Insider Briefing of 14 May 2020
Helping You Thrive in the World's ONLY Vital, Scarce and Recession-Proof Market
In this Insider briefing CEO Eckelberry talks about OriginClear's breakthrough innovation, creating a market place that the company feels wills solve the funding problems for smaller decentralized water projects. He demonstrates how vital this is for businesses and the broader public with a world economy where entire countries finances are collapsing, the US dollar is rapidly devaluing, and China is maneuvering to dominate the world economy with a digital yuan. Learn how Investor Water™ could solve the current decaying state of centralized infrastructure and funding shortages.
Transcript from recording:
It is the 14th of May, 2020, and welcome to the "Water is the New Gold" briefing. And I'm going to go ahead and start this with a video that I actually recorded last week, but there were technical problems with it.
What I'm going to talk to you today about is the challenges of dealing with the funding of water projects. You know, that is a major focus of us in 2020. Now that we've moved beyond the worst part, we think, of the coronavirus and we're now dealing with the economic outcome of it, right?
So, to recap a little bit, what we have here is your standard centralized water system. You’ve got a whole bunch of homes here that are being served by the energy plant. And these various little green triangles are the lifting stations and sewage lines. And then over here is the sewage plant. Now the sewage plants they're very efficient. They serve a lot of people, but the problem is, is that, where are you going to locate another one of these, right? There's no room here for another one of these sewage plants.
So in a developed community, you can't really expand well. The process does work whereby you know, let's say that you want to go ahead and do a project for a central water treatment system. We have the municipal water plant, with those cool circular ponds that are aerating and treating the water and so forth, and you have all this good stuff. And now the municipal plant wants to add something to it. If it's going to add to it, it's going to have money. Now, this is something that it has right now. Why? Because the federal government is giving away money and for the moment money is worth something, right? So, it's able to say, well, I got the money. And typically, they put it out to a whole bunch of providers. These are water companies that are in competition to deliver that. And of course, you can imagine there's a whole bunch of back and forth, and there's all this traffic.
Consumes Time & Profit
This consumes time, consumes staff money, et cetera. And so that money here turns into less and less profit. So, here's your total money package. And let's say that you want to have this much of your cost of goods. And the rest is profit. Well, that cost of goods gets used up by personnel costs, right? And over time, pretty soon we run very close to negative. And it's very, very easy. We know a lot of large water companies that have had bad years and you know, they're making $50 million a year and all of a sudden, bang, they're losing money. And when you're making $50 million a year and all of a sudden, you're losing. Guess what happens? It's a lot of money, right? So, what we have here is an old model that has been around for a long, long time, on the surface it does work. The only problem is that, remember, these centralized systems can’t easily be built again and when they add things on, it's an endless process.
Decentralized Water System
I'm not saying that this is not a good business model for these companies over here, but it's very static, right? And meanwhile, as I've told you before, 70% of the industrial water is never treated at all. We've got to have something better. We've got to move faster, right? Let's take a look at the decentralized model which is over here. And this is that famous Lux research slide that I have shown you guys before. In this picture, what do we have? We have a much smaller wastewater treatment plant. Why? Because there is treatment happening at different locations. Different locations are doing this water treatment and so forth. That's good because it offloads the burden of water treatment from that [plant]. That is how you expand because you can always put small plants here, gray water-recycling membrane bioreactor. We're using biology and a membrane to recycle. This is a big office building, you recycle them 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?
Now 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. We can treat much, much more water. So, this is the conundrum that we were facing even before the coronavirus, right? We're like, how do we get these things funded? These programs right here. These, these are fine. These are fine. Those are good. But these, that are going to offload, are harder to fund. Since the virus hit, we have an economic disaster really, that has resulted in that money not being available, right? So that's really a problem.
Animal Manure Treatment
Let's talk a little bit about a specific situation where we can actually help, because now we have this Investor Water™ concept, right? We have here, I’m going to move on past our nice decentralized thing here. And what do we have? We have the hog farm, hog farm, cattle farm, poultry farm, whatever. These are the buildings where the animals are raised and slaughtered and so forth and here we have the manure lagoon, right? Now that manure lagoon is a problem. Why? Because the U.S. 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 are doing right now, they have to do something, right?
So, they're literally paying, these are my little pictures of trucks, is 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, let's say for a million, 2 million, and it's what you're paying a month, you could pay and be done, right?
I'm just being approximate numbers, and they might be more, but it's in that range, right? So it's just like when you rent a TV, you're soon going to spend more money on that TV than if you pay for it in the first place. And so, that is 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 a 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. H-2-O. So, win, win, right? Everybody's happy. That's great. Only problem is money.
Money Is A Problem
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. So how do we deal with that problem? Right? Because we looked at, how do we sell this? And our partners in Europe and our partners elsewhere, and, 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, right? Here's a little flag and it's got a little diving platform. And this thing here, is a biological solution that sweetens that manure pond. 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 could start with something inexpensive in the $100,000, $200,000 range that we'll even rent to you. You don't... just start paying well, you're already paying over here, get rid of these Waste Management trucks, right. And just sanitize the lagoon.
Now, you have got phase one of a total solution. And that would make 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, right? But they get the whole thing, in a package, and now they have the 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. 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?
Creating The Maketplace
So when we have Investor Water, what are we talking about? In this eventual marketplace, you have a series of water companies. Water, water, water. Over here, you have money. In the middle, you have projects that these guys and gals upload. We have OriginClear watching this, and making sure that these are technologically good, right? Then we help bring the investors in, we help bring the water companies in, and now we have a marketplace, okay? 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 the vision for Investor Water. 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. That's the progress that we have made in the last week or so.
I hope that next week I can bring on somebody who knows this business really well, who has 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. 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. That is the future. Stay tuned, and you will be seeing the Investor Water website coming up, and more wins. As I say, we already did the thing in the pool business, this gets more exciting. I'll see you soon.
End of Video Presentation
Hog Farms & The Biobuoy
So this is an interesting story. This is genuine. I'm going to talk a little bit about the hog farm business, because we have been talking to players in the industry. We have been talking to one of the very largest hog farm equipment suppliers, and they are extremely excited about what we are now calling officially the Biobuoy. The Biobuoy. The Bobber was the code name, it is called the Biobuoy. It's very attractive for the reasons that I gave in the video. Now, I was talking about a million dollars a month. While we were in a conference call earlier this week with a group that said, "Well, in Indiana, the largest dairy in the Midwest, off of Highway 65," those of you who know their way around Indiana, and it goes on for miles. "It spends $4 million a month trucking its waste offsite, waste management, taking it to some landfill."
First of all, it's a huge waste of wonderful organic material. I mean, this is fertilizer that's just going to enrich any soil. Secondly, all these trucks, it just doesn't make any sense, right? So, I mentioned also in the video that we're working with somebody who knows a lot about the business, and that discussion continues, and I hope to be able to get this person more openly involved. But remember, Investor Water is not about a particular equipment solution, it is about enabling the funding.
Proof Of Concept
Now, we are doing proof of concept. We're using our own technology, and rolling it into these operations and get them funded and so forth. But already, we have water companies coming in saying, "Hey, this is kind of cool." We have investors going, "Hey, this is kind of cool." Now why does the investor like it? Well, we've made a slight change from how it's been. We had it where we were renting out the equipment, but we own the equipment, OriginClear did. That's not what it's going to be. We're going to let the investor own it. Why? Because the investor then gets accelerated depreciation on the equipment, which is immediate same year tax, depreciation on a five-year schedule. I'll tell you, the returns are superb, and they are looking at equipment that can be repossessed anytime, because the title remains with the investor.
We will do the repossessing. The investor is no muss, no fuss. The investor pays us a nice property management fee to take care of everything, all the refurbishing, maintenance, et cetera. The rental fee is large enough to take care of things like maintenance, et cetera. So we've really thought this through, and we're finalizing. I was telling you in recent weeks about the pool flushing system, the pool preserver as we call it, and that is really going to be a one-off, we think. Because as I was saying, the dollars don't go high enough. We like the hog farm business more and more, because it's got this expansion. If we can prove that these short-term rentals can be the camel's nose under the tent, and explode it, that's super exciting. That starts to become really interesting to the water industry, which at the end of the day, needs to make million-dollar deals. So that is very important. But meanwhile, we are wrapping up the pool deal, and soon I will be able to announce the final operator.
This person, his name is Ryan, he's already got 21 cleanings booked. I mean, he is just on fire. Now that's $600 to $800 per cleaning. He's making good money though. That's $12,000 or 15, whatever, thousand dollars. That's a beautiful thing. So, it's very profitable, we'll probably at some point get a channel partner to do it. But our purpose here is really to have a kind of a lab. Try these things out. Already with the pool cleaning thing, we're like, "Okay, well, what it's going to cost, and what is the maintenance? And the service contract, and all these things, and insurance, and all the risks in making it work." In this case, OriginClear is the investor. We funded the thing through a deal that we did with Dwight Barber, the original owner of the equipment. So this allowed us to get in there and play with it. Now, the next deals we're doing is with real-world investors, and we have these investors.
A Proven Process
Now, I'm just going to address my friend Musab Al-Yaseen's question. “Did you try this process other than Spain?” The answer is that we have tested Electro Water Separation™, and used it, it's implemented in multiple environments. For example, we had a licensee who gave us a tremendous amount of royalties for disinfecting oil wells in the Permian basin using the same Advanced Oxidation™ technology that we have, used in Spain and that's now embedded in the Spanish technology, Depuporc. I'm actually going to show you the Spanish news article about this, which is kind of cool. But the point I'm making is that this is proven. Depuporc, our Spanish partner, is the first one to make it work for manure effluent. But we've tested it with all kinds of environments, and gone commercial with it and so forth.
This is an article in, as I was saying, a prominent daily newspaper in the province of Aragon. And basically, it reports on this installation that you have seen pictures of, and that my friend Musad is talking about here. And there's a tremendous amount of farms there, 8 million head of swine being raised, and it is very, very important. But there's also this problem about the waste, but can it be turned into beneficial sub-product? An example is the Zaragozan Company, Depuporc.
94% Nitrogen Reduction
Here we are signing the deal. You guys saw the video earlier and it talks about OriginClear Technologies™ and the proving of this 94% reduction in nitrogen, a reduction in COD, which is oxygen depletion, and also 99% phosphorous reduction. So it really is a very, very powerful thing. The South Koreans have visited and so forth. This is a big deal. Why? Because in Aragon, they're trying to expand it so fast. They're expanding so fast into the space that they are literally putting a farm every single kilometer. That's by law, they can't be closer than one kilometer and, of course, they have a problem with that kind of stuff.
The Strength Is The Funding
But the strength of the Investor Water model is, of course, the funding. Water companies understand funding. Obviously, there's financing available, leasing companies, et cetera, but many, many of these decentralized users that I talk about in the video don't necessarily have the funding, or if they do, but don't have the credit, I mean, but if they do, they don't want to commit to it, right? They don't want to tie up their credit with personal guarantees, et cetera. And so it's very attractive to have an easy decision. And that's what we're starting to do.
Now this model, of course, is a well-known one. I can share with you some more of these. For example, there's a company called Hearth, and Hearth is to help people like contractors and so forth, get financing. And it really helps that you can get financing. That's old school. I was doing this in the '80s when I had my computer company in New York City. We were doing leasing all the time, but as I say, when you start talking about a million dollar or $2 million system, it becomes a heavy deal. It becomes a big deal.
So, with that in mind, this is what we call a Zero to One invention. There are two kinds of invention out there, according to Peter Thiel who, of course, made a lot of money, many, many millions as a PayPal cofounder, along with Elon Musk. And Peter Thiel talks about horizontal innovation and Zero to One innovations. Horizontal innovation is where you do something incrementally better. You have a laser printer, and then it becomes a color laser printer. That's a One to N, like one to five to 10 to 20, but you got to one. Here, we're talking with Investor Water going from zero, meaning there is no water marketplace in the world for general water equipment. You can go and arrange for bonds on Wall Street, but those are for the big guys. And leasing, yeah, you can do it, but there's no marketplace for that. In fact, leasing companies would be attracted to this marketplace.
Remember, we are not trying to be the only financiers. We are not trying to be the only technology providers, and we're not trying to be the only water company. Those three players are going to be hosted just like Uber is hosting riders and drivers with Uber doing the controlling of the marketplace. It's not easy. You have to control the marketplace. So that's a big deal. And also, Peter talks about competitors, right? That it's a very fierce competition space. And, in fact, Uber had to go ahead and sell its Chinese operation because it just couldn't compete, right? We don't have that. There is no competition for marketplaces. That's the amazing thing. So, we think it's super exciting and that we're doing something really, really dramatically new.
A Big Win For Water
That pretty much takes care of Investor Water. I want to mention that a couple of weeks ago, there was a big win. The U.S. Supreme Court delivered a victory for the Clean Water Act. Why is that important? Because obviously if, for example, a hog farm is allowed to pollute, then it will pollute. I mean, these people run for a profit. They would like to do the right thing, but they respond to their shareholders. And if they dump, they'll dump. So, reinforcing stopping polluting discharges in this particular Maui activity, devastating a form of the pristine reef, et cetera, they managed to stop that. That means there is pressure on water users to do the right thing and treat the water and especially recycle it and so forth.
So this is, for me, a wonderful win by Surfrider and love those guys. “Surfrider Foundation, Sierra Club, West Maui Preservation Association, and the Hawaii Wildlife Fund as represented by Earth Justice, fought and won a victory.” And there's going to be more of these because these are dedicated people that we love.
Okay. Let's talk about money a little bit. Now I'm going to play a quick video that is going to show you the kind of animation that we're just starting to do and that will be done for that fuzzy video that you saw earlier. So I'm going to stop the share in order to restart it with a video look. And again, remember this is a rough.
Animated Video Presentation
Money is being printed at record levels. In March, as the Coronavirus Crisis hit, Lebanon defaulted on $1.2 billion. And it's now in hyperinflation, which means every month, it loses its value by half. Of course, all the savings go away, whatever you're being paid, you can't live off of, and now there are riots. Various countries have defaulted, long list, many, many more coming. Here's the question, is it going to extend from developing countries to developed countries?
End of Video Presentation
Cheapening The Dollar
So with that, I'm going to stop it because we kind of ran out of footage. But to illustrate the point that we were making there and that we're working on is that we have my friend David Klein put this up on Facebook, and I thought it was really, really good. And that is again, my friend, David Klein, was showing us a graph, and this graph just took off. Right here, you see where 2008, this was, strangely enough, it was going along quite at a pretty heavy clip from 2000. Here's 2000. You can see that the dot-com crash of 2000 just started a death spiral, and the net popped up. But then the problem is the Fed could not stop. Every time they tried to stop, the stock market would crash. And this went on and on and on and on. And now, of course, guess what's happened. Boom, it's gone straight up and vertical.
So this really makes the point that we are moving towards a cheapening of the U.S. dollar, over time. It's just how many trillions can you throw into an economy and not destroy it, which is why we say invest in a 10% return in a 0% marketplace.
And then Keith Roten has a really good question, “With all of the large livestock facilities in America, can we not make a universal presentation for all of them to see?” And that's a really, really good point. And the answer is, yes, we are busy pulling that together. This BioBuoy is a product, and we're definitely making sure that we have a product line. But remember that for Investor Water, it's just a milestone, where we want to get as fast as possible is the marketplace. Now, website. I've been given a website that is I think a good start. And it has, right now, just placeholder art, but it's a nice solid website.
Okay. So we got the victory in the clean water act and I'll show you this one. This is Ray Dalio, the other guy who I was quoting last week, and he really sees China being on top. And that's what we've been talking about. This digital yuan right? The digital currency that China is creating. And he's likening the current situation to the period of 1930 to 1945. Now, why is that? Because that was a period of depression and they were creating money like crazy. Germany was literally taken over by the Nazis because their money fell apart and they had to carry a wheelbarrow full of money to buy a loaf of bread. And so, there is a decline ahead. And as Ken points out the Weimar Republic of the thirties was a heroic effort to try and have a democracy in Germany. And of course, the Nazis, who were, by the way, not a majority party, they basically tricked their way into it. But nonetheless it happened and the rest went to it.
Stronger Without Debt
Ray here is telling us that and this is a very important article. Here's the point he's making, that if there wasn't so much debt before the pandemic would the economy have suffered lighter damage. Absolutely, because remember during the great recession we had in 2008, all of the car companies had to get bailed out except for Ford. Ford had just done a big asset deal and cashed out all this debt and they had no debt. They didn't have to take the money, the TARP money, remember that TARP money? They didn't have to take that.
And as a result, they emerged much stronger than the rest. So, it's a big deal. So, if you don't have a lot of debt, it's a very, very important. So he sees a change world order, and he worries that we're going to get modern day versions of communism, fascism. That's not a topic of our conversation, but very definitely the money is important. China is on the rise for a number of reasons. We're focusing on they're basically being able to force their digital currency on the world, and they happen to be the world's manufacturer. Sorry we did it to ourselves.
Clean Water Is Vital
And the final thing I wanted to show you was this very interesting article about yet another virus, hepatitis, rats, et cetera. And it's connected like most viruses to water. And this really makes the case for that we have got to get, make sure that water is clean in apartment buildings, et cetera. A few years ago, and what was called the SARS virus epidemic, the SARS virus jumped from apartment to apartment, in Hong Kong, through the dirty plumbing. So, this is not a very friendly discussion, but unfortunately, it's our job to deal with dirty stuff. So that wraps up the various things I was going to show you.
Everybody Is Happy With Money
The main thing I want to leave you with is number one, we're executing rapidly on the Investor Water vision. Meanwhile, we are beefing up the Progressive Water Treatment™ operation. We had actually... We benefited from some coronavirus finance, and so Progressive Water in Texas has some extra capital and we're going to beef up management there, get more sales power, and that's going to be good. But as I say, I don't say that they are going to double over a year. We've learned really that this is too long of a sales cycle, and you have to build and build and build, much longer than I want to build.
We've been at this over a decade because for the longest time, we were trying to get a one technology in place. That is going to continue but this technology runs up against the water industry’s lack of interest in changing. But guess what? Starting in 2018, we saw the water industry interested in changing to adopt a more portable method of water systems, which is Modular Water Systems™ and now financing. They are happy with money. Everybody's happy with money. People are coming to us. So, they like the money, obviously.
Not Less Than 15% Return
Oh, Rich wants to know what profit margins can investors expect. We believe based on their experience so far with the pool system, and now moving into the next vertical, that investors can see 18% to 20%. We think not less than 15% return, annual return, on their money with a secured asset that is repossessable at any time. It's not stuck in the ground, never joined to anything else. It's like a TV rental and fully managed by Investor Water, so that the investor does not have to do anything. And then at the end, of course, there's a split between Investor Water and the investor should the water user buy it out.
So there's three potential scenarios that we don't know quite how it will distribute over time. That's how we're learning. In one case, they don't do it for long. They pay their first, last and security. And the last three months, four months, six months, whatever. And then it doesn't work out and they return it. That's number one. and then remember though, it's built so that we can do that kind of month to month thing and get away with it. Number two, they keep it for a long time. It stays in the ground, or rather in the property. Number three is what we want to push as much as possible, which is they end up buying it out. And that's where that hog farm example I showed in the whiteboard video, is so interesting because as part of buying out the small thing, they'll upgrade to the big thing. And that I think is the brass bell.
So thank you all. I appreciate your input. I've been seeing some interesting stuff, especially from Kuwait. So it's nice to hear from our friends. So thank you and I look forward to talking to you next week. Enjoy your weekend, stay safe and healthy, Okay?
Register for next week’s Insider Briefing: HERE