Friday, October 23, 2015

OriginClear: More than a Water Boy for Algae Industry

Earlier this week OriginClear (OOIL:  OTC/QB) announced milestone production for one of its water treatment installations at the water treatment plant owned by Horizon City, Texas.  The installation is recovering drinkable water at the rate of 700 gallon per minute from water that had previously been rejected as unusable water.  OriginClear’s water treatment solution relies of dual reverse osmosis systems.

Horizon City is a small but fast growing municipality in western Texas with a population around 17,000.  On average it rains about 49 days out of the year, delivering an annual average 9.00 inches of precipitation per year.  Another 6.00 inches of snow fall is hardly enough to make Horizon City anything other than a very dry place to live.  Horizon City needs to makes good use of every drop of water.

It is a perfect place for OriginClear to prove its value as a developer and manufacturer of water treatment systems.  To be clear OriginClear used to be known as OriginOil, making a name change in April 2015, to provide a brand name with a potentially wider scope.  The company had focused on algae growth, ostensibly for its use in producing oils for biofuel.  Algae are notoriously sensitive creatures and seemed like the perfect target for the company’s water clean-up technology.  OriginClear has a joint venture with Ennesys, a developer of algae production systems in Europe.  Ennesys is using a prototype of OriginClear’s Elecro Water Separation system in a demonstration site for algae growth.

Unfortunately, biofuel production from algae has been slow to achieve scale.  OriginClear has pledged to continue supporting the algae industry, but is moving on to other water treatment applications where customers are already in business.  Adequate supplies of potable water are as critical an issue for the world as low-carbon fuel sources.  The oil and gas sector is under pressure to clean up the water it uses in well drilling.  The aquaculture industry is keen on recycling water used in fish ponds.  

OriginClear has also changed its business model from a pure licensor of its technology to developer and manufacturer of water treatment solutions.  The company plans to jump start its new business approach by acquiring operating companies.  In early October 2015, the company closed its acquisition of Progressive Water Treatment located in Dallas.  Progressive had previously established the relationship with Horizon City and built the reverse osmosis treatment installation.  The Progressive deal is expected to add approximately $7 million in annual revenue to OriginClear’s top-line and post a modest profit in 2016.

Since OriginClear reported only $143,070 in total sales in the last twelve months, the addition of Progressive to the mix should be a boost to OOIL valuation in the coming quarters.  The company needs operating cash flow as well.  OriginClear had used $3.8 million in cash in the last twelve months to support its old business model.  With only $180,700 in cash on the balance sheet at the end of June 2015, the addition of a profitable operation to the mix could be the element that OriginClear has needed.    

With little cash on hand OriginClear issued preferred stock to buy Progressive Water Treatment in a transaction valued at $1.5 million.  The preferred stock is convertible into 333,333 shares of common stock at $0.03 per share.  If Progressive delivers the promised revenue and earnings, the deal could turn out to be the steal of the decade for OriginClear. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  OOIL is included in the Biofuel Group of Crystal Equity Research's Beach Boy Index  of companies using the power of the sun to develop renewable fuel sources.

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