO Eckelberry is joined by OriginClear VP Business Development, Ken Berenger, to discuss current world and financial market shaping events, as well as trends and their relevance to what is happening in the water space. Hear how Investor Water™ was evolved, OriginClear's vision for this innovative business model and the potential this new marketplace brings to totally disrupt a slow moving industry.
Transcript from recording:
All right. Well, welcome to the webinar of May 21st. And I have a very special guest on today, which is the amazing, hardworking Ken Berenger with whom I've worked on these super cool new business models that are just exploding on us. Water is the New Gold, and this is Thursday, May 21st.
Well, what's going on here? The first thing that I need to tell you, of course, is the usual, that what we discuss here contains forward-looking statements, and actual results, performance, etc., could differ materially. We won't be really talking about the regulation A and regulation B offerings, but if I do, we'll get into the disclaimers.
I had some hot news that just came about an hour before this meeting, and that is Modular Water Systems™ has generated some news. Now, these are verbal reports, so don't take them to the bank, but we've been working for months on a US Embassy wastewater treatment plant in a particular country. The rep organization has stated that it's been awarded a nice little $250,000 deal. And also, a particular city approved our bid for a pump station project, that's a nice little $75,000 deal. Ken, you might not even have seen this yet. What we learn from this is that the hard work that Dan Early has been investing in for a long time is starting to pay off, we're starting to get these millions of dollars of projects filtering through. Remember that this is our conventional business, and this is what we concluded is not a high-growth business. It just kind of bumps along, it's solid, we call it a base load. This is not how we're going to save the world, we're going to get to that.
But just to finish this thought, Dan Early now has really turned over the operating part of this PWT of this Modular Water Systems business and the team at Progressive Water, Mike Jenkins, Marc Stevens, the whole team have the ball. Now here's the other news, we are close to an agreement to bring Dan into Investor Water™, to manage it while still supporting PWT. That's really great news.
Now, what's going on in the world now? We have some very surprising news about what's happening in the world. US mortgage applications have bounced back up. That's crazy. It really does seem like the economy is on the rebound, we see that in the stock market, but we also see it in the real world. That's a 30-day dramatic increase from a low of just 7 April, something like that.
Same thing with the new business applications to the IRS, as percentage of 2019 level. So we're just almost back up to 100%. So this is brilliant, this is great news.
Covid Made Political
Now, having said that, this is a very good cartoon that tells us the rest of the story. COVID-19 is being ... All the precautions are saving us, but it's kind of like the operation was successful but we lost the patient, right? And again, I'm not here to take a political position, I have friends on both sides of the aisle, and unfortunately it has become politicized, we should be doing what is rational. But the truth is that we're really learning how to deal with this and it is a fact that we have an economic crisis that's unrolling as the COVID-19 pandemic seemingly starts to wane.
New Cases Waning?
We have an interesting, here's the daily confirmed COVID-19 cases as of today, we see the US has been trending down really since early April. And that's interesting, isn't it? Because that's exactly when the mortgages and businesses started recovering. So I think everyone was kind of in sync about that.
But we see it had a little uptick there, and this is what's going to bother the policymakers, which is, wait a minute, what about recurrences? This thing we're sure is going to come down, down, down, but they're worried that there are going to be waves. Now, why do these waves occur? I think that's really, really important.
Vaccines & Immunity
My friend Mark Emalfarb over at Dyadic has got the first approach, which is immunity, and it's really two major topics in there. Vaccines on the one hand and herd immunity, as they call it, natural immunity on the other. Again, I'm not talking about whether these are effective or not, or whatever, that's for people with a much higher pay grade than me, but that's the first major approach and the second one is sanitation. By sanitation, I mean, of course, washing your hands, masks, social distancing but the big piece of it is water.
Water quality directly affects viral. And I'm not just talking about coronavirus, I'm talking about a number of other things. For example, here's one that comes out of septic tanks called the norovirus. It sickens one in 15 Americans annually, 70,000 hospitalizations. This comes from our 26 million septic tanks, and this is a direct relationship of water quality to human health of viruses of all kinds. This thing says human norovirus and groundwater remains infected after two months. And the only reason they say it's at least 61 days is they ran out of money to go further. Who knows, it maybe lasts a year, they have no idea, but it was at least two months.
Failing Septic Systems
Now, more about septic tanks, because that's a major violator. Failing septic systems produce disease outbreaks, algae blooms, and ecosystem damage. There is, for example, hormones and pharmaceutical compounds. Those of you who are in Fire Island in New England, you know you've got a problem, but believe me, it's not just you guys, the hormones and pharmaceutical compounds are everywhere. Same thing, parasitic diseases in rural Alabama. In Ohio, State Health Department estimates nearly one out of three septic systems is failing.
240 People Sick
And here's an actual case study of what happens. This restaurant had to shut down because, well, basically about 240 people got sick and simply the restaurant's septic system failed. It wasn't on purpose, they had done it right, but what happened here was the recovery.
They did recover, but here's the bad news. Log Den, this restaurant, had to spend a lot of money themselves. $60,000 for a small restaurant. At the top, you see adding sewers is expensive, and a lot of people don't want sewers because it leads to development. But the real issue is, how do you fund things? So I'm going to move into a couple videos, very short videos, because we have a lot to talk about.
Video Presentation: The New Water Marketplace
Transcript from recording:
Hi, this is Riggs Eckelberry, and what I'm going to talk to you today about are the challenges of dealing with the funding of water projects. What we have here is your standard centralized water system, we've got a whole bunch of homes here that are being served by the energy plant, and then over here are the sewage plants. Now these sewage plants, they're very efficient, right? They serve a lot of people. But the problem is, where are you going to locate another one of these? There's no room here for another one of these sewage plants.
In a developed community, you can't really expand well. In this picture, what do we have? We have a much smaller wastewater treatment plant. Why? Because there's treatment happening at different locations. Different locations are doing this water treatment so forth. That's good because it offloads the burden of water treatment from that, and that's how you expand, because you can always put small plants here. This is a big office building, you recycle the gray water to sprinkle the shrubbery. And here also, you've got more of the same with the golf course, and housing developments, agriculture.
Okay, these are great. These are great business models. The problem is, is big question, which is where is the money? There's no established way to finance these, and yet they are the only way that we can grow the water treatment market. 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, right? And we have OriginClear watching this and making sure that these are technologically good. 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. So that is a division of Investor Water is to create a place where everybody is going to be working together. And that is the future
Music and discliamers
End of Video Presentation
Okay. And then I'll play this other one right away.
Video Presentation: Success For Life Podcast With Coach Schuman
(transcription available only)
Coach Schuman: How does sanitation work and then also take me through how with water filtration system, we could better utilize or essentially I guess, become more efficient so we can utilize water on the best way possible.
Riggs: Sure. So since 2016, we've been really preaching what has come out of some very good research, which is there's a growth of water treatment at the edge, right? Kind of like how mainframes became PCs, landlines to become cell phones, central fossil fuels became solar panels. The whole migration to the edge makes a lot of sense. And in the case of water, it kind of had to happen. Why? Because there's been a degradation in water systems. So the big central plants that provide most of the water treatment in America, literally the big plants do 85% of the work, have been falling behind. And you're not going to get more of those. There's just no room. There's no money. Even though we're throwing on trillions of dollars, we're not doing it yet for infrastructure.
So these are orphans and really neglect because again, people don't want to know about the details of sewage. Like, "Please spare me." Right? But here's the thing. We had a 1918 flu pandemic in the world that killed $50 million. We have a pandemic today, which is bad, but it's not going to kill 50 million people. Right
Coach Schuman: Right.
Riggs: The difference is sanitation. If you look at 1918 the virus incubated in the trenches, these horrible unsanitary trenches, and it went from there and it just exploded across the world. We'll never have that problem today, but we can do a better job against all viruses, not just Corona, if we continue to improve sanitation. So, the way to do it is at the edge, but the problem is these edge players, like a brewery that wants to double its capacity, can't get it done, except if they pay for it themselves. They don't know how to pay for it. There's no easy financing. So these very heavy, difficult process. And we've lived that as a water company, we've lived through the multi-month process of getting these deals done, eats up our margin. We're going to get old before this all gets done. And meanwhile, the world needs more sanitation. We think we found the solution.
End of Video Presentation
All right. So obviously we know what the solution is. I strongly recommend watching this it's on our website. It's also on the OriginClear Facebook page. And David Schuman is a very influential podcaster. He had a lot of influence this week. This was done on Tuesday and I think a lot of people noticed, and I think it's good news. So that is the videos for today. So, I'm going to stop that.
Now, I wanted to talk a little bit about a little story, because we're going to talk about when something is really worthwhile. Back in end of 1995, I was at a company called Quarterdeck, which was a big public company. It was falling apart at the time. And one of my coworkers Subrah Iyar, came to me. He was VP of business development. And he was told, the CEO of Quarterdeck said, "You can have anything for free, one thing for free."
And he comes to me and he says, "Riggs, what should I get?" And I was the director of strategic marketing at the time. And I say, "Take Future Systems." Future systems was the first screen sharing program out there. And I thought it was amazing. Well, he took it and created WebEx from it. And here's, what's crazy, he asked me to be part of the founding team of WebEx, what became WebEx, what was called Active Touch at the time. And he said, "Come on up to Sunnyvale." Well, I didn't want to go to Sunnyvale. I had a baby and so forth.
And so you go, "Wow, you know what? I could very well be one of those people you are really annoyed about it because they have way too much money." But fortunately, I'm not. And so you don't have to be annoyed at me. But what I'm saying is there are these opportunities that come along and it's important to recognize them. Because if you fail to take action on something, it will punish you forever because you didn't take action.
Now, if you take action, the good news is that you can then always do something about it - correct it, do something different. So, taking action is always better than not taking action. I recently had experience investing in Zoom and it went up, Zoom went down, I got stopped out, whatever, it is what it is. But at least I was playing in Zoom and I'm doing other things as a personal investor. Of course, I'm invested in OriginClear. But the truth is that if you don't play, then at least you're not going to regret things. So that's just my little sermon, which brings me to what happened in January. So Ken, you're being very patient, thank you.
Ken: Yes. Not a virtual on that.
About Investor Water
Riggs: So January, you and I were very surprised to see what was happening as China got locked down and we predicted a domino effect. And we got to work on how to solve it. It really came down to money. At the end of the day, capital is going to be tough. The mortgage market's going to come back up, but it's going to require very high down payments for example. Right? So, money is going to be, capital access, is going to become the problem like it was in the last recession. So, we pivoted into what eventually became Investor Water. And I just played you the video, you know how it works. It's a marketplace.
Well, recently we went ahead and looked at another marketplace that you guys have all heard about and I'm going to pull it up right now. Pretty interesting. What it tells us. I'm just getting rid of a bunch of other windows. Let me share this screen with you because I think you'll find it very, very interesting.
36 Billion After They Crashed
This is just this week we looked at this and we were pretty astonished. So what you see here is the Airbnb funding rounds. Now this valuation of 35 billion is after they crashed, right? So at line 21 there, you see private equity a billion dollars. April 20, 2020, that literally was last month when they had to be bailed out because of course everything shut down.
But even at a $35 billion valuation, which is low for them, let's take a look at line eight, the series A. (Investor Water, and again, don't compare Airbnb with Investor Water. Literally, we think we're going to be huge. I'm not representing, we're going to be 35 billion. None of us, I'm just talking about the power of marketplaces) The seed rounds that occurred, which were roughly $650,000, $635,000.
The Power Of A Marketplace
OriginClear has basically done, this is what we've done to get into the Investor Water business. I'll give you an update about where we are at in terms of progress, in a minute. We really are at the Series A, and Airbnb raised $7.2 million which bought Ashton Kutcher and a few other people about 10% of the company. Ashton Kutcher and friends made 49,900% on their money, and over nine years they made 5,500% per year. Per year. Now, the later people have not done as well, but I'm sure they will. But remember, this is a company that crashed, which is why they're only getting 4% yield. But even a crashed company has made Sequoia and all these other guys very well off. So that is the power of a marketplace, financially.
Why So Powerful?
Now, why is a marketplace so powerful? Why is Uber and Zillow and Airbnb, Amazon, all these marketplaces, why are they so powerful? It's because you're taking a piece of the action. Right now, for example, the Securities Exchange Commission, the SEC, takes a tiny micro-penny on every stock market transaction out there. Well, there's billions of them going on. As a result, the SEC is awash in money. They have eight times as much money as they need to operate with. Why? Because they're making money from a market. So if you take a little piece of action from every transaction, that's an amazingly efficient business model. Getting into this is where it's at. Ken, give me your thoughts about this? Because I don't want you to just be nodding throughout all this.
The Aha! Moment
Ken: It was the a-ha moment, right? We're there in January, we are watching China and Europe be affected, and we're kind of looking at each other going, "Okay, even if this doesn't affect us, what are we going to do?" Sometimes, moments of clarity come from real adversity. I think that's really what we experienced. So we said to ourselves, "We've been pushing the same rock up the same hill. We've had all these amazing technologies and products. Yet, we're still trying to operate for years now within this orthodoxy. Let's go around it. Let's just literally go around the obstacle."
I think what we've come up with, and it didn't start out this clean. It was a spitball idea we went back and forth with. Then as we started to look at things like Airbnb, it kept validating that we were on the right track. We had to fix the problems that exist in the space by completely going around this space. Okay? What we just assumed was, we will have some of the best technologies out there now, and for a while. We won't always have the best, but we want to participate in the solution regardless. So invite everyone, invite everyone to join, post everything online, and let people select what's right for them, and make money regardless.
A Healthy Precentage
Like you look at things like Amazon. Amazon doesn't make a micro-penny on every transaction, but it's a very, very modest amount. But because of the velocity of transactions, Amazon's the wealthiest property on earth. We're starting out with Investor Water with a pretty healthy percentage. So, while that may narrow over time, think about the fact that you've got a trillion-dollar business right now that water industry treats about what, 10% Riggs?
Riggs: About 20% of the sewage and about 30% of the industrial waste.
Ken: Okay. So that leaves about very comfortable two-thirds that you could literally increase the market by two or three-fold. That's not going to happen trying to work within the confines that the water business has set out for us from the 19th century. So, we started thinking about if real estate were just this monolithic thing that everyone lived in, it would be like water right now. Everyone lives in this gigantic building built by government. Okay?
Fund It Like Real Estate
But the reason real estate is funded the way it is, is because we're spread out. That's what we want to do with water. So let's fund it like real estate. Okay? Let's list it like Amazon, let's connect the money to the project. Look, it didn't start out with this kind of clean line that we've developed now, but what excites me about this is I speak to people who are inquiring about, "Hey, why you guys look good lately, what's going on?"
I tell them what we're doing. I'm getting a lot of those a-has. I'm getting a lot of prospective investors and partners saying, "Why didn't anybody think of this before?" Maybe it's because nobody had to. Maybe it's because people found their niche in the water business and they operate it. But we've stepped outside that now, and doing what we're doing, we've always said we want to solve the water problem in the world.
99% Can Afford It
You can't do that unless you do it at every point of discharge. Not every point of discharge can afford it. But by making everything a short-term rental, 99% of the points of discharge can afford first month, last month, and security, regardless. Okay? That means there's 100 million locations around the world right now that can, for the first time potentially, afford to discharge clean water back into the environment, ever.
Riggs: Yeah. The beauty of it is, Ken, that we don't have to do it, right? So the proof of concept that we're doing is we're doing it ourselves, but then we're going to let people make that money. We're going to back off, then we'll make that little transactional toll. That toll model is going to enable us to make sure there's quality, scale it up. We'll create country partners, it's going to be a fascinating process as we go forward. You and I are trying to just literally encompass the scope of this thing.
Riggs: Oh my gosh.
Ken: That's a pleasant problem, when you can't wrap your head around it. You know?
Riggs: Yeah. Exactly.
Practicality – The Key Component
Ken: I think the key component here is the fact that it is practical. Lots of fabulous, very lofty ideas are very impractical. People want to say, "What's in it for me?" There has to be a give. It all starts with the capital, all right? So the investors get rewarded immediately for funding the projects. The rewards are terrific, right? 15%, 20% yields on the owner of the property, and all of the accelerated potential tax benefits. The water treatment companies are going to get very well rewarded because they're going to be able to sell something almost immediately that used to take... It's not uncommon, Riggs, for all of us in the business to have to wait a year to get paid.
Weeks, Not Months
Ken: We're going to shorten the sales cycle to weeks, not months. Weeks. Lastly, obviously the end user benefits, because they can afford to do something that they've needed to do for decades, and now can for the first time do this. So we've basically given every side of the equation what they want out of it. We've figured out a way to reward them. Again, that's what a marketplace is all about.
Riggs: Excellent. What we're not going to get into, obviously, is that you have got a very interesting formula by which investors, accredited or unaccredited, we've got both, can come in, help us do this seed round. Literally they're participating in this seed round. They're being added. You can be Ashton Kutcher.
Riggs: We will also give you a financial incentive to participate as an investor in a water project. So OriginClear is going to receive your money, which we'll do that quote-unquote Series A that we're talking about here, get us developing it. In return, we're actually going to gift you with a certain of the investment you're going to make. You don't have to, but it's there. A certain percentage of people can jump on it. Now, what I think I'm seeing here is you know something is good when it's relatively easy, when you're not dying, right? Because we have carried that stone up the mountain for so long. Now, oh my gosh, you've got investors coming in. We're like, "Hey, I like this."
And you've got water projects coming in, and I'll talk about the hog farm deal in a bit. I've got a slide on that. These deals are coming together very, very nicely. So, it's a beautiful thing. While I'm talking, by the way, I saw Chad come through, we have another IRA holding company, Strata Trust, which is ready to go and take investments. So we have two now, and here's what's great, is remember, because of Covid, you can pull $100,000 out of your IRA, or any portion, 5,000, whatever, and take three years to put it back. That's a beautiful thing.
So, just remember that and you'll be able to talk to Devin, and you'll be able to talk to Ken about using your IRA. Very smart. So thank you, Grant Brandon, for making it happen on the Strata Trust. And I expect next week to do a little interview with an IRA representative about this. So, without further ado, I'm going to move beyond this little fantasy slide, because it really is a fantasy slide, and I am going to come back to where are we at with Investor Water now. And several things are going on.
Investor Water Status
First of all, we've been modeling what the investor gets. And we think that over five years, the investor will get, we think about 100 percent. But then that doubles with accelerated depreciation, which means that the investor pays for the actual cost of the machine, depreciates it on the spot and then at the end of five years, sells it back to us for a penny.
Okay, now we have, Investor Water has, an asset. The investor got out of it with a 200% return, we think, and very safe because we managed everything, that's all the management fees are built in and the support and so forth and doesn't need the machine anymore because, took the depreciation on it, and now OriginClear, i.e., Investor Water, has an asset and we could grow assets like crazy. Now remember, it's not always Investor Water. We want to back off and let the water companies get that. For example, our friends AdEdge in Atlanta, wonderful company - they also do modular systems - we admire them very much and they're doing extremely well, but they're not growing a thousand percent. Why? Because they're in the same funding and capital trap as everyone else.
Proof Of Concept
So let's say they do one of these things. Well, they'll get the machine back, so the asset returns to whoever's playing. All right, we're at the proof of concept; we've got three proof of concept projects. One of them is pool preserver; you saw a video a couple of weeks ago, those of you who saw it, that showed this machine that purifies pools. I'm not going to get into it, but we are almost done with the entirety of the process from investment. In this case, OriginClear invested. We used your money to invest in this project to get things started and completed it. It's all done and I'll be able to describe it in full detail soon. Secondly, the mobile home park project with what I call the Bobber or the Biobuoy. We're talking to investors. Feel free to talk to Ken about investing in that.
It's again, not an expensive project. I think it's under $50,000 investment and you get this wonderful secured, rent roll, basically. You’re a landlord without being stuck with something, because if the guy doesn't pay, guess what? You take it back. It's not like being a landlord for a home where these people are really screwed. And finally, we're working with a major OriginClear investor on a hog farm project in Wisconsin. So those are going very, very well.
Marketing & Website
Now, marketing in the works. We've got the website, which I'm working on personally, and we are setting up the pool preserver first announcement; more to come. What's in the future? Well, not everyone can come up with 100,000, 50,000 whatever. And also we want to do larger projects; we want to do the million dollar projects. So that means syndication, meaning groups. We're going to go ahead and create partnerships that people can get involved with.
Phase 1 – Like eBay
So, that is going to be kind of like the Phase 1a. The Phase 1 marketplace is going to be a very simple... it'll probably look like eBay. Very simple. We're not going to go crazy with this thing, but we're going to start listing water companies on one side, and investors will be able to come in, like that diagram I showed you and we want to do that pretty soon. Keep it simple. Tom Marchesello, our Chief Operating Officer, has been marvelous with the planning of the marketplace, the financial modeling, doing the pool preserver deal, an unbelievable amount of detail. We've learned a lot from it and we're very grateful. And he and Dan Early are going to be working on all the logistics, while Ken and I work on funding and marketing. So that's the situation with Investor Water.
I'm going to finish with a slide about how to contact us, which Devin has been doing in the chat as well. Just type in www.oc.gold/schedule and you will get a meeting automatically. You will be Ken's boss. You will tell him you want to meet, or just go ahead and email invest that, which gets to me too, via Devin. And don't forget to register for next week because we will have more tangible progress. Here's our promise to you and that is that we are going to keep you in the loop the whole time. It's obvious the world is starting to hear about this problem, that we're no longer the tree that falls in the forest and nobody notices. It's obvious. What we're going to do is continue to keep you informed. On the one hand, our basic business, when there's wins like that Embassy One, I'll let you know, but we don't expect that to boom.
And on the other hand, is the Investor Water project, which is this amazing marketplace. So, that's our commitment to you. Really, really, really talk to Ken because he's going to lay out the financial strategy that is going to not only enable you to benefit potentially like Ashton Kutcher, but also get current liquidity. Remember Ashton Kutcher didn't pull his money out. Even now, right? He's probably...his money is still tied up who knows? But we're a public company and so there's, you have liquidity and all these offerings talk to Ken. He is the VP of Business Development, very knowledgeable, and he'll be able to show you how you can do it. So remember he is available on the phone extension 201, call him, click that link.
And I want to thank you all, stay safe, everyone. Don't be a stranger, email us, check things out, tell us what we need to know better...things we need to know better. Okay? Like "you're being too complicated Riggs".I like to hear these things. Okay? So Ken say good night, Ken.
Ken: Good night Ken.
Riggs: Thank you all. I appreciate it, guys. Have a good evening.
Ken: Thanks for your time.
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